Blockchain Forensics for Beginners: How Investigators Trace Stolen Crypto Across the Network

When the Remitano exchange lost $2.7 million on September 14, 2023, blockchain analytics firm Cyvers Alerts detected the suspicious transactions within hours and raised the alarm. When CoinEx was drained of $55 million, independent investigator ZachXBT traced the stolen funds to the same North Korean-linked wallets used in previous attacks. These investigators did not have special access or insider information — they used blockchain forensics, a set of techniques that anyone can learn to understand how funds move across public ledgers. With Bitcoin at approximately $26,540 and Ethereum at $1,627, understanding how to read blockchain transactions is an essential skill for anyone participating in the cryptocurrency ecosystem.

The Basics

Blockchain forensics is the practice of analyzing public blockchain data to trace, identify, and understand the movement of cryptocurrency. Unlike traditional banking, where transactions are hidden behind institutional walls, most blockchains record every transaction on a public ledger that anyone can read. This transparency is both a feature and a vulnerability — it means that stolen funds can often be tracked, but it also means that anyone can observe your transaction history.

The fundamental unit of blockchain forensics is the transaction. Every cryptocurrency transaction records a sender address, a recipient address, an amount, a timestamp, and sometimes additional data like gas fees or smart contract interactions. By following the chain of transactions from one address to another, investigators can build a map of how funds flow through the ecosystem.

Wallets and addresses are the building blocks of this analysis. A cryptocurrency address is a unique alphanumeric identifier — Bitcoin addresses start with 1, 3, or bc1, while Ethereum addresses begin with 0x followed by 40 hexadecimal characters. Addresses are derived from public keys and are designed to be shared publicly. The matching private key is required to authorize spending from an address, and this private key should never be shared.

Why It Matters

Understanding blockchain forensics matters for several reasons. If you are the victim of a hack or scam, forensic techniques can help you trace where your funds went and potentially assist law enforcement in recovering them. Even if you never become a victim, understanding how transactions are traced helps you make better decisions about privacy and security.

The Remitano hack provides a perfect case study. When the attacker moved 1,359,253 USDT from Remitano’s hot wallet to address 0x74530e81e9f4715c720b6b237f682cd0e298b66c, that transaction was permanently recorded on the Ethereum blockchain. Investigators could then watch as the attacker converted stolen USDC and ANKR to 163 ETH and transferred those funds to HitBTC, a centralized exchange. Because centralized exchanges require identity verification (Know Your Customer procedures), this transfer potentially exposed the attacker’s real identity.

Tether’s decision to freeze $1.4 million in USDT on the attacker’s TRON address demonstrates how blockchain forensics enables rapid response. By tracking the stolen funds in real time, Tether was able to freeze the relevant address before the attacker could move all the proceeds.

Getting Started Guide

Beginners can start exploring blockchain forensics with free, publicly available tools. For Ethereum, Etherscan.io provides a comprehensive interface for searching addresses, transactions, and smart contracts. Enter any Ethereum address and you can see its complete transaction history, current balance, token holdings, and interaction history with decentralized applications.

For Bitcoin, Blockchain.com Explorer and Blockchair offer similar functionality. You can search by address, transaction hash, or block number to trace the movement of BTC across the network. These tools display inputs and outputs for each transaction, allowing you to follow the money trail.

Address clustering is a more advanced technique that groups related addresses together. When a transaction has multiple inputs (funds sent from multiple addresses in a single transaction), those addresses are likely controlled by the same entity. This technique helped investigators link the CoinEx hack to the Lazarus Group — analysis of the receiving addresses revealed patterns consistent with known North Korean operations.

Several professional-grade tools offer enhanced capabilities for serious investigators. Chainalysis and Elliptic provide enterprise blockchain analytics used by exchanges and law enforcement agencies. These platforms use machine learning to identify high-risk addresses, track cross-chain movements, and generate compliance reports. While expensive for individual users, their public reports and research papers offer valuable insights into how forensic techniques are applied in practice.

Common Pitfalls

Novice investigators often make the mistake of assuming that a single address represents a single person or entity. In reality, exchanges use thousands of addresses for operational purposes, and sophisticated attackers distribute stolen funds across hundreds of addresses to complicate tracing efforts. The Remitano attacker, for example, used separate addresses on Ethereum and TRON, moving funds across chains to create additional complexity.

Another common error is confusing correlation with attribution. Just because funds pass through an address does not mean the address owner is the attacker. Funds stolen from CoinEx were partially routed through legitimate DeFi protocols and exchanges, meaning those platforms’ addresses appear in the transaction chain despite having no involvement in the theft.

Privacy coins like Monero and mixing services like Tornado Cash present additional challenges. These tools are designed specifically to obscure transaction trails, making forensic analysis significantly more difficult. Investigators must rely on contextual analysis, timing patterns, and behavioral profiling when the blockchain trail goes cold.

Next Steps

For those interested in going deeper, start by practicing with publicly available tools. Pick a known hack or exploit — the Remitano breach is well-documented — and try to follow the funds yourself using Etherscan. Read the research reports published by blockchain analytics firms, which often provide detailed breakdowns of how major hacks were traced. Consider taking online courses in blockchain forensics, and if you are technically inclined, explore open-source tools like BlockSci and Bitcoin Tracker that allow programmatic analysis of blockchain data. The field is growing rapidly, and the skills are increasingly valuable as the crypto ecosystem matures.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. Always conduct your own research before making any financial decisions.