According to a May 21 report by Bitcoin.com News, Italy’s Guardia di Finanza Economic and Financial Police Unit, together with Rome’s Privacy Protection and Technical Fraud Special Unit, tracked a suspect who obtained more than 1 million euros (about 1.16 million Dollars) in unreported cryptocurrency-related proceeds through Bitcoin Ordinals transactions; the suspect is also charged with illegally receiving public fiscal aid.
Investigation Methodology: From Ledger Wallets to KYC Identity Verification
Chainalysis said that modern hardware wallets automatically generate multiple receiving addresses, distributing transaction history across Bitcoin’s UTXO (unspent transaction output) model. Investigators used an “ownership heuristic” approach to group dispersed addresses into wallet clusters, isolating the fund flows suspected to be related to tax violations.
The second key step in the investigation is linking on-chain activity to KYC records from licensed CEXs. Through requests for judicial disclosure, authorities obtained “know your customer” documents for accounts at exchanges that had interacted with the tracked wallets, pairing anonymous blockchain transactions with verified individuals. Chainalysis said that KYC identity data was the key basis in this case for attributing on-chain behavior to a specific person.
Ordinals Transaction Loop: A Persistent Profit Pattern Identified via On-Chain Analysis
On-chain analysis revealed a recurring transaction loop: satoshis are transferred to an inscription service; after completing the inscription, the digital assets are listed for trading on the market; Bitcoin proceeds flow back to the main wallet cluster; the main wallet cluster then initiates the next round of purchases and inscription operations. Investigators concluded that what initially appeared to be dispersed transaction flows was, in fact, a persistent profit pattern tied to Ordinals transactions—early trading profits were repeatedly used to fund subsequent activities, eventually accumulating profits exceeding 1 million euros.
Bitcoin Ordinals technology allows a single satoshi to be inscribed directly on the Bitcoin blockchain; BRC-20 tokens use the same structure to create and transfer interchangeable assets via text-based inscriptions, with all transaction records permanently stored on the Bitcoin chain.
Chainalysis Technical Notes: Lessons from a Case Study in Tracing On-Chain Wealth
In its case write-up, Chainalysis quoted: “No matter how complicated a scheme looks, its underlying technology leaves permanent, tamper-proof traces.” Another quoted passage states: “As new categories of digital assets keep emerging and generating streams of income, the gap between actual on-chain wealth and reported tax situations will become a primary target for follow-up.” Chainalysis positioned this case as an example of how blockchain analysis technology can trace from hardware wallets to regulated trading platforms, emphasizing that the technique has expanded to analyzing emerging token systems and complex transaction structures on the Bitcoin network.
FAQ
What was the starting point of this Italian investigation?
The starting point was that authorities, during a search operation, seized a Ledger hardware wallet, and then conducted a systematic review of all associated transaction activity. After analysts found repeated Bitcoin Ordinals and BRC-20 asset activity, the scope of the investigation was formally expanded, with Chainalysis providing technical support for on-chain analysis.
What role did KYC records play in this tax investigation?
After investigators grouped the on-chain addresses, they made requests for judicial disclosure to a centralized cryptocurrency exchange that had traded with the tracked wallets, obtaining the relevant accounts’ KYC documents. These records link anonymous on-chain transaction activity to specific verified individuals and are a key basis for the case determination.
Why can Bitcoin Ordinals and BRC-20 assets be tracked by on-chain analysis?
All inscription and trading activities of Bitcoin Ordinals and BRC-20 are directly recorded on the Bitcoin blockchain, creating an immutable public transaction history. Chainalysis noted that even as transaction methods and wallet structures become increasingly complex, these assets still leave traceable permanent records, enabling on-chain analysis tools to reconstruct the complete flow of funds.
