Forensics on the Public Ledger: How Blockchain Analysis Evolved from a Surveillance Tool into a Key Investigative Weapon for DeFi Fraud and NFT Theft

[Professor]

Blockchain-Based Digital Forensics: New Methods and Tools for Investigating DeFi and NFT Crimes​

Blockchain, conceived as a tool for anonymity, has become the modern cybercriminal's most inconvenient adversary. Its public visibility and immutability make it an ideal, timeless, and detailed archive of criminal activity. Blockchain-based digital forensics in 2026 will no longer simply involve tracking Bitcoin transactions, but a complex science that combines the analysis of smart contracts, metadata, cross-references between networks, and the psychology of Web3 behavior.

1. Asset Tracing: From Footprint to Identity​

Basic principle: Wallet addresses are pseudonymous, but not anonymous. Every transaction leaves an indelible trace.

• Key methods and tools:
  • Clustering (Heuristic & Behavioral Clustering): Algorithms (like those in Chainalysis Reactor, TRM Labs, Elliptic) automatically group addresses belonging to the same entity based on patterns:
    • Common Spend Heuristic: If multiple inputs are spent in a single transaction, they likely belong to the same owner (wallet).
    • Exchange Deposit Analysis: Multiple addresses sending funds to the same exchange wallet (often a known one) are considered to belong to different users of the same exchange.
  • On-chain/Off-chain Correlation:Linking addresses to real-world identities through:
    • KYC exchanges: The most powerful method. Request the exchange's deposit/withdrawal address.
    • Data Leaks and OSINT: Search for addresses published on social media, GitHub, and forum signatures.
    • NFT metadata: Purchasing NFTs through a centralized marketplace (OpenSea) with an email address link. Hacking an OpenSea account provides an email address link.

2. Investigating attacks on DeFi and smart contracts​

Here, forensics moves from analyzing payments to analyzing the logic and consequences of code execution.

• Investigation stages:
  1. Identifying the entry point and exploit:
     • Trigger Transaction Analysis: Which smart contract function was called? With what parameters?
     • Studying internal calls (Internal Transactions): Using explorers (Etherscan) or specialized tools ( Tenderly, OpenZeppelin Defender ), a full execution path (call trace) is reconstructed, showing which contracts interacted and in what order.
  2. Reconstruction of the attack logic:
     • Decompilation and bytecode analysis: If the contract source code is not verified, a decompiler ( Ethervm, Dedoc ) is used.
     • Forking: Creating a copy of the blockchain state before the attack in a local environment (e.g. using Hardhat, Foundry ) and reproducing the attacker's actions step by step to understand the vulnerability.
  3. Tracing the flow of stolen funds:
     • Swap and Exchange Analysis: Where did the attacker send the stolen tokens? Which DEXs (Uniswap, Curve) and liquidity pools did they use?
     • Identifying Cash-Out Points: Determining which centralized exchanges (CEX) or crypto banks (Nexo, Celsius) funds were sent to for conversion to fiat. This is a key point for legal action — freezing and identity requests can be filed.

3. Investigating NFT theft and marketplace fraud​

• NFT Provenance Tracking: Each NFT has a unique ID and transaction history. A forensic analyst tracks:
  • From which wallet was the NFT stolen?
  • To what address was it transferred as a result of a fraudulent transaction (fake signature, phishing).
  • Where it was resold (on which marketplace and for what amount).
• NFT Wash Trading Analysis: Identifying volume and price manipulation schemes by analyzing transactions between linked addresses that trade the same NFTs at inflated prices.

4. Breakthrough Tools and Methods of 2026​

• Mnemonic analysis and transaction stylometry: Studying the attacker's habits : what time of day they operate, how much money they typically withdraw, what tools (DEX, mixers) they prefer. This helps link different attacks to a single group.
• Cross-Chain Analysis: Criminals actively move assets between blockchains (Ethereum → Arbitrum → Polygon → Binance Smart Chain via bridges). Modern tools (Arkham Intelligence, Nansen 2.0) build a single graph of a subject's activity across dozens of networks.
• Predictive modeling and analysis: Based on patterns of past attacks (e.g., preparatory actions before a flash loan attack), systems attempt to predict the attacker's next target or the timing of a withdrawal.
• Metadata and activity analysis in dApps: Viewing not only transactions but also interactions with smart contracts — which dApps a subject uses and which governance votes they participate in — creates a digital profile.

Weaknesses and countermeasures of criminals​

Investigators face active opposition:

1. Crypto mixers and privacy coins: Using Tornado Cash (pre-sanctions), Railgun, or converting to Monero (XMR).
2. Chain Hopping: Fast conversion and movement between multiple blockchains and assets.
3. Use of "Decoy Wallets": Creating multiple wallets to simulate legitimate trading activity around stolen assets.
4. Hacking and exploitation of "Elephant" accounts (Whales): Compromising the wallets of large holders to move stolen funds, making analysis difficult.

Legal and ethical challenges​

• Jurisdiction issue: The attacker, the exchange, and the victim can be located in three different countries.
• Privacy vs. Transparency: Where is the Line Between Investigation and Total Surveillance of All Public Blockchain Users?
• Irreversibility and recovery: Even if the perpetrator is identified, the funds may already have been cashed out or transferred to a non-extradition jurisdiction. Recovering the funds is a rare occurrence.

Conclusion: Blockchain is an investigator's best friend and a criminal's worst nightmare.​

Blockchain-based digital forensics has transformed cybercrime investigation from searching for a needle in a haystack to reconstructing a film from its indelible frames, where each frame has a timestamp and camera ID.

For law enforcement, this means that DeFi and NFT fraud, despite their technical complexity, leaves a clearer and more permanent trace than traditional carding. A successful investigation now depends not on seizing servers (they don't exist), but on the skills of analysts, access to K-exchange data, and international cooperation.

For criminals, this means that every successful attack is the beginning of a race against time, where they must cash out before analysts trace their identity and law enforcement issues a request to the exchange. Anonymity in Web3 is a myth, maintained only until the first serious offense.

Thus, blockchain forensics isn't simply catching up with new types of crimes — it's redefining the very nature of investigation, turning the public ledger into the prosecution's primary witness. The war for Web3 assets is being waged not only in smart contract code but also in the graph databases of analytics firms, where every address is a node and every transaction is potential evidence.