[(OR) -** We're glad to have you join us today. This is our second episode of the Enforcement and Asset Recovery podcast at Deminor. We’re delighted to welcome Henry Burrows from Hoptrail. Henry, it would be great to hear more about your firm. Could you introduce yourself and give us some initial insights?HB -** Thanks very much, Ollie. It’s great to be on your podcast. I’m the CEO and founder of Hoptrail. We’re a UK-based blockchain analytics company, and we started the business three years ago. Our main focus is on source of funds and source of wealth analytics. Essentially, we use blockchain data to help clients understand where money originates on the blockchain, the associated risks, and who the counterparties are. We piece together that puzzle within the ecosystem for them.
Because of that, we work mainly with traditional, regulated services—banks, law firms, trusts, and professional services firms. But due to the business we’ve built and the products we offer, we also find ourselves involved in asset tracing, investigations, and crypto-related dispute work. Here, we use our tools and techniques to help clients navigate complex issues or get to the bottom of complicated litigation. Hopefully, that gives you a brief but clear sense of what we do.OR - **Thanks, Henry. That’s super interesting. You mentioned setting up the firm a few years ago, and it sounds like it’s been a busy year for you, which isn’t surprising. Where have you seen most of your work coming from? Is it primarily crypto-related litigation or arbitration? Have you noticed a rise in arbitration, and has that impacted you?HB - **Yes, for us, the core service has always been source of wealth work—understanding where the money comes from. Our main clients are banks, and we have a product we call on-chain onboarding. This helps banks onboard customers by assessing the legitimacy and provenance of crypto assets. That’s always been our focus.This year, though, we’ve seen a massive increase in investigations. I’m not sure what to attribute this to entirely. Part of it may be that more people are hearing about Hoptrail. Often, they come to us in an emergency and need a quick solution, and we offer flexibility and rapid response. Another factor is simply the growth of the crypto ecosystem. Over half a billion people now hold crypto, and most of them are in their 20s and 30s, with many making substantial amounts of money. So, when things go wrong or money goes missing, it’s logical they would reach out to firms like ours to recover it.OR - Brilliant. Stepping back a bit, at Deminor’s Enforcement and Asset Recovery team, we’re seeing more cases involving unconventional assets. Traditional assets like real estate or corporate interests aren’t always available, but we might discover some information in the public domain, or the client may hint that the defendant has wealth tied up in crypto. It still feels relatively unregulated, to the point where I’ve spoken with a digital asset recovery specialist who has connections in the field. This person can sometimes directly contact an exchange operator to identify and, if possible, freeze assets, all within legal boundaries. That’s a game-changer for people who fear there’s no chance of recovering lost crypto.HB - Oh, yeah, there’s a lot to unpack here because it’s such a fast-moving space with so many possibilities. I believe it’s actually easier to trace assets in the crypto world than in the real world. Tracking down property or other high-value assets around the globe is time-consuming, costly, and not always successful. You may end up spending a lot without much progress. In crypto, it’s a different story because every transaction—let’s take Bitcoin as an example—is recorded on a public ledger for everyone to see. Every single transaction, including all past thefts, scams, and hacks, is out there for analysis. It’s just a matter of obtaining the data and knowing how to analyse it to trace stolen assets. So, thanks to this transparency, it’s relatively easy to locate stolen assets on the blockchain.
Recovery, as you mentioned, is the much harder part. I don’t have specific numbers, but I think the percentage of recovered assets in the real world is low. In crypto, it’s gradually improving since we can identify where the assets are more quickly. Then it becomes a question of, “Right, how do we recover these funds?” This is almost like a separate phase because the first step is gathering enough intelligence to trace the assets or identify which wallets are controlled by specific individuals or entities. In our field, that means using a platform with algorithms, heuristics, wallet tagging, and tracing capabilities.****At the same time, we layer in any attribution we can. At Hoptrail, we have 350 to 400 million tagged wallets, so at some point in the chain, we’re looking to see if the assets have reached a centralised exchange or a known virtual asset service provider, like Coinbase, Binance, Kraken, or Bitstamp. If they have, we can approach them and request that they freeze the funds. More often, they’ll also ask if you have a court order to freeze the funds. We recently encountered this with a large exchange. They acknowledged the funds were present, but requested a court order to freeze them. Obtaining a court order can take weeks, is costly, and involves explaining all the evidence to a barrister, providing witness statements, and appearing in court to secure the freezing order. Then you can return to the exchange and, hopefully, they will comply once you meet all requirements.If the assets have been moved offshore, that adds even more complexity, as you then have to navigate other jurisdictions. All of these factors make the process of recovering funds quite difficult.OR - **What I’m hearing is that it can be a very complex process, often fraught with risks. Full recovery isn’t always guaranteed, and sometimes even partial recovery isn’t possible. Still, it seems somewhat reassuring that we are catching up with fraudsters. There are increasing mechanisms that we, as investigators, law firms, and clients, can leverage in the hope of recovering some assets.HB - **Yes, to some extent. Although I would say that fraudsters are often a step ahead. They tend to execute complex transactions, particularly with Ethereum. They won’t simply take stolen assets and deposit them straight into an exchange—unless they’re really careless—because that would make tracing too easy. Instead, they’ll carry out numerous complex transactions. They might swap into other assets through decentralised exchanges or transfer to other blockchains via bridging. It’s a challenging game of cat and mouse. Even with the ability to trace, clients often lose all their funds, so they don’t have much to pursue these bad actors with or cover the resources needed to see it through to the end. That’s one of the biggest issues.
I think we’ll touch later on some emerging solutions in the market, but there are definitely hurdles. We’re getting better, though. There are barristers and judges out there who understand crypto and support what we’re trying to achieve through the courts, but it remains a slow process.OR - Lastly, Henry, where do you see the future of crypto, crypto analytics, and investigations? I’ve seen discussions recently about Michael Saylor, founder of MicroStrategy, potentially transforming his company into a Bitcoin bank. That would presumably mean a lot more work for firms like yours in areas like onboarding and source-of-wealth analysis. What’s your view on where we’re heading?HB - On the Saylor issue, I think it’s because his business balance sheet is now almost entirely Bitcoin. He’s still selling some software, but at this stage, he might as well turn it into a Bitcoin-only company. It makes sense, especially if you view crypto as a new financial system, as many in our field do. It’s a way to transact and engage with financial tools without needing a third-party intermediary like a bank. You can lend, earn, and borrow on-chain without involving banks like Barclays or HSBC.This complexity is where we see a lot of the stolen funds, hacks, and exploits. Regarding the future of crypto, I’d say this: There are now about half a billion people globally holding crypto, and that number has grown quickly over the last two years. Around 30-40% of that group are in their 20s and 30s. Over time, more people holding digital assets will age, and this half-billion figure is likely to grow to a billion or more, especially in regions like South America, Africa, and the Middle East. In some areas, not only are people using crypto, but many are making substantial amounts of money from it. During the 2021 bull run, I heard anecdotally that 1,000 to 2,000 new millionaires were created daily. And in the recent bull run of late ’23 to early ’24, the figure was about a thousand a day.The same applies to tracing and investigations. Because it’s tech-heavy, we have to collaborate with those who understand the field and have the platforms to scale, automate, and speed up the process—it’s a race against time. When assets are stolen, the bad actors know they need to be faster than anyone tracing them. For example, when an exchange is hacked, they’ll usually announce it on Twitter and share the address where the stolen assets were sent. Everyone is watching the blockchain, but if the thieves are quick, they can cash out before anyone catches on. To see the post on Deminor's website, please visit: https://www.deminor.com/en/news-insights/crypto-asset-recovery-tracing-wealth-and-blockchain-analytics/ To find out more about Deminor, please visit https://www.deminor.com/