Block Audit Tracing Standard - Complete Documentation & Training Materials
Standardized Documentation = Reproducible Results
Any investigator following the B.A.T.S. methodology will arrive at the same conclusions, creating legally defensible evidence that withstands scrutiny and enables successful asset forfeiture.
The Block Audit Tracing Standard (B.A.T.S.) is a revolutionary framework for cryptocurrency investigation that transforms blockchain analysis from an art into a science. It provides the mathematical certainty required for successful asset forfeiture cases.
Every satoshi, wei, or cent is accounted for with mathematical validation at each step.
Consistent methodology ensures any investigator reaches the same conclusions.
Meets stringent court requirements for criminal asset forfeiture proceedings.
Prevents investigation creep by maintaining focus on traced funds only.
The power of B.A.T.S. lies in its mathematical graph structure that creates an unbreakable chain of evidence. This visual representation shows how investigations maintain the golden thread from victims to terminal wallets.
We are developing an interactive flow diagram that will demonstrate the BATS principles in action. This visualization will show how funds flow from victims through various wallet types while maintaining the mathematical integrity of the investigation.
By treating cryptocurrency flows as a mathematical graph, B.A.T.S. transforms subjective blockchain analysis into objective, court-ready evidence. The graph structure ensures that every investigative decision is documented, every fund movement is tracked, and the complete flow from victim to criminal is mathematically proven.
Document all victim losses to create your mathematical baseline. This becomes your Adjusted Root Total (ART) after any justified write-offs.
Assign unique identifiers to every transaction maintaining clear lineage from victims.
Assign permanent colors based on wallet function, not ownership assumptions.
Ensure all thread totals at each hop level sum to your ART. This mathematical validation proves completeness.
Identify where funds reach exchanges (PURPLE) or cold storage (BLUE) for legal process or monitoring.
| Level | Purpose | Key Activities | Typical Duration |
|---|---|---|---|
| B.A.T.S. 1 - Discovery | Quick case assessment & lead generation | Identify victims, assess scope, determine viability | Hours |
| B.A.T.S. 2 - Intelligence | Criminal network mapping | Create RED wallet index, identify criminal infrastructure | Days |
| B.A.T.S. 3 - Case Prep | Court-ready evidence with V-T notation | Build prosecution case, legal process preparation | Weeks |
| B.A.T.S. 4 - Asset Forfeiture | Mathematical precision with V-T-H notation | Support seizure/forfeiture with hop counting | Weeks to months |
| Notation | Meaning | Context |
|---|---|---|
V1-T1 |
First victim's first transaction | At the RED (victim-facing) wallet |
V1-T1-H1 |
One hop away from victim | First movement after RED wallet |
V2-T3-H5 |
Second victim's third transaction, five hops away | Deep in the money trail |
V1,2,3-T1-H3 |
Convergence of multiple victims | Funds have combined |
B.A.T.S. uses a standardized color system to classify wallets based on their function in the money trail:
Definition: Victim-facing wallets
Rule: The first wallet to receive stolen funds where criminal acts are initiated
Significance: Starting point for all hop counting
Example: Scammer's receiving address, phishing wallet, hack destination
Definition: Dividend and deception operations
Rule: Where fake returns are sent to victims in investment scams
Significance: Provides undeniable proof of criminal intent and implicates all BLACK wallets between PINK and RED as part of the criminal network
Example: Ponzi scheme dividend payments, fake profit distributions
Definition: Hub wallets where multiple victim traces converge
Rule: Where multiple trace paths arrive and subsequently move out together
Significance: Proves common criminal control and links separate criminal operations
Example: Criminal consolidation wallet, money laundering hub
Definition: Bitcoin change addresses
Rule: Change outputs from Bitcoin transactions using UTXO model
Significance: Essential for UTXO tracing and maintaining accurate fund tracking
Example: Bitcoin transaction change returning to sender
Definition: Asset conversion services
Rule: Wallets facilitating currency or asset swaps
Significance: Marks transition points between different cryptocurrencies
Example: DEX router addresses, swap service wallets, instant exchangers
Definition: Default intermediary with no direct victim exposure
Rule: Default classification for all intermediary wallets not fitting other categories
Significance: Standard pass-through addresses in the laundering chain
Example: Mixer output addresses, tumbler wallets, layering addresses
Definition: Cold storage wallets
Rule: Long-term holding addresses with minimal transaction activity
Significance: Indicates criminal savings or reserve funds
Example: Hardware wallet addresses, paper wallets, dormant addresses
Definition: Exchange deposit addresses
Rule: Known VASP/exchange wallets where on-chain trail terminates
Significance: Requires legal process to continue tracing
Example: Binance deposit, Coinbase wallet, Kraken address
Definition: Obfuscated or diluted funds
Rule: Wallets where tracing becomes impractical or impossible
Significance: Often results in write-offs due to privacy enhancement
Example: Mixer deposits, privacy coin conversions, coinjoin participants
Definition: Victim-owned recovery addresses
Rule: Legitimate addresses controlled by victims for fund recovery
Significance: Marks successful recovery or restitution
Example: Victim's personal wallet receiving recovered funds
The unbroken connection between a victim's original funds and any assets ultimately seized by law enforcement. This principle is essential for proving in court that specific seized cryptocurrency originated from criminal activity.
The principle that when traced funds enter a wallet, the very next outbound transaction contains those funds, applied chronologically. Important: PIFO is fundamentally different from FIFO (First In First Out) inventory accounting - the practice of following 'dirty' funds does not reset upon each subsequent deposit to the wallet. PIFO is grounded in its own specific case law, not inventory accounting methods.
The golden thread breaks if you cannot mathematically prove the connection. Common breaks: mixers, privacy coins, or poor documentation. Document these as write-offs.
While B.A.T.S. provides a standardized framework, cryptocurrency investigations often require professional judgment based on training and experience. The framework ensures these decisions are well-documented and defensible.
PIFO vs. LIBR: While PIFO is the default method, investigators may choose LIBR (Lowest Intermediate Balance Rule) when seeking to arrest the flow of assets and maintain them in as few wallets as possible, as close to the RED wallet as possible.
Key: Document why you chose your method and maintain consistency throughout the investigation.
When multiple traces converge, determining exact proportions may require judgment.
Key: Show your mathematical reasoning.
Determining when to abandon a trace path requires balancing resources vs. recovery potential.
Key: Justify with clear thresholds.
Edge cases may require judgment in color assignment based on wallet behavior.
Key: Document observed patterns.
Two trained B.A.T.S. investigators may reach different conclusions on complex cases. This is acceptable and expected. What matters is that each investigator can clearly articulate their decision-making process and demonstrate the mathematical certainty of their traced paths.
Traditional asset tracing principle that tracks the lowest balance point in an account to determine maximum traceable amounts. Has the effect of holding traceable assets to fewer hops, keeping them closer to the RED wallet.
When to use: When the investigator seeks to arrest the flow of assets for stablecoin burn and reissue, or when they may obtain private keys or wallet access through suspect cooperation or compelled assistance.
Warning: Requires extensive documentation and manual balance analysis.
When multiple trace paths converge at the same wallet and move out together, apply the highest hop count among all converging paths, plus one for the outbound transaction.
Example: If V1-T1-H3 and V2-T1-H5 converge at a YELLOW wallet, the output is at H6 (highest input + 1).
Applied only at terminal points (PURPLE exchanges) to identify additional victims. Never apply during active tracing to prevent scope creep.
Purpose: Victim discovery at investigation endpoints.
Caution: Improper application can exponentially expand investigation scope.
Bitcoin's Unspent Transaction Output (UTXO) model requires special attention:
Essential terminology for B.A.T.S. practitioners, organized alphabetically:
| Term | Definition |
|---|---|
| Adjusted Root Total (ART) | The root minus any documented write-offs. This becomes the accounting baseline that all threads must sum to at each hop level for mathematical validation. |
| Back Tracing | The investigative technique of working backward from known criminal infrastructure or terminal wallets to identify additional victims or funding sources. When performed during Level 3 or 4 investigations, back tracing functions as Level 1 discovery. |
| B.A.T.S. | Block Audit Tracing Standard - A standardized framework for cryptocurrency investigation that maintains the golden thread of traceability required for successful asset forfeiture cases through systematic color classification, hierarchical notation, and accounting validation. |
| Cluster Analysis | Examines relationships and patterns across multiple addresses without focusing on specific transaction flows, identifying relationships through behavioral patterns revealing common ownership. |
| Commingling | When traced criminal proceeds mix with existing wallet balances or other fund sources, requiring careful application of PIFO principles to maintain the golden thread. Courts have established that commingling does not cleanse tainted funds. |
| Convergence | When multiple trace paths arrive at the same wallet and subsequently move out together as a single transaction. Requires application of the Sequential Hop Rule. |
| Exchange Deposit Addresses | Wallets where the on-chain trail terminates and legal process becomes necessary to continue tracing. Classified as PURPLE wallets in B.A.T.S. |
| Golden Thread | The unbroken connection between a victim's original funds and any assets ultimately seized by law enforcement, essential for proving direct traceability in asset forfeiture cases. This principle aligns with judicial standards that examine direct connections between assets and criminal activity. |
| High-Risk Customer | A customer or wallet identified through risk assessment procedures as presenting elevated money laundering or terrorist financing risk based on factors such as transaction patterns, geographic exposure, or business type. |
| Hop Count | The measurement of distance from the victim-facing wallet rather than chronological discovery order. Each blockchain transaction increments the hop count by one. |
| Hub Wallets | Wallets where multiple victim traces converge, proving common criminal control. Classified as YELLOW wallets and crucial for linking separate criminal operations. |
| LIBR Method | Lowest Intermediate Balance Rule - Traditional asset tracing principle applicable to cryptocurrency investigations that tracks the lowest balance point in an account to determine maximum traceable amounts. Has the effect of holding traceable assets to fewer hops. Used when investigators seek to arrest the flow of assets and maintain them in as few wallets as possible, as close to the RED wallet as possible, which may be useful if stablecoin burn and reissue is the goal or if they are able through their investigation to obtain private keys or access to private wallets through suspect cooperation or compelled assistance. |
| Matching Transactions Principle (MTP) | An exception to strict PIFO methodology when outgoing transactions precisely match incoming thread totals in amount and occur in close temporal proximity. |
| Off-Ramping | The process by which criminals convert cryptocurrency to fiat currency or other assets, typically through exchanges. |
| On-Ramping | The process by which stolen funds initially enter the criminal cryptocurrency infrastructure. |
| PIFO Method | Proceeds In First Out - The principle that when traced funds enter a wallet, the very next outbound transaction contains those funds, applied chronologically. This method is often mischaracterized as first-in-first-out, but PIFO works fundamentally different as the practice of following "dirty" funds does not reset upon each subsequent deposit to the wallet, and PIFO is grounded in its own specific case law; not inventory accounting methods. |
| Red Wallet Index | The formal inventory of all victim-facing wallets (RED wallets) identified in an investigation, with each assigned a permanent identifier (R1, R2, R3, etc.). |
| Root | The original amount of a victim's transaction that forms the baseline for all subsequent tracing. |
| Root Validation | The mathematical verification process ensuring that all thread totals at any given hop level sum to the adjusted root total, providing proof of investigation completeness and preventing scope creep. |
| Sequential Hop Rule | The rule for handling convergence by applying the highest hop count among all converging paths, plus one for the outbound transaction. |
| Thread | The specific amount being traced through a particular transaction path at any given hop level. |
| Thread Exposure | The percentage of a wallet's total balance comprised of traced criminal proceeds. |
| Travel Rule | Regulatory requirement mandating that VASPs collect and transmit specific originator and beneficiary information for cryptocurrency transfers exceeding designated thresholds. |
| Universal Wallet Index (UWI) | A comprehensive index of all wallets involved in the money laundering process. |
| V-T Notation | The standardized identification system used in B.A.T.S. Level 3 where V represents victim number, T represents transaction number. |
| V-T-H Notation | The standardized identification system where V represents victim number, T represents transaction number, and H represents hop count from the victim-facing wallet. |
| Victim Facing Wallets | The first wallets to receive stolen funds where criminal acts are initiated. Classified as RED wallets and serving as the starting point for all hop counting. |
| Write-off | Documented abandonment of trace paths for practical reasons including dust amounts, dilution, obfuscation, or operational constraints. |
B.A.T.S. (Block Audit Tracing Standard) is a revolutionary framework for cryptocurrency investigation that maintains the "golden thread" of traceability required for successful asset forfeiture cases. It provides a standardized methodology for documenting investigative decisions with clarity and mathematical precision.
Traditional blockchain analysis tools often fail to maintain the mathematical precision required for asset forfeiture. B.A.T.S. addresses this gap by:
Root Validation is the mathematical verification process ensuring that all thread totals at any given hop level sum to the adjusted root total. This provides proof of investigation completeness and prevents scope creep.
B.A.T.S. recognizes practical investigation limitations through systematic write-offs:
When multiple trace paths converge at the same wallet and move out together, apply the highest hop count among all converging paths, plus one for the outbound transaction.
Not necessarily. B.A.T.S. provides a standardized framework, but complex investigations often require judgment calls based on training and experience. Different investigators may make different decisions regarding transaction attribution (PIFO vs. LIBR), convergence handling, or write-off thresholds. What's crucial is that B.A.T.S. ensures every investigator can clearly document and defend their decision-making process with mathematical certainty.
B.A.T.S. provides:
B.A.T.S. emphasizes proportionality to suspected criminal activity, scope discipline to avoid unnecessary exposure, and professional standards equivalent to traditional financial investigations.
The Block Audit Tracing Standard (B.A.T.S.) transforms cryptocurrency investigation from an art into a science, providing mathematical certainty where previously only probability existed.
B.A.T.S. represents more than a methodology—it's a transformation in how cryptocurrency investigations deliver value. By providing mathematical certainty, operational efficiency, and legal reliability, B.A.T.S. enables investigators to achieve outcomes previously thought impossible in the complex world of blockchain forensics.
B.A.T.S. Framework Training Materials