A startup that helps police track criminals using bitcoin just raised $5 million
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Elliptic, which was founded in London but also has offices in New York, uses machine learning and graph analysis to analyse bitcoin's blockchain - the decentralized ledger of transactions that underpins the network.
The company's technology is used to identify suspicious transactions and trace holders of bitcoin.
Dr James Smith, CEO and co-founder of Elliptic, told Business Insider that the company currently had two main groups of customers. The first are "companies that transact a lot using bitcoin - the exchanges and payment processors of bitcoin.
"And then the other group of customers are law enforcement agencies. The most active ones are the large law enforcement agencies in the US, but also the UK and Europe."
Dr Smith did not name specific agencies that use Elliptic's products. But he said: "For the law enforcement agencies it's more of a forensic part product. They might have seized a laptop or a phone or gone and done some hand-to-hands in the street and they need to follow some bitcoins.
"For them, it's a product that helps them trace money through the networks and find their way to regulated entities from whom they can go and get personally identifiable information. For example, you want to trace some money and want to figure out which exchange it ended up on so you can go to that exchange and say, 'Hey, which customer bought this? I think we need to arrest him.'"
The most high-profile criminal case involving bitcoin to date was the arrest and sentencing of Ross William Ulbricht, the founder of illicit online marketplace Silk Road, which used bitcoin as its currency. Ulbricht was sentenced to life in prison.
Dr Smith says the $5 million will be spent on hiring and exploring new product areas. He says: "It applies very easily across other blockchains but we think this is potentially interesting across payments more generally. We think these are quite advanced techniques for identifying money laundering."
Washington-based Paladin Capital, a little-known VC firm over here in the UK, led the investment round in Elliptic. Dr Smith says the company was introduced to Paladin by a customer.
He adds: "They've got a great advisory board, they've got a lot of people who are ex-NSA or FBI or DEA or whatever, which is great as we come to understand that a bit more." Paladin's managing director is a retired Lieutenant General.
Santander InnoVentures, the fintech venture capital fund of the Spanish bank, also took part in the funding round. Dr Smith says: "Santander are great because they give us this view as to where we're going next with blockchain, how it affects wider financial markets, and how they view it. That's great for our longer-term strategy."
Existing investors Octopus Ventures also took part in Elliptic's Series A funding round, as did KRW Schindler and the Digital Currency Group.