Investigating Cryptocurrencies

CHAPTER 7Contracts and Tokens

This is a short chapter that covers the ability of some cryptocurrencies to encode contracts within a transaction. This feature, especially of contract-based cryptocurrencies such as Ethereum, has led to companies releasing tokens based on the blockchain, which hold the promise of some reward when the business performs well.

An investigator may be faced with blockchain-based contracts that have been involved in some fraud or theft. Initial Coin Offerings (ICOs) may be fraudulent and need investigating.

Contracts

A transaction of money, even on a blockchain, is essentially a contract. For example, if I decide to purchase a lemon drizzle cake (in the café I'm currently sitting in), both sides agree on a swap of a certain value for the drizzle cake. This would be the case with any transaction of goods, services, or generic agreements. Interestingly, a contract can also have a “promise” on one or both sides of the agreement. An example of this would be a marriage contract. Although goods and services are not traded, marriage is essentially a contract with an embedded promise in the vows and marriage certificate.

Bitcoin

Bitcoin and its derivative cryptocurrencies carry the ability to embed small amounts of data, whether code or text, to act as a contract. Bitcoin's ability to have multi-signature transactions means that both parties can sign the transaction, and it's then on the blockchain forever. Of course, this process is not without cost, because ...