The operators of the pornography industry are widely using cryptocurrency for illegal activities. Recently, Taiwanese male artist Huang Zijiao was exposed to have possessed underage pornographic images from "Creative Private Room," sparking widespread discussion. The man, nicknamed "Lao Ma," operated a forum in 2012 and sold videos that involved minors being secretly filmed. It is reported that the website had over 200,000 illegal videos of minors and supported members to make purchases using cryptocurrency, with over 5,000 members including tech elites, doctors, and teachers.

This article aims to analyze the use of encrypted funds behind the incident and disclose the online risks involved.

Analysis of Creative Private Room Addresses

While encrypted funds provide a certain level of anonymity, they are not entirely untraceable. Bitrace conducts on-chain analysis to transform transaction records and anonymous addresses into valid information, enabling visual tracking that makes connections between points and lines clear and visible.

Through the Creative Private Room forum and public information, we obtained the following addresses used for illegal image transactions:

• TA2G85LLXqtbcMwwZUKn4gDdQ9EkoHRp8V (currently in use)
• TJxBDgdAmD1NPy6ih4E6RBM4YQWZRACakZ
• TPbRDKYYi5qT3Ayutw6NV31bvNX9zGivZx
• TUQbf1PgWvxKethbrYLFY842UL6Z41RiKC

According to Bitrace's statistics, these 4 Creative Private Room wallets had a total fund flow of 3.582 million USDT between November 30, 2021, and April 10, 2024. Analyzing the condition mentioned in the post "for confirmation, please transfer 248.98 or 250.01 or other amounts with decimals," we found that the address ending in "8V" received a total of 341 transfers, "kZ" received 1439 transfers, "Zx" received 815 transfers, and "KC" received 401 transfers.

It is evident that the criminal group behind Creative Private Room continuously evades tracking by changing receiving addresses and creating new posts, but there is still ongoing anonymous traffic and a large volume of transaction settlements.

The user identity information held by exchanges can identify the illegal group behind Creative Private Room. During on-chain analysis, once funds flow into centralized exchanges, we can use models to label on-chain addresses and share information with exchanges to mark risky entities, providing a practical basis for on-chain tracking in the Web3 world.

By screening transaction flows, we identified 5 addresses that received over 20,000 USDT from Creative Private Room, with the highest reaching 67,700 USDT. These addresses are highly likely to belong to the actual beneficiaries of selling child sexual exploitation images. Further tracking revealed that these 5 suspected profit addresses are associated with centralized exchanges such as Binance, MaiCoin, and Bingbon, indicating that these institutions have unfortunately become targets for use by criminal groups.

Trends in the Application of Cryptocurrency in CSAM

Undoubtedly, privacy in the cryptocurrency field is important, but when it comes to illicit funds, identifying the entities behind the addresses becomes crucial. While many countries are beginning to enact regulations to prevent the use of cryptocurrency in illegal areas such as CSAM, the relevant laws and regulations are far from as mature as those in traditional payment fields.

In the traditional payment field, CSAM transactions typically involve bank accounts or other financial institutions, which have detailed records and are easily traceable and monitored by law enforcement agencies. However, cryptocurrency provides a certain level of anonymity for CSAM transactions, especially through the use of privacy-enhancing technologies that make it difficult to trace the entities behind the transactions—

The application of cryptocurrency in CSAM not only reduces the risk for the purchasing group of CSAM (using cryptocurrency mixers and ATMs to hide payments to CSAM suppliers) but also provides a convenient way for CSAM providers to launder and cash in illegal profits from cryptocurrency sales (using peer-to-peer cryptocurrency exchanges to convert the cryptocurrency earnings from CSAM sales into fiat currency). This has led to an increasing number of criminals in CSAM turning to convertible cryptocurrencies to hide their illegal transactions and avoid detection by law enforcement agencies.

According to data from the Internet Watch Foundation (IWF) in the UK, the number of websites offering cryptocurrency payments for child sexual abuse images has almost doubled every year. Among the 250,000 websites containing child sexual abuse discovered by the IWF in 2021, 1014 websites provided criminals with the option to access or purchase videos and images of children being sexually abused and raped using virtual currency.

Source: Internet Watch Foundation

According to a report from the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN), between 2020 and 2021, thousands of suspicious activity reports involving Bitcoin were submitted by financial institutions, many of which were related to online child sexual exploitation and human trafficking crimes. What is even more shocking is that 95% of these reports specifically mentioned transactions related to child sexual exploitation material (CSAM), and over 1800 unique Bitcoin wallet addresses were suspected to be associated with CSAM and human trafficking activities.

These data not only expose the prevalence of cryptocurrency in child sexual exploitation crimes but also highlight the challenges that regulatory agencies face in combating such criminal activities.

Conclusion

As a major innovation in financial technology, cryptocurrency's anonymity and decentralization have brought convenience to the global economy but have also, to a certain extent, facilitated illicit activities.

Bitrace believes that industry members actively using professional knowledge and technical tools to identify associated funds related to these risky activities is an important weapon in resisting these risks, including but not limited to: strengthening awareness of fund risk control, fulfilling responsibilities for monitoring and managing customer abnormal transactions (KYT), promptly reporting irregular transactions and risk situations; actively cooperating with local law enforcement agencies and accessing threat intelligence services provided by security vendors; and individuals should also take active action to report suspicious activities.

References

• CASSIDY, WARREN DEMAND DOJ, DHS STOP CRYPTO USE IN ILLEGAL TRADE OF CHILD SEXUAL ABUSE MATERIAL
• Websites offering cryptocurrency payment for child sexual abuse images ‘doubling every year’
• Use of Convertible Virtual Currency for Suspected Online Child Sexual Exploitation and Human Trafficking: Threat Pattern & Trend Information, January 2020 to December 2021

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