The round was led by Morgan Creek Digital, a venture fund focused on blockchain technology, including cryptocurrency and related tools. Also joining the round was Avon Ventures, a venture capital subsidiary of Devonshire Investors, the private equity arm of Fidelity Investments’ parent company. Fidelity has become one of the first mainstream Wall Street brokerage and investing firms to offer cryptocurrency services.

Other participating funds include Stage 1 Ventures and Robot Ventures.

Elementus is part of a new field known as blockchain analytics, based on a widely-misunderstood aspect of cryptocurrency and the blockchain technology underlying it. Early media coverage of Bitcoin, the first and most valuable cryptocurrency, often characterized the system as anonymous or private. But all Bitcoin transactions are in fact permanently recorded and publicly-viewable, and the same is true of many other systems and currencies inspired by Bitcoin.

User funds on these blockchains are stored publicly as character strings similar to bank account numbers, with no real names attached. But the identity of the entity controlling an address can often be discovered through determined investigation, and suspicious activity on a blockchain can be identified by tracking transaction patterns.

One recent example of blockchain analytics in action was the flurry of investigations into QuadrigaCX, a Canadian cryptocurrency exchange that collapsed early this year. Analysis of public blockchain data revealed that QuadrigaCX user funds were sent to other crypto exchanges, possibly suggesting an attempt to liquidate them and disappear with the money – a so-called ‘exit scam.’

But in many cases, the customers for blockchain analytics are cryptocurrency exchanges themselves, which must safeguards themselves against illicit activity to maintain stable relationships with traditional banks. Despite the cooling of crypt-mania since its peak at the end of 2017, exchanges remain robust businesses. American exchange Coinbase, for example, had an estimated $520 million in revenue in 2018, while the less-regulated global exchange Binance reaped an estimated $446 million in profit the same year.

Law enforcement agencies also frequently retain blockchain analytics firms for help investigating crimes such as ransomware attacks, which often involve ransom in cryptocurrency. Elementus cofounder Mike Kalomeni says Elementus is currently working with law enforcement clients, and hopes to expand to servicing government agencies and financial institutions.

A number of other firms compete in the blockchain analytics space, and several are further along than Elementus. They include Elliptic, which closed a $23 million Series B funding round this month; CipherTrace, which closed $15 million in new funding in February; and Chainalysis, which closed a $36 million Series B round, also in February.

Kalomeni claims that his company’s technology, which uses machine learning, gives it an edge over the competition. “We came up with algorithms that let us know exactly the provenance of the funds, to an infinite number of [transaction] hops, automatically.”

The involvement of Avon Ventures in funding Elementus is notable thanks to its links (albeit indirect) to Fidelity Investments, which has taken a leading role in expanding cryptocurrency services. In October 2018, Fidelity created a new entity, Fidelity Digital Assets, to offer cryptocurrency trading and custody services to large customers, making it the first Wall Street incumbent to do so. The service went live in March.

Blockchain analysis is somewhat controversial among cryptocurrency advocates, who are often also strong advocates for digital privacy. In February, those anxieties were brought to a head when cryptocurrency exchange Coinbase acquired blockchain analytics firm Neutrino. The company’s executives had previously run a firm implicated in the tracking, targeting, and harassment of journalists and pro-democracy activists on behalf of authoritarian regimes. The subsequent backlash prompted Coinbase to promise that Neutrino’s leaders would leave the company.