yes and no.
all transactions are public
Almost a billion transactions have already been made, and anyone can see any of them on a block explorer.
Reading: Bitcoin traceable cash
all users are pseudonyms
nothing links a user to a transaction except a bitcoin address, a cryptographically generated string that looks like this:
Users can share this address with others to receive bitcoins, or they can use the private key associated with it to send some. this works as the user’s alias.
the block chain is transparent, but difficult to read
Consider the following bitcoin transaction:
When it was confirmed, a lot of details were made public automatically:
- the transaction hash (txid). the 32-byte hash that uniquely identifies the transaction.
- the shipping address. the pseudonymous entity that sent the btc.
- the receiving address. the pseudonymous entity that received the btc.
- the exchange address. the unspent btc that was returned to the sending entity at a newly created address.
- the unix timestamp. the record of when the block, the collection of transactions that included the previous one, was confirmed and added to the blockchain. (time between the start of the transaction and the confirmation of the block: from 5 to 45 minutes).
- the amounts sent and received.
These data may be public, but they are not very illuminating; It raises more questions than it answers. for example:
- who are the pseudonymous entities? are they cryptocurrency exchanges, merchant processors, or darknet marketplaces?
- why do they transact? is it a payment, an investment or a smart contract?
- how much value are you trading in terms of usd/eur/brl/other currency? hundreds, thousands or millions of dollars in cryptocurrencies?
Helping organizations answer these questions is the specialty of chainalysis.
how do we connect bitcoin addresses with real world entities?
Our attribution process has three stages:
- grouping. a cluster is a collection of addresses that we have determined are controlled by the same entity. To find out which addresses belong to which pool, we run algorithms on the entire history of the blockchain. we also employ a number of strategies to analyze co-spends, change addresses, behavior patterns, string paring, and advanced obfuscation techniques.
- identification. once a group of addresses has been pooled, we identify the entity that owns the cluster using manual and automated techniques.
- categorization. we then label the entity according to the type of service it provides and its level of risk.
These results feed into our research, compliance and investment tools. these tools make blockchain activities easy to understand, analyze, and see.
why bother with tracking bitcoin?
Bitcoin is used for a number of legitimate activities, such as:
- make payments
- and send remittances
In contexts like these, chainalysis helps companies develop investment strategies, financial institutions offer crypto services, and government agencies oversee regulated activity.
Bitcoin is also used for illicit activities, including crimes such as:
- money laundering
- child exploitation
- terrorist financing
- sanctions evasion
- and darknet market activity
all of which we cover in our annual crypto crime report.
In these (less pleasant) contexts, on-chain analytics helps businesses track stolen funds, cryptocurrency companies comply with anti-money laundering policies, and law enforcement agencies identify criminal entities.
how do investigators stop bitcoin crime?
with a combination of technical expertise and graphics technology. both are typically required; without training, a researcher may end up with a graph like the following:
but with a better understanding of blockchain analytics techniques, a researcher could organize that same graph much more meaningfully.
In the revised graph, we can see the transaction relationships between eight drug buyers and sellers, each of which has ties to the same darknet market. these relationships exceed $3 million in bitcoins sent and received, a pattern indicative of drug trafficking.
Using the chaining reactor, researchers can delve much deeper into the activity of these groups. For example, here are the sending and receiving exposures from the darknet marketplace identified above:
By clicking on one of those categories, researchers can see the top entities transacted with on the darknet market, one of the many ways researchers can generate leads.
blockchain analysis: a key to trusting cryptocurrencies
Blockchain analytics is critical to stopping crime and building trust in cryptocurrencies. That’s why customers in more than 70 countries use chain analytics products to build securely, fill compliance gaps, and resolve cases with confidence.
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