Bitcoin Anonymity Claims Put to the Test

Researchers have developed new techniques to trace the flow of bitcoins through a web of 16 million transactions and 12 million public keys to their online sources.

The blockchain is a series of transactions, each one referencing the previous transaction, to form a chain. Transactions are grouped into blocks, with each block referencing the previous one and serving as a timestamp that validates the transactions it contains. Blocks are then formed into chains and made publicly available to every user within the system.

Meiklejohn and her fellow researchers developed a new clustering heuristic, or systematic method of associating data, to comb through the massive database of blockchain transactions and link transactions. Their algorithms put Bitcoin’s anonymity claims to the test.

“Our work seeks to better understand the traceability of Bitcoin flows and, through this understanding, explore the evolution of how Bitcoin has been used over time,” they said.

The team built on past efforts to cluster public keys, or Bitcoin user addresses, based on evidence of shared spending authority. Once they could positively identify one public key, they could link an entire cluster of transactions containing that same public key.

They also employed a re-identification attack. Essentially, they opened accounts and made purchases from a broad range of Bitcoin merchants and service providers. Since they were at one end of the transaction, they could positively identify the other end as the service provider.

Employing this meticulous methodology, Meiklejohn was able to follow the money, or Bitcoins, through a seemingly impenetrable web of 16 million transactions and 12 million public keys to their online sources. Her novel tracing technique eventually led law enforcement to user addresses of criminals. With a subpoena in hand, officials could put a name to the crime. Today, variants of these algorithms are in daily use in both government enforcement and private sector compliance roles, supported by a range of crypto tracing companies including Chainalysis, Elliptic, TRM Labs, and CipherTrace (now part of Mastercard).

Today, Meiklejohn is a professor in cryptography and security at University College London (UCL) and a staff research scientist at Google.

Levchenko is an associate professor in electrical and computer engineering at the University of Illinois; McCoy is a professor at New York University Tandon School of Engineering; Jordan is the founder and CEO of anti-drone startup, SkySafe; and Pomarole is an investor and consultant for Brazilian tech startups.

IMC 2024 is the 24th in a series of flagship conferences sponsored by ACM SIGCOMM, a professional forum for the discussion of topics in the field of communications and computer networks. This three-day event focuses on Internet measurement and analysis in areas such as technical design and engineering, regulation and operations, and the social implications of computer networking.

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