When you ask people about what they associate Bitcoin with, most will mention the fact that it is private. They believe that their transactions are secure and are mostly free from public scrutiny.
However, many who know how blockchain technology works will know that this is far from the case. In fact, companies such as Chainalysis are able to use methods such as Blockchain audits in order to trace particular transactions on the blockchain.
Now, a large Bitcoin mining company called Bitfury has released new technology that is able to more effectively track transactions. They use a method called “transaction clustering”.
The company claimed that the technology will allow authorities to effectively track crime that is facilitated with Bitcoin. Yet, many users may think of it as an invasion of their privacy and an example of centralised control.
Bitcoin Address Clustering
The concept behind address clustering is to try and identify relationships between particular Bitcoin addresses. By doing this, someone is able to link a collection of these to a particular person.
This means that if someone is using Bitcoin to conduct a crime and use multiple addresses, the algorithm wil be able to identify the particular relationships between these various addresses. This could help authorities track the individuals.
This has also been used with some effect recently when law enforcement was able to track the transactions related to the Mt. Gox hack in 2014. They were able to trace the stolen coins back to an exchange called BTC-e and Russian national Alexander Vinnick.
Although there have been other companies that have developed blockchain clustering algorithms that are cross referanced with off chain data, the Bitfury algorithm combines the two into one solution. When the clustering model is being compiled, it will pull data from both of these sources.
Bitfury also conducted tests on their new algorithm and they do confirm that the new method is able to produce more reliable results than previous ones.
Jason Weinstein, who is a senior advisor to Bitfury and a former Deputy Assistant Attorney General for cybercrime in the US had this to say about the project:
Having a traceable public ledger of every Bitcoin transaction ever conducted allows law enforcement to “follow the money” in a way that would never be possible with cash. Criminals should run, not walk away from Bitcoin.
Indeed it seems that many criminals are heeding the warnings of Weinstein. Most of the cybercrime and Darknet markets are now moving to more privacy conscious cryptocurrency as Bitcoin has become too mainstream for criminals.
Reaction from the Community
Although the intention may be to track crime on the blockchain, many in the community are not happy with the notion of a mining company helping to track their transactions. Mining nodes are supposed to be impartial participants that merely clear transactions.
Bitcoin was created to give privacy and freedom back to the users. It takes trust away from a supposedly trustless system when participants in the network are keeping tabs on others. Jimmy Song who is a Bitcoin core engineer and strong voice in the community said that he was disappointed in Bifury.
It’s a bad story. This is like the next level of Chainalysis. You can go find out who is doing what. I am kinda disappointed in Bitfury Group that they’re sorta enabling this stuff
There is also bad news for those who make use of transaction mixers. These were services that used mixing technology to break the link between transactions. The Bitfury algorithm is able to identify mixing addresses and conduct analysis on that.
Hence, if you really wanted to send a transaction that is truly private you should consider a privacy coin such as Monero XMR or Z Cash. Both are developed in order to keep addresses and transaction off a public ledger.
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