Chapter

Characteristics of Bitcoin Transactions on Cryptomarkets

Authors:
To read the full-text of this research, you can request a copy directly from the authors.

Abstract

Cryptomarkets (or darknet markets) are commercial hidden-service websites that operate on The Onion Router (Tor) anonymity network. Cryptomarkets accept primarily bitcoin as payment since bitcoin is pseudonymous. Understanding bitcoin transaction patterns in cryptomarkets is important for analyzing vulnerabilities of privacy protection models in cryptocurrecies. It is also important for law enforcement to track illicit online crime activities in cryptomarkets. In this paper, we discover interesting characteristics of bitcoin transaction patterns in cryptomarkets. The results demonstrate that the privacy protection mechanism in cryptomarkets and bitcoin is vulnerable. Adversaries can easily gain valuable information for analyzing trading activities in cryptomarkets.

No full-text available

Request Full-text Paper PDF

To read the full-text of this research,
you can request a copy directly from the authors.

... Chen et al. [3] investigate the payment systems of darknet markets. The authors perform a descriptive analysis of the payment process for six large cryptomarkets and study the privacy implications of the way the markets handle payments. ...
... The observations of Chen et al. [3] indicate, that the payment systems of cryptomarkets differ in two aspects: Firstly, whether they require customers to make deposits upfront, and secondly, whether they cause a direct flow of currency between customers and vendors. We use this observation to introduce the following new terminology. ...
Article
Full-text available
Bitcoin and similar cryptocurrencies are becoming increasingly popular as a payment method in both legitimate and illegitimate online markets. Such markets usually deploy a review system that allows users to rate their purchases and help others to determine reliable vendors. Consequently, vendors are interested into accumulating as many positive reviews (likes) as possible and to make these public. However, we present an attack that exploits these publicly available information to identify cryptocurrency addresses potentially belonging to vendors. In its basic variant, it focuses on vendors that reuse their addresses. We also show an extended variant that copes with the case that addresses are used only once. We demonstrate the applicability of the attack by modeling Bitcoin transactions based on vendor reviews of two separate darknet markets and retrieve matching transactions from the blockchain. By doing so, we can identify Bitcoin addresses likely belonging to darknet market vendors.
... In [34], a graphical tool is proposed to make transaction graph analysis easier for non-experts. Furthermore, Chen [35] has looked into how crypto markets transact, showing that large mining pools and markets utilise peeling chains and off-chain databases to act as inbuilt mixers (we discuss those further in the manuscript). An overview of these methods is presented in Table 1. ...
Article
Full-text available
Our transaction history in the current centralized banking system has the ability to reveal a lot of private information for each spender, both to the banking system itself, but also to those entities that surround it (e.g., governments, industry etc). Examples of leaking information constitute the amounts spent, the goods on which the amounts were spent, the spending locations and the users we exchange money with. This knowledge is powerful in the hands of those who have it, and can be used in multiple ways, not always to our benefit. Cryptocurrencies, such as the famous Bitcoin, were proposed as a means to address the limitations of centralized banking systems and to offer its users privacy with regards to their transactional data. In this work, we perform a systematic literature review on the realm of privacy for electronic currencies.We present the development of digital money from electronic cash to cryptocurrencies and focus on the techniques that are employed to enhance user-privacy. Furthermore, we present flaws of the current cryptocurrency systems, which reduce the privacy of the cryptocurrency users. Finally, we describe three research directions to enhance privacy for cryptocurrencies: transaction propagation mechanisms, succinct ZK proof systems without a trusted setup, and specialised trustless zero-knowledge proofs.
Chapter
The advent of the Bitcoin blockchain as a peer-to-peer, open, and decentralized financial system has empowered millions of people globally to make transactions without any trusted third parties. This realization leads to the birth of more than 2300 cryptocurrencies in the last decade. Despite this evolvement, the Bitcoin and other cryptocurrencies are facing many challenges right now. Facebook’s Libra is a new kind of cryptocurrency built on the foundation of blockchain technology conceived by Libra Association - twenty-eight high-profile governing members that will work together to create a more inclusive financial system using consortium blockchain technology. The goal of the Libra is to serve as a solid foundation for a highly scalable, frictionless, and traceable global financial systems with extremely high transactions rate. However, the proposed Libra cryptocurrency has yet to face many issues. In this paper, we critically analyzed the status of the Libra, its underlying concept, and the challenges faced by it once launched as a global decentralized financial system. Currently, the proposed Libra is very ambiguous with uncertain goals and intentions. In particular, we explored the placement technology of Libra, which is not very much well define in comparison with Bitcoin and other public blockchains which are fully decentralized, transparent, borderless and fully open for transparency. Also, we explore the security and privacy features of Libra concerning around three-billion user base of Facebook social media ecosystem (i.e., Messenger, WhatsApp, Instagram, and Facebook).
Method
Full-text available
Since the advent of darknet markets, or illicit cryptomarkets, there has been a sustained interest in studying their operations: the actors, products, payment methods, and so on. However, this research has been limited by a variety of obstacles, including the difficulty in obtaining reliable and representative data, which present challenges to undertaking a complete and systematic study. The Australian National University’s Cybercrime Observatory has developed tools that can be used to collect and analyse data obtained from darknet markets. This paper describes these tools in detail. While the proposed methods are not error-free, they provide a further step in providing a transparent and comprehensive solution for observing darknet markets tailored for data scientists, social scientists, criminologists and others interested in analysing trends from darknet markets.
Conference Paper
Full-text available
This work briefly examines some of the most relevant Bitcoin Laundry Services, commonly known as tumblers or mixers, and studies their main features to try to answer some fundamental questions including their security, popularity, transaction volume, and generated revenue. Our research aims to inform both legitimate users and Law Enforcement about the characteristics and limitations of these services.
Article
Full-text available
Bitcoin is a purely online virtual currency, unbacked by either physical commodities or sovereign obligation; instead, it relies on a combination of cryptographic protection and a peer-to-peer protocol for witnessing settlements. Consequently, Bitcoin has the unintuitive property that while the ownership of money is implicitly anonymous, its flow is globally visible. In this paper we explore this unique characteristic further, using heuristic clustering to group Bitcoin wallets based on evidence of shared authority, and then using re-identification attacks (i.e., empirical purchasing of goods and services) to classify the operators of those clusters. From this analysis, we consider the challenges for those seeking to use Bitcoin for criminal or fraudulent purposes at scale.
Preprint
Full-text available
Address clustering tries to construct the one-to-many mapping from entities to addresses in the Bitcoin system. Simple heuristics based on the micro-structure of transactions have proved very effective in practice. In this paper we describe the primary reasons behind this effectiveness: address reuse, avoidable merging, super-clusters with high centrality, and the incremental growth of address clusters. We quantify their impact during Bitcoin's first seven years of existence.
Conference Paper
Full-text available
Bitcoin, the famous peer-to-peer, decentralized electronic currency system, allows users to benefit from pseudonymity, by generating an arbitrary number of aliases (or addresses) to move funds. However, the complete history of all transactions ever performed, called “blockchain”, is public and replicated on each node. The data it contains is difficult to analyze manually, but can yield a high number of relevant information. In this paper we present a modular framework, BitIodine, which parses the blockchain, clusters addresses that are likely to belong to a same user or group of users, classifies such users and labels them, and finally visualizes complex information extracted from the Bitcoin network. BitIodine labels users semi-automatically with information on their identity and actions which is automatically scraped from openly available information sources. BitIodine also supports manual investigation by finding paths and reverse paths between addresses or users. We tested BitIodine on several real-world use cases, identified an address likely to belong to the encrypted Silk Road cold wallet, or investigated the CryptoLocker ransomware and accurately quantified the number of ransoms paid, as well as information about the victims. We release a prototype of BitIodine as a library for building Bitcoin forensic analysis tools.
Conference Paper
Full-text available
Bitcoin is a digital currency that uses anonymous cryptographic identities to achieve financial privacy. However, Bitcoin's promise of anonymity is broken as recent work shows how Bitcoin's blockchain exposes users to reidentification and linking attacks. In consequence, different mixing services have emerged which promise to randomly mix a user's Bitcoins with other users' coins to provide anonymity based on the unlinkability of the mixing. However, proposed approaches suffer either from weak security guarantees and single points of failure, or small anonymity sets and missing deniability. In this paper, we propose CoinParty a novel, decentralized mixing service for Bitcoin based on a combination of decryption mixnets with threshold signatures. CoinParty is secure against malicious adversaries and the evaluation of our prototype shows that it scales easily to a large number of participants in real-world network settings. By the application of threshold signatures to Bitcoin mixing, CoinParty achieves anonymity by orders of magnitude higher than related work as we quantify by analyzing transactions in the actual Bitcoin blockchain and is first among related approaches to provide plausible deniability.
Conference Paper
Full-text available
Bitcoin is a purely online virtual currency, unbacked by either physical commodities or sovereign obligation; instead, it relies on a combination of cryptographic protection and a peer-to-peer protocol for witnessing settlements. Consequently, Bitcoin has the unintuitive property that while the ownership of money is implicitly anonymous, its flow is globally visible. In this paper we explore this unique characteristic further, using heuristic clustering to group Bitcoin wallets based on evidence of shared authority, and then using re-identification attacks (i.e., empirical purchasing of goods and services) to classify the operators of those clusters. From this analysis, we characterize longitudinal changes in the Bitcoin market, the stresses these changes are placing on the system, and the challenges for those seeking to use Bitcoin for criminal or fraudulent purposes at scale.
Conference Paper
Full-text available
The Bitcoin scheme is a rare example of a large scale global payment system in which all the transactions are publicly accessible (but in an anonymous way). We downloaded the full history of this scheme, and analyzed many statistical properties of its associated transaction graph. In this paper we answer for the first time a variety of interest-ing questions about the typical behavior of users, how they acquire and how they spend their bitcoins, the balance of bitcoins they keep in their accounts, and how they move bitcoins between their various accounts in order to better protect their privacy. In addition, we isolated all the large transactions in the system, and discovered that almost all of them are closely related to a single large transaction that took place in November 2010, even though the associated users apparently tried to hide this fact with many strange looking long chains and fork-merge structures in the transaction graph.
Article
CRYPTOCURRENCIES PROMISE TO revolutionize the financial industry, forever changing the way we transfer money. Instead of relying on a central authority (for example, a government entity or a bank) to issue and manage money, cryptocurrencies rely on the mathematical design and security proofs of the underlying cryptographic protocols. Using cryptography and distributed algorithms, cryptocurrencies offer a fully decentralized setting where no single entity can monitor or block the transfer of funds. Cryptocurrencies have grown from early prototypes to a global phenomenon with millions of participating individuals and institutions.17 Bitcoin28 was the first such currency launched in 2009 and in the years since has grown to a market capitalization of over $15 billion (as of January 2017). This has led to the emergence of many alternative cryptocurrencies with additional services or different properties as well as to a fruitful line of academic research. © 2018 Association for Computing Machinery. All rights reserved.
Article
Cyptomarkets offer insight into the evolving interplay between online black markets and cartel-based distribution. The types and forms of heroin, fentanyl, and prescription drugs show wide diversification. In this commentary we describe changes in the conceptualizations, technologies and structures of drug supply chains in the 21st Century, with special attention to the role of cryptomarkets as tools, contexts, and drivers of innovation in public health research.
Conference Paper
Bitcoin is quickly emerging as a popular digital payment system. However, in spite of its reliance on pseudonyms, Bitcoin raises a number of privacy concerns due to the fact that all of the transactions that take place are publicly announced in the system. In this paper, we investigate the privacy provisions in Bitcoin when it is used as a primary currency to support the daily transactions of individuals in a university setting. More specifically, we evaluate the privacy that is provided by Bitcoin (i) by analyzing the genuine Bitcoin system and (ii) through a simulator that faithfully mimics the use of Bitcoin within a university. In this setting, our results show that the profiles of almost 40% of the users can be, to a large extent, recovered even when users adopt privacy measures recommended by Bitcoin. To the best of our knowledge, this is the first work that comprehensively analyzes, and evaluates the privacy implications of Bitcoin.
Conference Paper
The decentralized currency network Bitcoin is emerging as a potential new way of performing financial transactions across the globe. Its use of pseudonyms towards protecting users’ privacy has been an attractive feature to many of its adopters. Nevertheless, due to the inherent public nature of the Bitcoin transaction ledger, users’ privacy is severely restricted to linkable anonymity, and a few transaction deanonymization attacks have been reported thus far. In this paper we propose CoinShuffle, a completely decentralized Bitcoin mixing protocol that allows users to utilize Bitcoin in a truly anonymous manner. CoinShuffle is inspired by the accountable anonymous group communication protocol Dissent and enjoys several advantages over its predecessor Bitcoin mixing protocols. It does not require any (trusted, accountable or untrusted) third party and it is perfectly compatible with the current Bitcoin system. CoinShuffle introduces only a small communication overhead for its users, while completely avoiding additional anonymization fees and minimalizing the computation and communication overhead for the rest of the Bitcoin system.
Article
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Evaluating user privacy in bitcoin
  • E Androulaki
  • G O Karame
  • M Roeschlin
  • T Scherer
  • S Capkun
Androulaki, E., Karame, G.O., Roeschlin, M., Scherer, T., Capkun, S.: Evaluating user privacy in bitcoin. In: Sadeghi, A.-R. (ed.) FC 2013. LNCS, vol. 7859, pp. 34-51. Springer, Heidelberg (2013). https://doi.org/10.1007/978-3-642-39884-1 4
  • M Fleder
  • M S Kester
  • S Pillai
Fleder, M., Kester, M.S., Pillai, S.: Bitcoin transaction graph analysis. arXiv preprint arXiv:1502.01657 (2015)