Bitcoin payments can offer people anonymity, but that also offers anonymity to people with ill intentions too.

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 payments have the unintuitive property that while the ownership of money is implicitly anonymous, its flow is globally visible.

In this paper, the authors explore this unique characteristic of Bitcoin payments 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, the authors characterise 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.

This research presents a new clustering heuristic based on change addresses, allowing us to cluster addresses belonging to the same user. Then, using a small number of transactions labelled through their own empirical interactions with various services, the authors identify major institutions and the interactions between them. Download the research to find out more about Bitcoin payments!