Sign In

Communications of the ACM

Research highlights

Technical Perspective: The State (and Security) of the Bitcoin Economy

To view the accompanying paper, visit

Suppose we had a complete record of every single financial transaction that took place worldwide over a span of five years. What could we learn by studying the patterns encoded in this complex ledger?

The following paper examines this question in the context of Bitcoin, an emerging cryptocurrency that boasts a large and diverse economy, including many legitimate and some notable less-than-legal users.

Central to Bitcoin's design is the notion of a blockchain that records every single transaction between Bitcoin wallets. While the transactions recorded in the blockchain are public, the identity of the users and services behind the Bitcoin wallets are not. In stark contrast with the banking system, where creating a bank account requires identification, any Bitcoin user can create a new wallet, that is, a set of addresses that hold coins, without having to register with any authority. This provides a modicum of pseudonymity to Bitcoin users, but the question is, precisely how much anonymity does it provide, and how much can we learn about the actual entities behind the pseudonymous addresses on the blockchain.

To address this question, the authors use the graph of transactions encoded in the blockchain to identify patterns that might link together the identities of Bitcoin users, corroborate that data with known addresses for Bitcoin services, and therefore identify the interaction patterns between users and services. To do this effectively, they examine features of Bitcoin wallets that link addresses together, and build a set of heuristics to cluster addresses that are likely to belong to a single user.

The emerging cryptocurrency space provides a unique and fascinating opportunity to gain insight into both the legitimate and underground uses of a currency.

Having built a model for the various entities in the Bitcoin economy, the paper goes on to examine critical questions for any large-scale economy: How big and frequent are transactions? How is wealth distributed? Are the Bitcoin-rich like you and me, or do they exhibit qualitatively different spending patterns? Given the Bitcoin economy combines short-term inflation with long-term deflation, for how long do people hold onto their coins? How big are the various service sectors of the Bitcoin economy? And since we can examine the life cycle of any given coin, can we trace flows of interest, especially those involved in well-publicized heists? And most critically, just how anonymous can one be on the blockchain?

Practitioners of the dismal science often complain about having insufficient data about the economy. The real economy, indeed, makes it difficult to trace many kinds of transactions. This is why the emerging cryptocurrency space provides a unique and fascinating opportunity to gain insight into both the legitimate and underground uses of a currency. The paper provides a comprehensive view of the state of the Bitcoin economy at a particular point in time, one that will undoubtedly be important in building economic models and in serving as a point of comparison as the system evolves.

Back to Top


Emin Gün Sirer ( is an associate professor in the computer science department at Cornell University, Ithaca, NY.

Copyright held by author.

The Digital Library is published by the Association for Computing Machinery. Copyright © 2016 ACM, Inc.