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A Fistful of Bitcoins: Characterizing Payments Among Men with No Names

Bitcoin, illustrative photo

Credit: Kollected Studio

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.

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1. Introduction

Demand for low friction e-commerce of various kinds has driven a proliferation in online payment systems over the last decade. Thus, in addition to established payment card networks (e.g., Visa and Mastercard), a broad range of the so-called "alternative payments" has emerged including eWallets (e.g., Paypal, Google Checkout, and WebMoney), direct debit systems (typically via ACH, such as eBillMe), money transfer systems (e.g., Moneygram), and so on. However, virtually all of these systems have the property that they are denominated in existing fiat currencies (e.g., dollars), explicitly identify the payer in transactions, and are centrally or quasi-centrally administered. (In particular, there is a central controlling authority who has the technical and legal capacity to tie a transaction back to a pair of individuals.)


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