Matteo Loporchio, Anna Bernasconi, Damiano Di Francesco Maesa, Laura Ricci
Abstract In the Bitcoin protocol, dust refers to small amounts of currency that are lower than the fee required to spend them in a transaction. Although “economically irrational”, dust is commonly used for achieving unconventional side effects, rather than exchanging value. For instance, dust might be linked to on-chain services or to malicious activity, such as dust attacks attempting to break users’ pseudonymity. To study this phenomenon, this paper presents an in depth analysis of Bitcoin transactions involving dust, showing how dust is created and consumed. We identify the top dust creators and consumers and discuss how consumption has evolved over time. Finally, we use the data to identify transactions suspected of being part of dust attacks and quantify their impact on address deanonymization. Our results show that dust is mainly related to on-chain betting services. Transactions likely to be part of dust attacks are a minority of dust creating transactions but, despite their relatively low number, they have a disproportionately high effect on helping attackers to break address pseudonymity.
Purpose This paper aims to explain the implications of the impending establishment of national blockchain infrastructure by governments around the world, and how these structures can be integrated with existing legislation and assist in the prevention of financial crime. Design/methodology/approach The methodology used is a literature review and analysis of progress being made to establish national blockchain infrastructure. It provides a discussion of the connection between blockchain and financial crime, and how this infrastructure will interact with existing regulatory frameworks, and particularly, financial crime legislation. Findings This paper documents financial crime risks posed by digital currencies and smart contracts and the role that national blockchain infrastructure can potentially play in mitigating these risks. It highlights the need for governments to devote resources to developing this infrastructure and associated regulatory frameworks. Originality/value There are few, if any, academic papers in the financial crime, or wider literature, that have examined the potential for national blockchain infrastructures prevent financial crime, including the implications for existing regulation in the field.
The research paper discusses governance implications, benefits, and challenges of applying internationally recognized internal auditing standards to the newly emerging Decentralized Autonomous Organizations (DAOs) that have quickly gained traction in the past years and are currently totaling market capitalizations of more than USD 20 billion globally. It is analyzed how standards established for traditional centralized organizations are compatible with a decentralized, often anonymous organization that makes decisions democratically based on majority votes while most operations are conducted autonomously subject to pre-defined self-executing smart contracts. After the technological attributes of blockchains, smart contracts, DAOs and other general considerations are determined, each IIA standard is applied separately and results are drawn from a qualitative analysis. The publication contains the major conclusions from a literature analysis followed by a summary of conceptual obstacles to complying with the standards in case of selecting a DAO as an organizational form which could make their overall legality impossible in a context where the implementation of an IA function is mandatory. Additionally, it is summarized how choosing a DAO can contribute and/or challenge compliance with the standards while giving a glimpse into what internal auditing could look like in the future.
Permissionless blockchains promise to be resilient against censorship by a single entity. This suggests that deterministic rules, and not third-party actors, are responsible for deciding if a transaction is appended to the blockchain or not. In 2022, the U.S. Office of Foreign Assets Control (OFAC) sanctioned a Bitcoin mixer and an Ethereum application, putting the neutrality of permissionless blockchains to the test. In this paper, we formalize quantify and analyze the security impact of blockchain censorship. We start by defining censorship, followed by a quantitative assessment of current censorship practices. We find that 46% of Ethereum blocks were made by censoring actors that intend to comply with OFAC sanctions, indicating the significant impact of OFAC sanctions on the neutrality of public blockchains. We further uncover that censorship not only impacts neutrality, but also security. We show how after Ethereum's move to Proof-of-Stake (PoS) and adoption of Proposer-Builder Separation (PBS) the inclusion of censored transactions was delayed by an average of 85%. Inclusion delays compromise a transaction's security by, e.g., strengthening a sandwich adversary. Finally we prove a fundamental limitation of PoS and Proof-of-Work (PoW) protocols against censorship resilience.
This project presents a novel blockchain-based disaster management system designed to streamline and optimize the response process to natural disasters. The system’s front-end is built using React, while its back-end runs on Flask. It enables different stakeholders, including aid organizations, government agencies, and relief workers, to access different parts of the system, enhancing collaboration, and increasing efficiency. The system comprises four main categories: missing people log, aid package distribution, critical areas, and refugee-relief camp mapping, each having multiple modules. The blockchain-based system allows for secure and immutable record-keeping of all critical data, enhancing transparency, accountability, and trust. Smart contracts are utilized to automate various aspects disaster management, enabling the rapid and efficient delivery of aid packages to affected areas. The decentralized nature blockchain allows for the efficient coordination of resources and effective management of aid distribution, reducing waste and ensuring that resources are delivered to those in need. The system’s unique features, such as tamper-proof data storage, automated processes, and decentralized coordination, provide an innovative solution to the challenges faced in disaster management and relief efforts.
Blockchain provides the unique and accountable channel for financial forensics by mining its open and immutable transaction data. A recent surge has been witnessed by training machine learning models with cryptocurrency transaction data for anomaly detection, such as money laundering and other fraudulent activities. This paper presents a holistic applied data science approach to fraud detection in the Bitcoin network with two original contributions. First, we contribute the Elliptic++dataset, which extends the Elliptic transaction dataset to include over 822k Bitcoin wallet addresses (nodes), each with 56 features, and 1.27M temporal interactions. This enables both the detection of fraudulent transactions and the detection of illicit addresses (actors) in the Bitcoin network by leveraging four types of graph data: (i) the transaction-to-transaction graph, representing the money flow in the Bitcoin network, (ii) the address-to-address interaction graph, capturing the types of transaction flows between Bitcoin addresses, (iii) the address-transaction graph, representing the bi-directional money flow between addresses and transactions (BTC flow from input address to one or more transactions and BTC flow from a transaction to one or more output addresses), and (iv) the user entity graph, capturing clusters of Bitcoin addresses representing unique Bitcoin users. Second, we perform fraud detection tasks on all four graphs by using diverse machine learning algorithms. We show that adding enhanced features from the address-to-address and the address-transaction graphs not only assists in effectively detecting both illicit transactions and illicit addresses, but also assists in gaining in-depth understanding of the root cause of money laundering vulnerabilities in cryptocurrency transactions and the strategies for fraud detection and prevention. The Elliptic++ dataset is released at https://www.github.com/git-disl/EllipticPlusPlus.
With the overall momentum of the blockchain industry, crypto-based crimes are becoming more and more prevalent. After committing a crime, the main goal of cybercriminals is to obfuscate the source of the illicit funds in order to convert them into cash and get away with it. Many studies have analyzed money laundering in the field of the traditional financial sector and blockchain-based Bitcoin. But so far, little is known about the characteristics of crypto money laundering in the blockchain-based Web3 ecosystem. To fill this gap, and considering that Ethereum is the largest platform on Web3, in this paper, we systematically study the behavioral characteristics and economic impact of money laundering accounts through the lenses of Ethereum heists. Based on a very small number of tagged accounts of exchange hackers, DeFi exploiters, and scammers, we mine untagged money laundering groups through heuristic transaction tracking methods, to carve out a full picture of security incidents. By analyzing account characteristics and transaction networks, we obtain many interesting findings about crypto money laundering in Web3, observing the escalating money laundering methods such as creating counterfeit tokens and masquerading as speculators. Finally, based on these findings we provide inspiration for anti-money laundering to promote the healthy development of the Web3 ecosystem.
Mohiuddin Ahmed, Clark Pagutaisidro, Apichart Alexander Pike, Yuting Yang · 5 authors
This paper presents a ransomware payment transactions repository, RansomCoin, and showcases the pattern analysis to understand the behaviour of ransomware attackers' money laundering tactics. The surge in ransomware attacks globally is an exciting research challenge and needs a sustainable solution. In this work, we created a bitcoin transaction dataset related to ransomware. In particular, we have focused on Qlocker, Medusa-Locker, BitPaymer, DarkSide, and Netwalker ransomware attacks to create an automation process that extracts data associated with these attacks from the blockchain. The automation details are publicly available via GitHub. The RansomCoin dataset will help law enforcement agencies trace the transaction and analyse the bitcoin movements in the blockchain. The dataset contains suspicious/normal flags, which can help focus on the wallet address flagged as suspicious. The k-NN algorithm from the family of anomaly detection techniques performs better in identifying suspicious transactions.
The Urban CryptographerIn this book I want to bring cryptography into mainstream thinking about cities. Cryptography supports data security and privacy online and serves as a remedy against cybercrime and information leakage.Cryptography also supports cryptocurrencies, the blockchain, non-fungible tokens (NFTs), smart contracts, and other digital innovations that permeate the so-called "smart city."Cryptographic methods and technologies at times appear exotic and external to the concerns of those of us interested in the history, design, and shaping of cities, but in what follows I will demonstrate that cities are already invested in cryptographic ideas and practices.At the very least, cities and cryptography have concepts and procedures in common.Without cryptography, communications among people and digital devices would be exposed for anyone to see, hack, and misdirect.Facilities for securing transactions are critical elements in city infrastructures.Cryptography applies procedures and algorithms to transform texts, pictures, audio, files, and information flows so they can be read only by a targeted recipient, a designated receiver.Cryptography is not new to the city.As long as cities have existed, communications would circulate, often in full sight, but with their messages hidden.I wish to claim cryptography as a major component in the perennial life of any city.Formal and informal secret signals, sometimes described simply as "codes," flourish in urban contexts.Think of a knock at the door, the subtle inflection of which is known only to the conspirators, partygoers, or lovers on either side.I think also of how people exchange cryptic text messages, or the coded calls to children and pets that dinner is ready.The urban lifeworld is infused with abstruse acoustic signals that strengthen invisible connections and define spaces.
Mining attacks allow adversaries to obtain a disproportionate share of the mining reward by deviating from the honest mining strategy in the Bitcoin system. Among them, the most well-known are selfish mining (SM), block withholding (BWH), fork after withholding (FAW) and bribery mining. In this paper, we propose two novel mining attacks: bribery semi-selfish mining (BSSM) and bribery stubborn mining (BSM). Both of them can increase the relative extra reward of the adversary and will make the target bribery miners suffer from the bribery miner dilemma. All targets earn less under the Nash equilibrium. For each target, their local optimal strategy is to accept the bribes. However, they will suffer losses, comparing with denying the bribes. Furthermore, for all targets, their global optimal strategy is to deny the bribes. Quantitative analysis and simulation have been verified our theoretical analysis. We propose practical measures to mitigate more advanced mining attack strategies based on bribery mining, and provide new ideas for addressing bribery mining attacks in the future. However, how to completely and effectively prevent these attacks is still needed on further research.
Ashvine Kumar, Pavana Kumari H, P. A. Mary Auxilia, Atiqur Rehman · 6 authors
Bit coin, a virtual money with a rising worldwide user base, provides an exciting basis for blockchain networks. A new generation of security technology called block chain provides a secure method of recording transactions by encapsulating operations in a sequence of blocks. It is dispersed to signatories or any intended audience that take involved in the system, and it goes well beyond bitcoin. It appeals because it does it without the help of a centralized authority. The existing financial system is centralized, making it vulnerable to mass defaults and frauds. Global banking has adopted blockchain technology, which is critically required for governance and the avoidance of such frauds. In order to allow decentralized banking and do away with all sorts of authoritarian monitoring, we are using block chain technology. In addition to the RBI-established requirements for secure and decentralized financial transfers, the solution we are proposing combines block chain as a component of the Net banking (National Electronic Fund Transfer) method using the Wide range of input (Indian Financial System Code). Our blocks will be composed of the computations made by Java micro services. The ledgers will be linked together using centralized systems.
Bitcoin is the first decentralized peer-to-peer cryptocurrency that has gained popularity by providing users with transaction anonymity. With the development of Bitcoin and the higher privacy requirements of users, mixing services have emerged to enhance Bitcoin anonymity by obfuscating the flow of funds. However, they are also widely used for illegal activities due to its strong anonymity, especially for money laundering. Therefore, detecting mixing services has great significance for Bitcoin anti-money laundering. In this article, we propose a novel detection scheme to identify the addresses belonging to Bitcoin mixing services. Specifically, we first construct the Bitcoin mixing data set, which summarizes a total of 26 features to describe the transaction behavior of addresses. Next, we design a new classification model, called the Dual Ensemble Classification Model. The model combines the advantages of multiple models based on different algorithms and obtains better classification performance. In order to detect more complex mixing patterns, we also extract transaction subgraphs from the established Bitcoin address-transaction network. The subgraphs are then classified using a kernel-based graph classification method, which is embedded in the model. Comprehensive experiments on three data sets demonstrate the effectiveness of our scheme, and the proposed model has a detection accuracy of 99.84% for the Bitcoin mixing service.
Abstract With the high-speed development of decentralized applications, account-based blockchain platforms have become a hotbed of various financial scams and hacks due to their anonymity and high financial value. Financial security has become a top priority with the sustainable development of blockchain-based platforms because of an increasing number of cyber attacks, which have resulted in a huge loss of crypto assets in recent years. Therefore, it is imperative to study the real-time detection of cyber attacks to facilitate effective supervision and regulation. To this end, this paper proposes the weighted and extended isolation forest algorithms and designs a novel framework for the real-time detection of cyber-attack transactions by thoroughly studying and summarizing real-world examples. Furthermore, this study develops a new detection approach for locating the compromised address of a cyber attack to resolve the data scarcity of hack addresses and reduce time consumption. Moreover, three experiments are carried out not only to apply on different types of cyber attacks but also to compare the proposed approach with the widely used existing methods. The results demonstrate the high efficiency and generality of the proposed approach. Finally, the lower time consumption and robustness of our method were validated through additional experiments. In conclusion, the proposed blockchain-oriented approach in this study can handle real-time detection of cyber attacks and has significant scope for applications.
The emergence of cryptocurrencies has posed challenges to governments in managing the money supply. For years, governments have exercised monetary policy by controlling the supply of national currencies. However, cryptocurrencies are decentralized, meaning governments have little or no power to control them. This chapter provides a literature review on the impact of cryptocurrencies on (1) the national monetary policy, (2) the international monetary system, and (3) the role of cryptocurrency within the banking system. Research reveals that governments could consider developing their own cryptocurrency to maintain power and influence the money supply. Alternatively, they can use the legal framework to enable or disable cryptocurrency as legal tender within their jurisdictions. Due to its global nature, cryptocurrency can be used as an international payment method and become an integrated part of the FOREX market. Lastly, as cryptocurrency continues to gain popularity worldwide, regulations on crypto exchanges and issuers will be needed to avoid price bubbles.
As cryptocurrency (crypto) has become more and more popular, so has crypto-related crime. There has been a lack of academic research on crypto-related crime, but it is becoming more prevalent in the last couple of years. Crypto-related crime became especially significant in the impact it had on victims and the awareness of these crimes in the media and the government in late 2019 and early 2020 as various criminal organizations and criminal opportunities opened up as cryptocurrency became mainstream. The common crimes related to cryptocurrency include fraud, theft, and money laundering. In 2021 estimates of crypto-related crime were estimated to be as high as $14 billion, which is a small fraction of a percent of the cryptocurrency transactions that were around $15.8 trillion in 2021. The purpose of the chapter is to provide a detailed account of the common crypto-related crimes and scams that have occurred and to evaluate the effectiveness of enforcement of these crimes.
Identifying illicit behavior in the Bitcoin network is a well explored topic. The methods proposed over time have generated great insights into the deanonymization of the Bitcoin user base through the clustering of inputs and outputs. With advanced techniques being deployed by Bitcoin users, these heuristics are now being challenged in their ability to aid in the detection of illicit activity. In this SoK, we provide a comprehensive list of methods deployed by malicious actors on the network and illicit transaction mining methods. We highlight the issues associated with conducting law enforcement investigations and propose recommendations for the research community to address these issues. Our recommendations include the release of public data by exchanges to allow researchers and law enforcement to further protect the network from malicious users. We recommend the enhancement of current heuristics through machine learning methods and discuss how researchers can take the fight head-on against expert cyber criminals.
Blockchain systems often rely on rationality assumptions for their security, expecting that nodes are motivated to maximize their profits. These systems thus design their protocols to incentivize nodes to execute the honest protocol but fail to consider out-of-band collusion. Existing works analyzing rationality assumptions are limited in their scope, either by focusing on a specific protocol or relying on non-existing financial instruments. We propose a general rational attack on rationality by leveraging an external channel that incentivizes nodes to collude against the honest protocol. Our approach involves an attacker creating an out-of-band bribery smart contract to motivate nodes to double-spend their transactions in exchange for shares in the attacker's profits. We provide a game theory model to prove that any rational node is incentivized to follow the malicious protocol. We discuss our approach to attacking the Bitcoin and Ethereum blockchains, demonstrating that irrational behavior can be rational in real-world blockchain systems when analyzing rationality in a larger ecosystem. We conclude that rational assumptions only appear to make the system more secure and offer a false sense of security under the flawed analysis.
Projects, facilities, services, and gadgets are attracting more people as life speeds up. Blockchain and cryptocurrency systems are trending worldwide. Blockchain interests everyone with technology. They make an interesting transaction medium because they have no single powerful source. Cryptocurrencies are vital financial software platforms. Mining is crucial to its decentralised information ledger dataset. Mining adds transaction data to the chain, a decentralised ledger that lets users securely agree on actions. In 2008, Santoshi Nakamoto tried to use blockchain as a restricted ledger for bitcoin, the most successful cryptocurrency. It's unlike the internet. This chapter will discuss blockchain security, cryptocurrency fraud, cyberattacks, etc. This chapter identifies cryptocurrency blockchain threats and proposes solutions. This chapter reviews and analyses top-cited articles to reach a conclusion. In this chapter, strengths and threats of cryptocurrency and their emergence in the internet-connected financial payments in the futuristic economic world will be discussed.
Purpose The purpose of the study is to show that divergent perceptions among regulators, the regulated and the associated regulatory bodies across multiple jurisdictions regarding the nature and functionality of cryptocurrencies hamper the development of a more comprehensive and coherent regulatory framework in curbing crimes and other related risks associated with cryptocurrencies. Design/methodology/approach The study has used a descriptive doctrinal legal research method to investigate and understand the insights of existing laws and regulations in four selected jurisdictions concerning cryptocurrencies and how these laws could be further improved and developed to reduce crypto-related crimes. Furthermore, the study has also used a comparative research method to conceptualize the contours of the new legal discourse emerging from cryptocurrencies to adopt and implement a sound regulatory framework. Findings The study illustrated that divergent regulatory treatment among different jurisdictions might suffocate novel digital innovations such as cryptocurrency. These fragmented regulatory approaches by various jurisdictions question the sustainability of the present national legislation adopted to regulate cryptocurrencies. Looking into other jurisdictional developments in regulating cryptocurrencies, it is apparent that a concerted regulatory approach is needed to minimize the abuse of this innovation. Research limitations/implications The study has implications for regulators and policymakers to review the current regulatory framework for regulating cryptocurrencies to prevent regulatory arbitrage. The divergent legislative measures concerning cryptocurrency among different jurisdictions question the sustainability of these legislative initiatives, considering the evolving and borderless nature of cryptocurrency. Therefore, this paper will help regulators to consider the present legislative gaps in establishing a common global regulatory approach in the crypto sphere. Originality/value The study contributes to the existing body of literature by examining the regulatory frameworks of four jurisdictions, namely, the USA, Canada, China and the EU, related to cryptocurrencies, with a discussion on the development of cryptocurrencies-related laws among these four jurisdictions and their sustainability in curbing crimes in the Darknet.
In August of 2022, the United States Department of Treasury sanctioned the virtual currency mixer Tornado Cash, an open-source and fully decentralised piece of software running on the Ethereum blockchain, subsequently leading to the arrest of one of its developers in the Netherlands. Not only was this the first time the Office of Foreign Assets Control (OFAC) extended its authority to sanction a foreign ‘person’ to software, but the decentralised nature of the software and global usage highlight the challenge of establishing jurisdiction over decentralised software and its global user base. The government claims jurisdiction over citizens, residents, and any assets that pass through the country’s territory. As a global financial center with most large tech companies, this often facilitates the establishment of jurisdiction over global conduct that passes through US servers. However, decentralised programs on blockchains with nodes located around the world challenge this traditional approach as either nearly all countries can claim jurisdiction over users, subjecting users to criminal laws in countries with which they have no true interaction, or they limit jurisdiction, thereby risking abuse by bad actors. This article takes a comparative approach to examine the challenges to establishing criminal jurisdiction on cryptocurrency-related crimes.
This research paper provides an in-depth analysis of cryptocurrency exchanges by examining their types, regulatory environment, challenges, and user behavior. We conducted a comparative study of ten popular cryptocurrency exchanges and collected data on user behavior and preferences through surveys, interviews, and website analysis. Our findings reveal that crypto exchanges face numerous challenges such as security, liquidity, and regulatory compliance. We also found that users prefer exchanges that offer a wide range of cryptocurrencies, high liquidity, low fees, and strong security measures. This research contributes to the understanding of the cryptocurrency industry and provides insights for policymakers, investors, and users. Keywords : Cryptocurrency Exchanges, Bitcoin, Trading, Portability and Vulnerability