Elizaveta Zinovyeva, Raphael Constantin Georg Reule, Wolfgang Karl Härdle
Smart Contracts are commonly considered to be an important component or even a key to many business solutions in an immense variety of sectors and promises to securely increase their individual efficiency in an ever more digitized environment. Introduced in the early 1990's, the technology has gained a lot of attention with its application to blockchain technology to an extent, that can be considered a veritable hype. Reflecting the growing institutional interest, this intertwined exploratory study between statistics, information technology, and law contrasts these idealistic stories with the data reality and provides a mandatory step of understanding the matter, before any further relevant applications are discussed as being "factually" able to replace traditional constructions. Besides fundamental flaws and application difficulties of currently employed Smart Contracts, the technological drive and enthusiasm backing it may however serve as a jump-off board for future developments thrusting well in the presently unshakeable traditional structures.
The emergence of smart contracts has increased the attention of industry and academia to blockchain technology, which is tamper-proofing, decentralized, autonomous, and enables decentralized applications to operate in untrustworthy environments. However, these features of this technology are also easily exploited by unscrupulous individuals, a typical example of which is the Ponzi scheme in Ethereum. The negative effect of unscrupulous individuals writing Ponzi scheme-type smart contracts in Ethereum and then using these contracts to scam large amounts of money has been significant. To solve this problem, we propose a detection model for detecting Ponzi schemes in smart contracts using bytecode. In this model, our innovation is shown in two aspects: We first propose to use two bytes as one characteristic, which can quickly transform the bytecode into a high-dimensional matrix, and this matrix contains all the implied characteristics in the bytecode. Then, We innovatively transformed the Ponzi schemes detection into an anomaly detection problem. Finally, an anomaly detection algorithm is used to identify Ponzi schemes in smart contracts. Experimental results show that the proposed detection model can greatly improve the accuracy of the detection of the Ponzi scheme contracts. Moreover, the F1-score of this model can reach 0.88, which is far better than those of other traditional detection models.
Shanqing Yu, Jie Jin, Yunyi Xie, Jie Shen · 5 authors
With the rapid growth of blockchain, an increasing number of users have been attracted and many implementations have been refreshed in different fields. Especially in the cryptocurrency investment field, blockchain technology has shown vigorous vitality. However, along with the rise of online business, numerous fraudulent activities, e.g., money laundering, bribery, phishing, and others, emerge as the main threat to trading security. Due to the openness of Ethereum, researchers can easily access Ethereum transaction records and smart contracts, which brings unprecedented opportunities for Ethereum scams detection and analysis. This paper mainly focuses on the Ponzi scheme, a typical fraud, which has caused large property damage to the users in Ethereum. By verifying Ponzi contracts to maintain Ethereum's sustainable development, we model Ponzi scheme identification and detection as a node classification task. In this paper, we first collect target contracts' transactions to establish transaction networks and propose a detecting model based on graph convolutional network (GCN) to precisely distinguishPonzi contracts. Experiments on different real-world Ethereum datasets demonstrate that our proposed model has promising results compared with general machine learning methods to detect Ponzi schemes.
Hugo Benedetti, Ehsan Nikbakht, Sayan Sarkar, Andrew C. Spieler
Purpose The purpose of this paper is to develop conceptual designs for blockchain implementations aimed at reducing corporate fraud. The proposed framework consists of different levels of implementation with specific examples for each level. Design/methodology/approach The paper uses a multi-level framework to highlight the properties of blockchain technology as suitable for reducing corporate fraud. The five levels of technological complexity designed for this research include information storage, information flow, information processing, information enhancement and information and financial integration. Specific cases of corporate fraud are discussed to complement the proposed methodology. Findings The potential ability to limit fraud and increase transparency could greatly improve faith in financial reporting. These benefits accrue to all capital market participants. The blockchain infrastructure can significantly improve the existing monitoring system and provide value added in detecting, deterring, and documenting possible fraud. Originality/value The paper contributes to the growing field on corporate fraud and blockchain technology. The paper is novel in the implementation of the nascent blockchain methods to detect and deter fraud at the organizational level. The proposed five conceptual levels provide practical use.
A rede Bitcoin é um sucesso por permitir a transferência de criptomoeda com um baixo custo, de forma rápida, sem limites geográficos e sem a intervenção de um banco intermediador. Está sendo apontada como uma possível solução para mais de um bilhão de pessoas que não tem acesso ao sistema financeiro por causa dos altos custos. Por outro lado, a rede Biticoin é pseudo-anônima e tem sido usada para uma enorme variedade de atividades financeiras dúbias e ilegais. Este artigo investiga as atividades de lavagem de dinheiro na rede Bitcoin através de diversos mecanismos que procuram melhorar o desempenho de classificadores na análise de um conjunto de dados desbalanceado devido a uma classe minoritária com muito poucas amostras. A análise considera o conjunto de dados Elliptic com mais de 200 mil transações de Bitcoin, sendo o maior conjunto rotulado de dados publicamente disponível que existe hoje de todas as criptomoedas. Os experimentos realizados mostram a eficácia de cada estratégia na melhora da classificação das atividades de lavagem de dinheiro tais como: i) o percentual de repartição do conjunto de dados em treino e teste; ii) heurísticas de sobre-amostragem; ii) diferentes algoritmos de aprendizado de máquina; iv) algoritmo de reforço de aprendizado adaptativo e v) descoberta automática de características. Os resultados mostram um bom desempenho do algoritmo de sobre-amostragem AdaSyn e que o maior ganho em desempenho foi com o classificador floresta aleatória.
Decentralized applications (DApp) have opened up new heights for the use of blockchain and cryptocurrencies, but users with poor intentions utilize DApp websites to promote smart Ponzi schemes, causing huge losses to inexperienced investors. To alert potential investors, DApp websites tend to mark high-risk DApps uploaded by users. So far, previous works have only trained the classifiers of smart Ponzi schemes in a unilateral way. However, smart contract dataset is very skewed, there are much fewer smart Ponzi schemes than non-Ponzi schemes. Besides, due to data security and privacy, different DApp websites are generally not allowed to share their users' data and information. As a result, it is difficult for a certain DApp website to learn the patterns of smart Ponzi schemes and detect them alone.This paper proposes a novel smart Ponzi scheme detection framework named SPSD-FL (Smart Ponzi Scheme Detection in Federated Learning) for the first time to address these problems. Instead of unilateral training, our method fulfills a secure aggregation of local gradient histograms by a horizontal federated learning based on XGBoost algorithm, in which we leverage a data augmentation method and labeled smart Ponzi schemes' code features, dapp submitters' information, and investors' information to implement the collaborative training of the detection model between different DApp websites without sharing the original training data and protecting the user's sensitive information. Experiments conducted on the real dataset show that our method can be trained substantially more data-efficiently and the SPSD-FL model achieves an average F-score of 96.55%, which is better than the unilateral training model and no less than that of the centralized training model.
Abdelaziz Elbaghdadi, Soufiane Mezroui, Ahmed El Oualkadi
The cryptocurrency is the first implementation of blockchain technology. This technology provides a set of tracks and innovation in scientific research, such as use of data either to detect anomalies either to predict price in the Bitcoin and the Ethereum. Furthermore, the blockchain technology provide a set of technique to automate the business process. This chapter presents a review of some research works related to cryptocurrency. A model with a KNN algorithm is proposed to detect illicit transaction. The proposed model uses both the elliptic dataset and KNN algorithm to detect illicit transaction. Furthermore, the elliptic dataset contains 203,769 nodes and 234,355 edges; it allows to classify the data into three classes: illicit, licit, or unknown. Each node has associated 166 features. The first 94 features represent local information about the transaction. The remaining 72 features are called aggregated features. The accuracy exceeded 90% with k=2 and k=4, the recall reaches 56% with k=3, and the precision reaches 78% with k=4.
Smart contracts are computer programs allowing users to define and execute transactions automatically on top of the blockchain platform. Many of such smart contracts can be viewed as games. A game-like contract accepts inputs from multiple participants, and upon ending, automatically derives an outcome while distributing assets according to some predefined rules. Without clear understanding of the game rules, participants may suffer from fraudulent advertisements and financial losses. In this paper, we present a framework to perform (semi-)automated verification of smart contract fairness, whose results can be used to refute false claims with concrete examples or certify contract implementations with respect to desired fairness properties. We implement FairCon, which is able to check fairness properties including truthfulness, efficiency, optimality, and collusion-freeness for Ethereum smart contracts. We evaluate FairCon on a set of real-world benchmarks and the experiment result indicates that FairCon is effective in detecting property violations and able to prove fairness for common types of contracts.
The use of containers in cloud computing has been steadily increasing. With the emergence of Kubernetes, the management of applications inside containers (or pods) is simplified. Kubernetes allows automated actions like self-healing, scaling, rolling back, and updates for the application management. At the same time, security threats have also evolved with attacks on pods to perform malicious actions. Out of several recent malware types, cryptomining has emerged as one of the most serious threats with its hijacking of server resources for cryptocurrency mining. During application deployment and execution in the pod, a cryptomining process, started by a hidden malware executable can be run in the background, and a method to detect malicious cryptomining software running inside Kubernetes pods is needed. One feasible strategy is to use machine learning (ML) to identify and classify pods based on whether or not they contain a running process of cryptomining. In addition to such detection, the system administrator will need an explanation as to the reason(s) of the ML's classification outcome. The explanation will justify and support disruptive administrative decisions such as pod removal or its restart with a new image. In this article, we describe the design and implementation of an ML-based detection system of anomalous pods in a Kubernetes cluster by monitoring Linux-kernel system calls (syscalls). Several types of cryptominers images are used as containers within an anomalous pod, and several ML models are built to detect such pods in the presence of numerous healthy cloud workloads. Explainability is provided using SHAP, LIME, and a novel auto-encoding-based scheme for LSTM models. Seven evaluation metrics are used to compare and contrast the explainable models of the proposed ML cryptomining detection engine.
With the increasing popularity of blockchain technology, it has also become a hotbed of various cybercrimes. As a traditional way of scam, the phishing scam has new means of scam in the blockchain scenario and swindles a lot of money from users. In order to create a safe environment for investors, an efficient method for phishing detection is urgently needed. In this paper, we propose a three steps framework to detect phishing scams on Ethereum by mining Ethereum transaction records. First, we obtain the labeled phishing accounts and corresponding transaction records from two authorized websites. According to the collected transaction records we build an Ethereum transaction network. Then, a network embedding method node2vec which can extract the latent features of accounts is used for subsequent phishing classification. Finally, to distinguish whether the account is a phishing account, we adopt the one-class support vector machine (SVM) to classify. The experimental result demonstrates that F-score of our phishing detection method can achieve 0.846, which verifies the validity of our model. To the best of our knowledge, this is the first work that investigates the phishing scams on Ethereum based on transaction records.
Purpose The purpose of this paper is to explore the audit-related causes of financial scandals and advice on how emerging technologies can provide solutions thereto. Specifically, this study seeks to look at the facilitators of financial statement fraud and explain specific fintech advancements that contribute to financial information reliability for equity investments. Design/methodology/approach The study uses the case studies of Enron and Arthur Andersen to document the evidence of audit-related issues in historical financial scandals. Then, a comprehensive and interdisciplinary literature review at the intersection of business, accounting and engineering, provides a foundation to propose technology advancements that can solve identified problems in accounting and auditing. Findings The findings show that blockchain, internet of things, smart contracts and artificial intelligence solutions have different functionality and can effectively solve various financial reporting and audit-related problems. Jointly, they have a strong potential to enhance the reliability of the information in financial statements and generally change how companies operate. Practical implications The proposed and explained technology advancements should be of interest to all publicly listed companies and investors, as they can help safeguard equity investments, thus build investors’ trust towards the company. Social implications Aside from implications for capital markets participants, the study findings can materially benefit various stakeholder groups, the broader company environment and the economy. Originality/value This is the first paper that seeks solutions to financial fraud and audit-related financial scandals in technology and not in implementing yet another regulation. Given the recent technology advancements, the study findings provide insights into how the role of an external auditor might evolve in the future.
Bitcoin users are guaranteed to be anonymous, increasing the number of cryptocurrency trading related to crimes and fraudulent activities. While most studies about detecting illegal transactions try to distinguish trading patterns and classify them from legitimate ones, classification performance is poor since the class distributions of transaction data are highly imbalanced. In general, the Synthetic Minority Over-sampling TEchnique (SMOTE) is used to deal with class-imbalanced data, but SMOTE has a problem that it does not fully represent the diversity of the data. In this paper, we introduce another oversampling technique using Generative Adversarial Networks (GAN) to generate artificial training data for classification model. In order to verify similarity between artificial data and the actual one, oversampled dataset is evaluated with a classification model using XGBoost algorithm. We show classification performance is improved on average with synthetic data generated by both SMOTE and well-designed GAN model.
Malicious activities such as scams and frauds have imposed high costs for financial systems. The advent of blockchain-based cryptocurrencies such as Ethereum provides unprecedented characteristics. On one hand, the pseudonymity of the blockchain allows criminals to hide their actual identities, which is an appealing feature for conducting malicious activities. On the other hand, the public data of blockchain sets forth the opportunity for comprehensive forensic analysis. In this paper, we present a novel framework to identify malicious entities in the Ethereum blockchain network. The proposed framework composes of an efficient method for extracting a set of features from the Ethereum blockchain data to represent transactional behavior of entities. Our proposed solutions for detecting malicious entities employ variations of Logistic Regression, Support Vector Machine, Random Forest, and other ensemble methods such as Stacking and AdaBoost Classifier. The ensemble methods show high performance with F1score of 0.996 in average. The results also imply that the proposed method of feature extraction is fairly efficient in presenting the network characteristics.
The anonymity of blockchain has caused Ponzi schemes to be transferred to smart contract platforms by scammers. These Ponzi schemes wearing the mask of smart contracts caused huge losses to people, which makes the detection of smart Ponzi schemes attract people's attention. Recent methods mainly focus on machine learning technology to enable automatic detection for smart Poniz schemes. However, there are some problems with their methods. Firstly, the gradient boosting algorithm in machine learning they used have the problem of prediction shift due to target leakage when processing category features and calculating gradient estimates. Secondly, they ignored the imbalance and repetitiveness of Ponzi schemes on smart contract platforms. These problems can directly lead to model overfitting and affect the generalization ability of trained models. This paper proposes a novel Ponzi schemes detection method on smart contract platform for blockchain. Our method addresses the above issues with the following strategies. Firstly, we leverage ordered target statistic (TS) to process the category features of smart contract. Secondly, we solve the imbalance of dataset through a data augmentation method. Thirdly, with the idea of ordered boosting algorithm, we train a PonziTect model to fight prediction shift caused by target leakage. Based on the above ideas, the experimental results fully manifest the effectiveness and reliability of our model in detecting smart Ponzi schemes on the blockchain. Specifically, our model achieves 98% F-score on the real-world dataset, which significantly outperforms the existing methods. Using our method, we estimate that there are about 532 Ponzi schemes on Ethereum.
With the advance of Bitcoin technology, money laundering has been incentivised as a den of Bitcoin blockchain, in which the user's identity is hidden behind a pseudonym known as address. Although this trait permits concealing in the plain sight, the public ledger of Bitcoin blockchain provides more power for investigators and allows collective intelligence for anti-money laundering and forensic analysis. This fascinating paradox arises in the strength of Bitcoin technology. Machine learning techniques have attained promising results in forensic analysis, in order to spot suspicious behaviour in Bitcoin blockchain. This paper presents a comparative analysis of the performance of classical supervised learning methods using a recently published data set derived from Bitcoin blockchain, to predict licit and illicit transactions in the network. Besides, an ensemble learning method is utilised using a combination of the given supervised learning models, which outperforms the given classical methods. This experiment is performed using a newly published data set derived from Bitcoin blockchain. Our main contribution points out that using ensemble learning approach outperforms the performance of the classical learning models used in the original paper, using Elliptic data set, a time series of Bitcoin transaction graph with node transactions and directed payments flow edges. Using the same data set, we show that we are able to predict licit/illicit transactions with an accuracy of 98.13% and F1 score equals to 83.36% using the proposed method. We discuss the variety of supervised learning methods, and their capabilities of assisting forensic analysis, and propose future work directions.
Anandkumar Balasubramaniam, Malik Junaid Jami Gul, Varun G. Menon, Anand Paul
Intelligent Transportation System (ITS) is gaining attention but at the same time, road accidents, congestion, delays, etc. have also increased. Relative information about such events is vital. Such information can be presented in legal processes as digital proof. Availability of the information is not a problem as multidimensional data have been recorded all the time by ITS. Recording all the information in ITS arises the problem of fetching relevant information and removing other facts and figure that are not required to describe certain situations such as an accident. To address this issue, we analyze road accident data and reduce various dimensions with Principal Component Analysis (PCA), Linear Discriminant Analysis (LDA) and Non-negative Matrix Factorization (NMF). We conduct comparative analysis with three datasets where error rate for PCA is 32% with Dataset1. Likewise, error rate for LDA and NMF are 36% and 35%, receptively. While keeping in mind that such reduced data is helpful in many legal processes, we introduce Blockchain in the framework. Blockchain can make data immutable thus can be considered as digital proof. Blockchain also requires a smart contract in this situation between insurance companies to collect data in case of any uncertain situation. Such analysis can offer a different point of views and trends in data. Information can be more explainable to define the situation and helps to develop a friendly environment for day-to-day customers. The proposed framework provides dimensionality reduction of data that eventually reduce the data dimension to store in Blockchain.
Joana Lorenz, Maria Inês Silva, David Aparício, João Tiago Ascensão · 5 authors
Every year, criminals launder billions of dollars acquired from serious felonies (e.g., terrorism, drug smuggling, or human trafficking), harming countless people and economies. Cryptocurrencies, in particular, have developed as a haven for money laundering activity. Machine Learning can be used to detect these illicit patterns. However, labels are so scarce that traditional supervised algorithms are inapplicable. Here, we address money laundering detection assuming minimal access to labels. First, we show that existing state-of-the-art solutions using unsupervised anomaly detection methods are inadequate to detect the illicit patterns in a real Bitcoin transaction dataset. Then, we show that our proposed active learning solution is capable of matching the performance of a fully supervised baseline by using just 5% of the labels. This solution mimics a typical real-life situation in which a limited number of labels can be acquired through manual annotation by experts.
Francesco Zola, Jan L. Bruse, Xabier Etxeberria Barrio, Mikel Galar · 5 authors
In Bitcoin entity classification, results are strongly conditioned by the ground-truth dataset, especially when applying supervised machine learning approaches. However, these ground-truth datasets are frequently affected by significant class imbalance as generally they contain much more information regarding legal services (Exchange, Gambling), than regarding services that may be related to illicit activities (Mixer, Service). Class imbalance increases the complexity of applying machine learning techniques and reduces the quality of classification results, especially for underrepresented, but critical classes. In this paper, we propose to address this problem by using Generative Adversarial Networks (GANs) for Bitcoin data augmentation as GANs recently have shown promising results in the domain of image classification. However, there is no "one-fits-all" GAN solution that works for every scenario. In fact, setting GAN training parameters is non-trivial and heavily affects the quality of the generated synthetic data. We therefore evaluate how GAN parameters such as the optimization function, the size of the dataset and the chosen batch size affect GAN implementation for one underrepresented entity class (Mining Pool) and demonstrate how a "good" GAN configuration can be obtained that achieves high similarity between synthetically generated and real Bitcoin address data. To the best of our knowledge, this is the first study presenting GANs as a valid tool for generating synthetic address data for data augmentation in Bitcoin entity classification.
Shakkeera L, Hem Pransanth K C, Sabareesh, Sumaiya Begum · 5 authors
In today’s era, the cloud database security is one of the main concerns for any of the real time data accessing web/mobile applications. The cloud database protection involves accessibility and vulnerability of data, data protection, storage space, integrity and confidentiality on sensitive data. Building an electronic voting system that tries to completely fulfill the needs of the people has always been a challenge to achieve. The existing E-Voting System (E-VS) is not that much compatible with that of the current trends and does not assure to provide more security A lot of distributed ledger technologies which has been an exciting approach during existing election voting process. If we take a look on the ways of implying E-VS in a distribute ledger then Blockchain would be the right choice. As we all know that nowadays, Blockchain is one of the emerging technologies in the field of Information Technology. It normally stores information in batches called blocks which are linked together in a chronological way or method to form chain of blocks using cryptography techniques. During online voting process, many fraudulent activities happens which corrupt the entire election process. One of the major problems faced are fake voting which is obviously done by unauthorized people, inconvenient to reach to the respective places, average security level which may lead to the chances of an electoral fraud or any other malpractices.. Our proposed E-Voting System is mainly to protect the cloud database for real time data and to reduce the time consumption in voting and vote counting processes. Instead of standing in the queue for casting the vote, people can cast their votes from anywhere they want through online. The E-VS gives complete privacy and security for the online voting and makes it an ease for every individual to access it and cast their votes from anywhere possible with full pronounced security. In our proposed E-VS, Blockchain security concept called Consensus algorithm is implemented which makes it impossible for any unwanted activities to occur during election process. The E-VS system also achieves a higher level of security. Hence, the proposed system achieves data integrity, data confidentiality, eliminates storage overhead, and reduces time consumption for overall electronic voting system.
This paper set out to explore the challenges posed by blockchain to forensic accountants in the prevention and detection of fraud. Blockchain will create a decentralised environment where transactions and data have no third-party control. This technology is capable of disrupting accounting and audit because it is capable of automating financial records and audit processes. The fraud analysis in a digital environment is complex and the evolution of new technologies or innovations such as blockchain, artificial intelligence, and robotics have added to these challenges. The framework for analysis adopted is a qualitative study using the library research methodology. The findings portray that blockchain technology is not 100% flawless, impenetrable to malicious attacks and hacking. The results of the study found that technology will affect the core functions of accountants, but the overall effects on the roles of forensic accountants and auditors are still unknown.