The anonymity and decentralization of Bitcoin make it widely accepted in illegal transactions, such as money laundering, drug and weapon trafficking, gambling, to name a few, which has already caused significant security risk all around the world. The obvious de-anonymity approach that matches transaction addresses and users is not possible in practice due to limited annotated data set. In this paper, we divide addresses into four types, exchange, gambling, service, and general, and propose targeted addresses identification algorithms with high fault tolerance which may be employed in a wide range of applications. We use network representation learning to extract features and train imbalanced multi-classifiers. Experimental results validated the effectiveness of the proposed method.
Hyochang Baek, Junhyoung Oh, Chang Yeon Kim, Kyungho Lee
The perpetration of financial fraud progresses parallel with the innovation in the field of finance. Consequently, the emergence of the blockchain technology has also manifested financial transaction obfuscation through the use of de-anonymization of the blockchain technology. This study identifies the suspicious transaction from Binance, an open-source cryptocurrency, through the means of defining and detecting the cryptocurrency wallets. By drawing the metadata of 38,526 wallets from etherscan.io, this study investigates the transactions with discernible purpose. This study performed an unsupervised learning expectation maximization (EM) algorithm to cluster the data set. Based on the features engineered from the unsupervised learning, we performed an anomaly detection using Random Forest (RF). In this study, we offered an insight into labeling the cryptocurrency wallets by providing a model for detecting the cryptocurrency with anomalous transactions. We advocate that labeling the wallets with discernible transactions may help financial institutions, private sectors, financial intelligence, and government agencies identify and detect the transactions with illicit activities.
Governance issues limit blockchains' ability to evolve and face unforeseen challenges. It seems possible to argue that this impasse is because most blockchains lack meta-rules. This work considers blockchains as a socio-technical system of rules, in order to draw a comparison with legal systems. Following the comparison, one finds that most blockchains lack what, in legal theory, are considered secondary rules. That is, the meta-rule of the system.
Francisco J. Marmolejo-CossĂo, Eric Brigham, Benjamin Sela, Jonathan Katz
The Bitcoin protocol prescribes certain behavior by the miners who are responsible for maintaining and extending the underlying blockchain; in particular, miners who successfully solve a puzzle, and hence can extend the chain by a block, are supposed to release that block immediately. Eyal and Sirer showed, however, that a selfish miner is incentivized to deviate from the protocol and withhold its blocks under certain conditions. The analysis by Eyal and Sirer, as well as in followup work, considers a \emph{single} deviating miner (who may control a large fraction of the hashing power in the network) interacting with a remaining pool of honest miners. Here, we extend this analysis to the case where there are \emph{multiple} (non-colluding) selfish miners. We find that with multiple strategic miners, specific deviations from honest mining by multiple strategic agents can outperform honest mining, even if individually miners would not be incentivised to be dishonest. This previous point effectively renders the Bitcoin protocol to be less secure than previously thought.
Blockchain and cybersecurity are two current themes in Information Technology that have evolved and gained tremendous attention over the past few years. In this paper authors aim to structure existing and potential use of blockchain-based cybersecurity solutions from the perspective of attackers and defenders to assess whether the intersection will tip the scales in favor of one of these groups. Historically blockchain has been mainly associated with innovative financial services (including crypto-currencies) but it has other emerging use cases within e-government, supply chain management as well as security (e.g. encryption, identity and authentication, data security). On the other hand, blockchain-based platforms are increasingly a target of malicious actors and could be used as an initial attack vector. Therefore, there is a case to be made weather further adoption of blockchain-based solutions should be encouraged or not from a security standpoint and if the overall potential for change could be net positive.
In this article we will define how cryptocurrencies are building a fully decentralized financial system and that they do not depend on governments, it is intended to show the different types of virtual currencies, the use they currently have and the progress they have made since their creation in 2009 until Nowadays, certain advantages will be analyzed from an objective point of view that will allow demonstrating that cryptocurrencies can come to be cataloged as a new version of money.
This research analyzes a seemingly malicious behavior known as a block withholding (BWH) attack between pools of cryptocurrency miners in Bitcoin-like systems featuring blockchain distributed databases. This work updates and builds on a seminal paper, The Miner's Dilemma, which studied a simplified scenario and showed that a BWH attack can be rational behavior that is profitable for the attacker. The new research presented here provides an in-depth profit analysis of a more complex and realistic BWH attack scenario, which includes mutual attacks between multiple, non-uniform Bitcoin mining pools. As a result of mathematical analysis and MATLAB modeling, this paper illustrates the Nash equilibrium conditions of a system of independent mining pools with varied mining rates and computes the equilibrium rates of mutual BWH attack. The analysis method quantifies the additional profit the largest pools extract from the system at the expense of the smaller pools. The results indicate that while the presence of BWH is a net negative for smaller pools, they must participate in BWH to maximize their remaining profits, and the results quantify the attack rates the smaller pools must maintain. Also, the smallest pools maximize profit by not attacking at all-that is, retaliation is not a rational move for them.
Purpose This paper aims to explore the implications of the 2014 Financial Action Task Force (FATF) publication and guidelines on virtual currency definitions and the overall impact of blockchain technology on anti-money laundering (AML) compliance and regulation. The report cites three case study examples, which the FATF paper uses and which this paper questions as to their relevance, especially to the formal banking sector. Design/methodology/approach The paper has provided a critical analysis of a FATF publication and guideline document. Additional secondary data has been used on blockchain technology and to analyse the relevance and implications of the case studies used in the FATF document. Findings The main findings are that virtual currency technology has the potential to support AML frameworks within banking when and if they are better understood. However, generic case examples of virtual currency legal cases are not necessarily useful when developing AML risk assessment frameworks within the banking sector. Practical implications The implications from the research affect any financial organisation undertaking AML risk analysis or compliance especially for virtual currencies. It applies to the banking, insurance and auditing professions and is of interest to academics working on virtual and digital currencies. Social implications The social implications are that virtual currency technology can be used to add protection to banking transactions and could also be considered for client identity information such as beneficial ownership. Originality/value The originality of this paper is the topic of blockchain technology being considered in AML frameworks and the critical analysis of the FATF cases.
Purpose The purpose of this paper is to present the findings from a literature review, which aimed to identify previous studies evaluating cryptolaundering from a systems thinking perspective. The aim of this paper is to first confirm that cryptolaundering systems can indeed be defined as complex socio-technical systems and second to present the findings from a systematic review of the literature to determine the extent to which previous research has adopted a systems thinking perspective. Design/methodology/approach The study involved a SLR of studies published in the peer-reviewed literature between 2009 and 2018. Rasmussenâs risk management framework (Rasmussen, 1997) was used to evaluate the extent to which a systems thinking perspective had been adopted. Findings The cryptolaundering process is considered to be a complex socio-technical system. The review demonstrates that no previous studies have defined cryptolaundering as a complex socio-technical system or used systems thinking framework approach to evaluate how criminals, regulatory bodies or law enforcement entities understand processes and assess risk within cryptolaundering systems. It is argued that using such an approach to the cryptolaundering process would likely improve assessing criminal risk analyses of cryptolaundering and assist law enforcement and regulatory bodies with understanding risk management during the laundering of cryptocurrencies. Originality/value Future assessments of cryptolaundering using socio-technical system analytical processes may afford law enforcement and regulatory bodies the opportunity to improve intervention techniques and identify gaps in regulations and enforcement.
Abstract In this article, I discuss the role of cryptoâcoins (CCs) as an explicit response to the 2008 economic crisis. Drawing on networked social movement theory, I outline the tension between blockchain based currencies promoted as horizontal markets of technological innovation and the persistence of hierarchical authority within these networks. By examining the assumptions about authority and regulation that underpin the creation of CCs I argue that the cryptographic responses to the financial crisis understate the persistence of hierarchies in their claims to upset traditional monetary authority. As global networks, blockchain technology faces political challenges from regulators, hegemonic market actors and adherents devoted to particular CCs. Consequently, I draw parallels between CCs and networked social movements to argue that the emergence and proliferation of âaltcoinsâ presents a series of political challenges to the framing of CCs as disruptive technology. The innovative character of CCs relies on tacit and explicit assumptions about politics that social movement theory can help to explain. By examining the altcoins through the concepts of resource mobilization, framing and identity formation, I argue that the dynamics of offline social hierarchies persist and are magnified in the world of CCs.
Matteo Romiti, Aljosha Judmayer, Alexei Zamyatin, Bernhard Haslhofer
Dataset retrieved and used with the code hosted here for this paper published at WEIS 2019 Abstract Miners play a key role in cryptocurrencies such as Bitcoin: they invest substantial computational resources in processing transactions and minting new currency units. It is well known that an attacker controlling more than half of the networkâs mining power could manipulate the state of the system at will. While the influence of large mining pools appears evenly split, the actual distribution of mining power within these pools and their economic relationships with other actors remain undisclosed. To this end, we conduct the first in-depth analysis of mining reward distribution within three of the four largest Bitcoin mining pools and examine their cross-pool economic relationships. Our results suggest that individual miners are simultaneously operating across all three pools and that in each analyzed pool a small number of actors (⤠20) receives over 50% of all BTC payouts. While the extent of an operatorâs control over the resources of a mining pool remains an open debate, our findings are in line with previous research, pointing out centralization tendencies in large mining pools and cryptocurrencies in general
There is an increasing acknowledgement among policymakers and private-sector partners that we cannot overcome the challenges of our time without harnessing the potential of emerging technologies. As blockchain technology is rapidly being introduced to support work across a wide number of areas of humanitarian action, this article considers its potential impact on women and girls. The article draws on experiences emerging from UN Womenâs explorations of blockchain technology and the first gender-responsive pilot targeting Syrian refugee women in UN Womenâs cash-for-work programme in Jordan. The article reminds us how important it is to introduce technologies in ways that maximise their potential to advance gender equality and the empowerment of women and girls in humanitarian settings, and minimise the risk of doing harm. Without conscious commitment to these aims, blockchain technology may exacerbate the marginalisation of women and girls.
BeltrĂĄn Borja Fiz Pontiveros, Mathis Steichen, Radu State
In this work, we consider the graph of confirmed transactions in bitcoin. Understanding this graph is essential to discern the different economic activities conducted by the pseudonymous actors. In addition to traditional graph analysis methods, new metrics need to be engineered specifically for the bitcoin transaction graph. Hence, we propose a new centrality measure named mint centrality. The measure uses the inherent tree structure of transactions in bitcoin and their relation to the corresponding set of coinbase transactions, and can be evaluated with linear complexity. We present preliminary results of the mint centrality on the first 200,000 blocks of the public bitcoin blockchain.
Abstract I investigate ethical questions concerning a novel cryptocurrency, Bitcoin, using a Fichtean account of the ethics of currency. Fichte holds that currencies should fulfill an ethical purpose: providing access, in perpetuity, to the material welfare that underwrites citizens' basic rights. In his nineteenthâcentury context, Fichte argues that currencies fulfill this purpose better when nations control them (i.e., when they are ânational currenciesâ) than when foreigners freely trade them (as âworld currenciesâ). After exploring conditions in which national currencies fail to secure material stability over time, e.g., in corrupt regimes, I develop a Fichtean model for ethically evaluating currencies and evaluate the extent to which Bitcoin meets its standards for ethical currency. I argue that Bitcoin undermines the (monetary) power of nations and, as such, threatens their ability to provide access to necessary material goods. While offering citizens a means of defending themselves against corrupt regimes, Bitcoin forsakes the general welfare and is, as such, unethical by Fichtean lights.
Bitcoin is a decentralized digital currency whose transactions are recorded in a common ledger, so called blockchain. Due to the anonymity and lack of law enforcement, Bitcoin has been misused in darknet markets which deal with illegal products, such as drugs and weapons. Therefore from the security forensics aspect, it is demanded to establish an approach to identify newly emerged darknet markets' transactions and addresses. In this paper, we thoroughly analyze Bitcoin transactions and addresses related to darknet markets and propose a novel identification method of darknet markets' addresses. To improve the identification performance, we propose a voting based method which decides the labels of multiple addresses controlled by the same user based on the number of the majority label. Through the computer simulation with more than 200K Bitcoin addresses, it was shown that our voting based method outperforms the nonvoting based one in terms of precision, recal, and F1 score. We also found that DNM's addresses pay higher fees than others, which significantly improves the classification.
The paper's introduction offers a high-level review of Bitcoin's features, especially its governance by protocol. The paper proceeds to summarize Bitcoin's analysis as a payment system. It pays particular attention to a comparison between Bitcoin and a firm-run payment system.
Chad Albrecht, Kristopher McKay Duffin, Steven R. Hawkins, VĂctor Morales-Rocha
Purpose This paper aims to analyze the money laundering process itself, how cryptocurrencies have been integrated into this process, and how regulatory and government bodies are responding to this new form of currency. Design/methodology/approach This paper is a theoretical paper that discusses cryptocurrencies and their role in the money laundering process. Findings Cryptocurrencies eliminate the need for intermediary financial institutions and allow direct peer-to-peer financial transactions. Because of the anonymity introduced through blockchain, cryptocurrencies have been favored by the darknet and other criminal networks. Originality/value Cryptocurrencies are a nascent form of money that first arose with the creation of bitcoin in 2009. This form of purely digital currency was meant as a direct competitor to government-backed fiat currency that are controlled by the central banking system. The paper adds to the recent discussions and debate on cryptocurrencies by suggesting additional regulation to prevent their use in money laundering and corruption schemes.
Mining is one of the core elements of the proof-of-work based cryptocurrency economy. In this paper we investigate the generic landscape and hierarchy of miners on the example of Ethereum and Zcash, two blockchains that are among the top 5 in terms of USD value of created coins. Both chains used ASIC resistant proofs-of-work which favors GPU mining in order to keep mining decentralized. This however has changed with recent introduction of ASIC miners for these chains. This transition allows us to develop methods that might detect hidden ASIC mining in a chain (if it exists), and to study how the introduction of ASICs effects the decentralization of mining power. Finally, we describe how an attacker might use public blockchain information to invalidate the privacy of miners, deducing the mining hardware of individual miners and their mining rewards.
Cryptocurrency regulations are developing fast. Across the world, authorities are reacting to the emerging threat posed by criminals using new payment methods to conceal and launder the proceeds of their crimes. However, as the application of anti-money laundering/combating the financing of terrorism (AML/CFT) due diligence requirements becomes stricter and more entities implement preventative measures, criminals are constantly looking elsewhere for potential havens for their illicit activities. This Working Paper offers an insight into some potential consequences of changes in AML/CFT legislation in relation to cryptocurrency exchange services and virtual assets.