Bitfury Research Shines Light on Bitcoin Privacy Weaknesses

A new Bitfury white paper aims to advance the study of how bitcoins sent using certain privacy-enhancing techniques can be traced to participants.

AccessTimeIconAug 23, 2016 at 9:34 p.m. UTC
Updated Apr 10, 2024 at 2:54 a.m. UTC
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A new Bitfury white paper aims to advance the study of how bitcoins sent using certain privacy-enhancing techniques could be traced back to participants.

Released today, "Shared Send Untangling in Bitcoin" explores how bitcoins in this type of transaction can be "untangled", or sorted, into their original value flows. Shared send transactions originate when users organize into groups, by way of an intermediary, in order to obfuscate how funds may be moving between wallets.

"We establish a theoretical approach to shared send transaction analysis, which formulates the transaction untangling problem in terms of the graph theory. We also describe several practically important modifications to the untangling problem," the paper states.

Of note are its implications for CoinJoin and CoinSwap, algorithms that mix transactions inputs and outputs, and that were seen as advances in bringing privacy to the open, public blockchain that records bitcoin transactions.

The research is also the latest by Bitfury that demonstrates its willingness to expand beyond bitcoin mining, following a report in July that sought to solve challenges related to the Lightning Network, an in-development bitcoin micropayments platform.

According to the company, the findings will serve to inform the "Bitfury Crystal Blockchain", a forthcoming web service for blockchain investigation and analysis.

A spokesperson for the startup said:

"We are looking to solve hard technical problems that we can commercialize. What we’re doing with this project is something that we think we can monetize."

The work comes at a time when blockchain analytics tools are increasingly in demand from financial institutions seeking to interact with industry businesses.

Startups like Chainalysis, Elliptic and Skry, for instance, have all so far moved to capitalize on demand from industries and governments, though Bitfury would be the best capitalized firm to enter the market.

The research does not explore "shared coin services", tools that send bitcoins to an intermediary and in which the process of sending and receiving an intended transaction is divided into several transactions.

Transaction definitions

As part of this effort, Bitfury's researchers spend much of the report seeking to define shared send transactions, a process that involved categorizing transactions observed on the blockchain in a way that provided more nuance to the interactions studied.

The white paper divides transactions into four types, the most basic of which are wallet-to-wallet transactions and separable transactions, or those that can be split into "subsets" of money flows.

Ambiguous transactions (those observed to have at least two separate money flows) and intractable transactions (those whose category cannot be determined) are among the more complex and potentially challenging from a compliance perspective.

"People who aren't involved in this transaction can’t say which people sent the money," a researcher explained.

In total, Bitfury said it analyzed 10 million bitcoin transactions that took place between 27th May and 11th July of this year, finding that just 2.5% were ‘intractable’.

"Shared send transactions constitute approximately 13.5% of all studied bitcoin transactions. Of these, about 82% are simple transactions, ~9.6% are separable, and ~6.3% are ambiguous," the report reads.

In comments, researchers involved with the project noted that intractable transactions don’t technically exist, as should there be a proper analysis, it could always be sorted into one of the three classes.

'Nefarious actors'

Long term, the Bitfury team wasn’t shy about stating that the tool is intended for use by firms that want to ensure they are transacting in a compliant manner.

"Ultimately we’re seeking to make the blockchain more secure by ensuring it's used for good purposes, not nefarious actors," a spokesperson said.

The paper, however, cautioned that shared send transactions aren’t necessarily the result of a mixing service meant to hide illicit actions, and that hierarchical deterministic (HD) wallets, those that derive keys from a single seed, can be sorted into this category.

"In this paper, we think of the problem and ask, ‘What kind of transactions are there?'" a researcher said.

Representatives of the company said the paper should be thought of as Bitfury’s "first step" in advancing work in this part of the field, but that more research in this area is likely.

The full white paper can be found below:

Image via Shutterstock


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