Briefly about the de-anonymization of cryptocurrencies

The United States and other G7 countries have begun to closely study everything related to Blockchain and cryptocurrencies over the past three years. Overcoming the main advantage of bitcoin and most altcoins - anonymity - has become the identity of the intelligence services not in words, but in deeds. Therefore, if you believe in conspiracy theories and value the privacy of your personal life, let’s try together to figure out whether de-anonymization is so terrible.

Bitcoin, and later other cryptocurrencies, have gained incredible popularity not only in the legal sphere, but also in a highly intelligent criminal environment associated with the laundering of shadow income, drug trafficking, terrorist financing, etc. A logical continuation of the increased interest of the US authorities in them was the desire of the FBI, CIA and other American intelligence agencies to take control of bitcoin circulation, at a minimum within their jurisdiction, and at a maximum beyond it.

The lack of special tools for analyzing Blockchain and identifying bitcoin users prevented the establishment of control. It is for this reason that the security forces decided to act in a non-trivial way. Involving the cooperation of other “intellectuals”, but from among scientists, they set the task of reducing to a minimum the time spent on tracking illegal transactions, as well as identifying the persons involved.

Thus, the Office of Science and Technology of the US Department of Homeland Security (DHS) in mid-2016 announced funding for this kind of scientific research within the framework of a special project, led by The Sandia National Laboratories, which is part of the Sandia Corporation Corporation".

The goal of the project is to develop measures to de-anonymize bitcoin transactions, as well as assist law enforcement agencies in this matter. 

Sandia’s team of technical specialists first focused their work on a thorough study of the entire infrastructure and nuances of the functioning of digital currency from the point of view of anonymity. Subsequently, Sandia specialists decided to test the results of their research experimentally, visualizing them in the most simplified form. To do this, they provided special agents of law enforcement agencies with separate software with a graphical interface, which makes it possible to visually test the effectiveness and speed of each of the developed deanonymization algorithms.

Current, according to Sandia experts, problems of deanonymization in the bitcoin network

One of the main problems that security forces most often face is the amount of time and resources that they are forced to spend to track a particular transaction..

Of course, bitcoin is a fairly new phenomenon that requires innovative approaches to its study. At the same time, due to the rapid growth of the bitcoin ecosystem, law enforcement agencies still do not have the necessary tools in their arsenal that would allow them to solve the existing problems of anonymity associated with this cryptocurrency.

The first thing Sandia specialists paid attention to was the numerous configurations of bitcoin transactions and the formation of some of their own templates for such operations. Subsequently, Sandia experts stated that this problem does not yet have a simple solution and there is no clear algorithm for effective bitcoin de-anonymization.

Possible tools for bitcoin de-anonymization

In order to implement the tasks set by law enforcement, Sandia still conducted research focusing only on bitcoin and achieved partial success. 

Its specialists have taken the path of forming a research environment and conducting experiments with other algorithms capable of de-anonymizing illegal cryptocurrency users. Allegedly, the results obtained will enable law enforcement agencies to “link bitcoin addresses” to a specific person, then receiving the information they need. According to Sandia specialists, even in the absence of personal data of such a person, the aggregate information obtained from Blockchain will give grounds to assert that certain transactions were carried out by the same user.

Opinion of cybersecurity experts regarding the likelihood of de-anonymization of cryptocurrency transactions

Since the advent of bitcoin, many people have developed a false judgment that the use of Bitcoin will provide complete anonymity of payments and will not allow anyone to identify the actual sender/recipient of the “coins.” But is this really so? - yes and no. Using cryptocurrency" without understanding the essence of the network and the mechanics of the transaction can lead to complete de-anonymization of the user.

This is a very difficult topic and we will definitely touch on it in our separate article. In any case, if you are pursuing the goal of protecting your personal data, you should pay very close attention to each of the nuances of increasing the anonymity of working on the Internet.. Only then can you be more or less sure that following certain rules it will be extremely difficult for third parties to establish your identity, including when making transactions on the Bitcoin network.

Today, Bitcoin is technologically hopelessly behind. It is suitable as a means for storing your savings in the form of some kind of “digital capital”, but it is unlikely for making frequent and anonymous payments. Much more convenient and faster to use altcoins have appeared (Dash, LiteCoin, ETH, etc.), providing an incomparably higher degree of payment anonymity and transaction security.  But whether Sandia specialists and the US intelligence services managed to achieve significant results in de-anonymizing bitcoin transactions is unlikely to become known in the near future due to the obvious secrecy of this kind of research.