Elliptic – Investigating Bitcoin transactions

The other day I wrote about blockchains, looking into this new technology. I then came across a company called Elliptic that specialises in “identifying illicit activity on the Bitcoin blockchain.” It made me realise how blockchains can be used for all kinds of illegal activity. Also, I can now see a clear link between digital identity management and blockchains.

Transparency is a key aspect of blockchains and, going back to the original purpose of blockchains, it helps Bitcoins to complete financial transactions through the chain. Naturally, there are lots of users who don’t like the transparency aspect and use anonymising services to cover tracks when doing transactions through the blockchain.

I read an interesting article about how anonymous users and their transactions can still be identified, tracking users’ activity both in real-time and historically. There are a number of centralised services within the blockchain e.g. wallets and exchanges which have access to user and transaction info. Also, by doing an activity or user network analysis, one can find out more about the type of transaction and the identity of the users involved (see example in Fig. 1 below).

Fig. 1 – An example of a sub-network between the thief, the victim and three other vertices

Image Credit: Fergal Reid and Martin Harrigan

The majority of Elliptic’s clients seem to be either law enforcement agencies or financial institutions. For example, one of the uses cases that Elliptic caters for is making sure that the bitcoins a client acquires aren’t derived from the proceeds of criminal activity. Elliptic says that in the past year it has been able to map the entire 35 GB transaction history of the bitcoin blockchain.

Interestingly, Elliptic has created a visualisation technology to provide a number of anti-money laundering (‘AML’) services. If you look at the sample visualisation below (see Fig. 2), you can can see how Elliptic can visualise ‘known’ entities e.g. exchanges whilst naming illicit marketplaces and money laundering services.

Through an API, Elliptic’s clients will thus get real-time alerts about any bitcoin payments linked to known thefts, illicit marketplaces and other criminal activity, which are all identified by name. As a result, financial institutions can effectively do real time compliance, adhering to compliance regulation as transactions take place through the blockchain.

Fig. 2 – “The Bitcoin Big Bang” visualisation by Elliptic

Image Credit: Bitcoin Magazine

Main learning point: As I mentioned in my previous blog post, the world of blockchains is a new one to me. Learning about how people can abuse this new technology is therefore just as new to me. Learning about how Elliptic helps financial institutions and law enforcement agencies to identify illicit blockchain activity has given me a first understanding of how one can work through to blockchain networks to figure out its users and transactions.

Related links for further learning:

  1. http://dupress.com/articles/trends-blockchain-bitcoin-security-transparency/
  2. http://insidebitcoins.com/news/sabr-io-identifies-illegal-activity-on-blockchains-willing-to-work-with-law-enforcement/34307
  3. http://fsroundtable.org/cto-corner-what-is-a-blockchain-and-why-is-it-important/
  4. http://www.coindesk.com/network-analysts-view-block-chain/
  5. http://www.financemagnates.com/cryptocurrency/innovation/elliptic-launches-bitcoin-big-bang-anti-money-laundering-tool/
  6. https://bitcoinmagazine.com/articles/elliptic-launches-anti-money-laundering-visualization-tool-1435089559
  7. http://anonymity-in-bitcoin.blogspot.co.uk/2011/07/bitcoin-is-not-anonymous.html
  8. http://arxiv.org/abs/1107.4524
  9. https://www.elliptic.co/financial-institutions/
  10. http://www.dfs.ny.gov/legal/regulations/revised_vc_regulation.pdf

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