[Cryptonomics Research] Taint analysis of the Bitcoin network

Taint analysis of the Bitcoin network

Abstract:

Determining the trust of an individual Bitcoin wallet is a difficult problem. There are no ratings, that offer vendors or exchanges meaningful information about the level of the taint of Bitcoins they are receiving. Lack of such information places exchanges liable in an event when the received Bitcoins are stolen or ill-gotten. In this paper, we try to solve this problem by introducing a Bitcoin address taint score called TaintRank. It provides insight into a specific wallet by taking the addresses it interacted with throughout history into consideration. This ranking method provides such Bitcoin exchange companies insight with whom they are trading.

If this sounds a lot like Google's PageRank, that's because it is very similar. The paper actually tests five different methods and no single approach comes out ahead.

This is also more likely as a forensic method after any suspicious event rather than a permanent layer added to every transaction.

One fairly obvious conclusion of the analysis is that corrupt accounts spread their gains thinly, often through thousands of other accounts, before cashing out. These methods thus need more subtlety in establishing which other addresses are truly tainted compared to those that may be tainted by accident through legitimate transactions.