Is there a secret behind Bitcoin mixing? Bitfury's research reveals the secrets of transactions

Bitfury is a world-leading blockchain technology service company dedicated to providing enterprises with secure asset digitization and transfer solutions. It also has in-depth research on Bitcoin. Recently, the company published a white paper introducing the process of uncovering the secrets of Bitcoin mixing. In order to explain whether Bitcoin is involved in illegal activities, the company divides transactions into four categories and points out that technically, uncontrollable Bitcoin transactions do not exist, so it cannot be concluded that Bitcoin transactions are involved in illegal activities.

Bitfury published a white paper that further explores how Bitcoin remittances can be traced back to the identities of participants based on certain privacy-enhancing technologies.

Bitfury released "Shared Send Untangling in Bitcoin" yesterday, exploring how to "untrace" bitcoins in such transactions, or show their "original" value flow status. "Shared send transactions" usually originate from the practice of users forming a group through some kind of intermediary in order to obscure the path of funds transferred between different wallets.

The white paper explains:

"We develop a theoretical analytical approach to uncover shared send transactions, using graph theory to systematically explain the challenges of uncovering transaction secrets, and describe some very important variants of these challenges."

Of note is how the white paper affects CoinJoin and CoinSwap; algorithms designed by bitcoin developer Greg Maxwell that obfuscate transaction outputs and inputs and are thought to increase privacy on the open, public bitcoin blockchain.

Bitfury’s survey suggests it is willing to expand beyond bitcoin mining services, and in July the company said it was working on solving problems related to the Lightning Network, a bitcoin micropayments platform under development.

The company noted that the findings will be used in “Bitfury Crystal Blockchain,” its upcoming blockchain investigation and analysis web service.

A spokesperson for the company said:

"We work on solving difficult problems with technologies that have commercial potential; the purpose of this project is to achieve the economic benefits of something as we anticipate."

The project is well suited to current market needs; financial institutions are increasingly demanding blockchain analysis tools as they interact with businesses in the field. Startups such as Chainalysis, Elliptic, and Skry have all benefited financially from industry and government demand, and Bitfury is of course the most capitalized company in the market.

The company’s projects do not include research into “shared coin services,” which are tools that can send bitcoin to an intermediary, breaking up the sending and receiving process of a single transaction into multiple transactions.

Definition of Transaction

The Bitfury report goes to great lengths to define shared send transactions; the process of categorizing transactions on the blockchain adds a lot of nuance to the transaction process.

The white paper divides transactions into four categories, the basic types of which are wallet-to-wallet transactions and divisible transactions, or transactions that can be split into many capital flow paths.

From a compliance perspective, ambiguous transactions (transactions with two independent funds paths) and unmanageable transactions (transactions that cannot be clearly categorized) are the most complex and challenging in the study.

One researcher explained:

"No one who is not involved in the transaction has any way of knowing who sent the money."

Bitfury concluded that they analyzed 10 million Bitcoin transactions completed between May 27 and July 11 and found that only 2.5% of them were difficult to control.

"Shared send transactions account for 13.5% of the Bitcoin transactions studied, of which 82% are simple transactions, 9.6% are independent, and 6.3% are ambiguous."

Researchers involved in the project pointed out that technically speaking, there are no transactions that are difficult to control; because as long as there is an appropriate analysis method, it can be classified into one of the three types of transactions.

Malicious actors

Bitfury has been open about the fact that its tools are developed for businesses seeking to comply with trading regulations.

A spokesperson said:

“Ultimately we want to improve the security of blockchain by ensuring that it is used for legitimate purposes.”

However, the report warns that "shared send transactions" are not necessarily the result of a coin mixing service, nor do they necessarily hide the traces of illegal activities; and hierarchical deterministic wallets (wallets with a single source of keys) do not belong to any of these categories. One researcher said:

"The report shows what our research has been about, asking the question 'what type of deal is it?'"

Company representatives described the report as a “first step” in Bitfury’s efforts to deepen its work in the field, and did not rule out the possibility of other research projects in the field.