Why Bitcoin is not as anonymous as most users think

People who use Bitcoin to ensure their purchases remain anonymous may want to reconsider their reliance on the online peer-to-peer currency, say researchers who have investigated the network of Bitcoin transactions.


Users exchange bitcoins by sending them to the recipient's wallet address, a sequence of alphanumeric characters that serves as the public key in a cryptography system. Anyone can view every transaction, but since there is no public record linking addresses to users and users can have any number of addresses many people assumed it would not be possible to trace transactions to a particular individual.


Now Fergal Reid and Martin Harrigan of University College Dublin, Ireland, say this assumption is wrong. They separately mapped the network of Bitcoin transactions and the network of users, then looked for external information that could help make links between the two. For example, WikiLeaks has tweeted its wallet address asking for donations, so the researchers could identify bitcoins flowing in and out of its wallet.


The pair used the reported theft of $500,000 worth of bitcoins as a case study, discovering a number of links to other users. The thief stole 25,000 BTC from the victim, known as "allinvain" on the Bitcoin forums, then later sent 0.31337 BTC, which looks like the word "elite", to a wallet owned by the hacking group LulzSec. Another unknown user is also connected to both LulzSec and the victim - this user donated to the hacking group one day before the theft, and was a member of the same "mining" group as the victim, in which Bitcoin users work collectively to generate new coins.


Reid and Harrigan don't actually identify the thief, but they suggest that a centralised service with more user data, such as one of the many Bitcoin exchange websites, could use similar methods to learn more about the users involved. "We don't set out to to de-anonymise the thief - we are researchers, not law enforcement," said Reid in response to questions on a blog post about their work, adding that while it is possible to use Bitcoin anonymously, "you don't get this anonymity automatically, and that most casual users of Bitcoin may not be anonymous, even though many of them may believe they are".