Bitfury is one of the largest bitcoin mining farms in existence, and very recently they have been working on blockchain analysis. This process has, so far, been able to identify over one sixth of users on the Bitcoin blockchain.

One of the miners for Bitfury has this to say:

“Bitcoin address clustering is a process that exposes bitcoin users by determining which addresses belong to a single user through an analysis of Blockchain data. The act of clustering groups those addresses together, enabling investigators to link them to a single entity.” 

Though it is unknown whether Bitfury is working with an authoritarian organization, such as the US federal government, such processes and research into techniques to trace transactions will most likely aid investigations in the future. It is also notable that the mining firm has close ties to the US government, as BTCManager reported in December 2016.

Bitfury’s report shows a new strategy to clusters that reduces the error margin in results significantly from previous methods. Previous techniques would use Blockchain data and attempt to validate it with off-chain sources, however, Bitfury’s new model allows the use of both types of data at once.

Current tests show a high success rate, especially compared to old ways of backtracing these transactions. This can be seen as both good and bad news dependent on whose camp one follows.

On the one hand, this significantly deters criminal use of bitcoin, such as that of the illicit drug trade, while on the other hand the ever growing loss of privacy is a concern to many users of the currency. One of the strategic advisors for Bitfury and former Deputy Assistant Attorney General in charge of cybercrime at the US Department of Justice, Jason Weinstein, had this to say on the matter of illegal uses of bitcoin:

“Criminals are increasingly learning the Bitcoin Blockchain is not the place for them. Having a traceable public ledger of every bitcoin transaction ever conducted allows law enforcement to ‘follow the money’ in a way that would never be possible with cash. Criminals should run, not walk, away from bitcoin. And thanks to Bitfury, today they should be running away even faster.”

Beyond the worry about the snooping eyes of the federal government, being able to track data so easily could be a big benefit for corporations if they so choose to invest further research into these techniques. Being able to track spending habits and purchase data on the public ledger of blockchain is a dream come true for targeted advertisements.

However, there are projects in the works to increase security methods along the Bitcoin blockchain. Certain tools such as ring signatures and zk-SNARKs help obfuscate exactly who the address being sent to is as well as the amount being transferred which may help assuming they are implemented. Working toward MAST and Schnorr signatures, these upgrades should improve the privacy situation for bitcoin users in 2018.

As far as a regular user is concerned, there isn’t much to be worried about at this point. But definitely, something to keep an eye on for the future, especially if privacy is a matter of worry. For those wanting an indepth dive into what Bitfury has cooked up, check out their whitepaper here.

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Author: BTCManager.com