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INSIGHT INTO CRYPTOCURRENCIES
Methods and Tools for Analyzing Blockchain-based Ecosystems
Austrian Economic Chambers
2018-02-28
Dr. Bernhard Haslhofer
Senior Scientist
Center for Digital Safety & Security
• Cryptocurrency Analytics
• Stakeholders and Use Cases
• Future (Research) Directions
• Q & A
MY PLAN FOR TODAY
2
CRYPTOCURRENCIES | BIRD’S EYE VIEW
Real-world actors: Exchanges, Organizations, (Darknet) Marketplaces, Payment Providers, etc.
Investigate and develop scalable quantitative methods, tools and services that
contribute to a better understanding of the structure and dynamics of
cryptocurrency ecosystems.
CRYPTOCURRENCY ANALYTICS | GOALS
4
Macroscopic AnalysisMicroscopic Analysis
CRYPTOCURRENCY ANALYTICS | APPROACH
5
A
A A
AA
C
T
BlockchainAddress
Graph
Address
Cluster
Tags
Enrichmentprocess
Statistics (as of Sept. 2017)
Transactions: 249,408,683
Addresses: 296,862,290
Clusters: 30,645,426
Address graph
- nodes (= addresses): 296,862,290
- edges (= aggregated transactions): 1,567,227,841
All data points are pre-computed and stored in
a de-normalized form
6
CRYPTOCURRENCY ANALYTICS | IMPLEMENTATION
7
CRYPTOCURRENCY ANALYTICS | TOOL
8
• Cryptocurrency Analytics
• Stakeholders and Use Cases
• Future (Research) Directions
• Q & A
MY PLAN FOR TODAY
9
STAKEHOLDERS
10
Science
• Ransomware has become dominant
cybercrime threat
• Over 500 families
• Ransom payments almost exclusively in
Bitcoin
• More comprehensive, evidence-based
picture still missing
SCIENCE | RANSOMWARE STUDY
11
STAKEHOLDERS
12
Public Authorities
PUBLIC AUTHORITIES | LAW ENFORCEMENT
13
“Bitcoin is […] accounting for over
40% of all identified criminal-to-criminal
payments.”
- Europol 2015 Internet Organized Crime Threat Assessment Report
PUBLIC AUTHORITIES | LAW ENFORCEMENT
14
Suspect Address Ecosystem Exit Point
(e.g., Exchange)
Use Case: Follow the digital trace of criminal cryptocurrency payments.
PUBLIC AUTHORITIES | LAW ENFORCEMENT
15
2014 20202017
BITCRIME
EU H2020 TITANIUM
Legal, Societal,
Ethical Aspects
Tool and Service
Ecosystem
Darknet
Marketplaces
Cross-ledger
Analytics
Mixing-Service
Detection
Information
Sharing
Post-Bitcoin
Cryptocurrencies
Blockchain-based
Electronic Markets
GRAPHSENSE
EU H2020 DANTE
STAKEHOLDERS
16
FinTech
• Anti Money Laundering: analytics procedures to ensure that customers are not aiding
in money-laundering activities.
FINTECH | AML
17
Darknet Marketplace
Mixing Service
Exchange
Wallet Provider
Use Case: Check incoming/outgoing cryptocurrency payments for AML compliance.
• There is a strong discrepancy between
• expectations in blockchain technologies
• current technical realities and scientific findings
• Major issues
• Anonymity / Privacy
• Scalability
• Degree of decentralization / Tamperproofness
• Security
• Trustworthiness of Smart Contracts
• Blockchain – public + editable ≈ Distributed Database
FINTECH | BLOCKCHAIN TECHNOLOGY
Our focus:
Technical grounding
of ideas and business cases.
• Cryptocurrency Analytics
• Stakeholders and Use Cases
• Future (Research) Directions
• Q & A
MY PLAN FOR TODAY
19
• Cybercriminals increasingly turn their attention to
services in cryptocurrency ecosystems
• Major target: cryptocurrency exchanges
• Attacks are conducted in the same way as
targeted attacks on banks with similar or
sometimes identical tools and tactics
• Comeback of fraudulent schemes
• Ponzi scheme
• Investment / ICO scams
• …
FINANCIAL CRIME FORENSICS
20
• Technology for scalable, instant Bitcoin / Blockchain
Transactions
• Machine-to-machine payments, Micropayments
• Channel ”entry” and settlement transactions on public
blockchain
• Intermediate payments off-chain
• Uses of multisignature addresses and smart contracts
OFF-CHAIN TRANSACTION CHANNELS
21
The Bitcoin Lightning Network
http://lightning.network
The Lightning Network is a decentralized system for
instant, high-volume micropayments that removes the
risk of delegating custody of funds to trusted
third parties.
Bitcoin, the world's most widely used and valuable
digital currency, allows anyone to send value without a
trusted intermediary or depository. Bitcoin contains an
advanced scripting system allowing users to program
instructions for funds. There are, however, some
drawbacks to bitcoin's decentralized design.
Transactions confirmed on the bitcoin blockchain take
up to one hour before they are irrevesible.
Micropayments, or payments less than a few cents, are
inconsistently confirmed, and fees render such
transactions unviable on the network today.
The Lightning Network solves these problems. It is one of the first implementations of a multi-party Smart Contract
(programmable money) using bitcoin's built-in scripting. The Lightning Network is leading technological development in
multiparty financial computations with bitcoin.
Instant Payments. Bitcoin aggregates transactions into blocks spaced ten minutes apart. Payments are widely
regarded as secure on bitcoin after confirmation of six blocks, or about one hour. On the Lightning Network, payments
don't need block confirmations, and are instant and atomic. Lightning can be used at retail point-of-sale terminals, with
Alice
Bob
Source: https://lightning.network/lightning-network-summary.pdf
bernhard.haslhofer@ait.ac.at

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Insight Into Cryptocurrencies - Methods and Tools for Analyzing Blockchain-based Ecosystems

  • 1. INSIGHT INTO CRYPTOCURRENCIES Methods and Tools for Analyzing Blockchain-based Ecosystems Austrian Economic Chambers 2018-02-28 Dr. Bernhard Haslhofer Senior Scientist Center for Digital Safety & Security
  • 2. • Cryptocurrency Analytics • Stakeholders and Use Cases • Future (Research) Directions • Q & A MY PLAN FOR TODAY 2
  • 3. CRYPTOCURRENCIES | BIRD’S EYE VIEW Real-world actors: Exchanges, Organizations, (Darknet) Marketplaces, Payment Providers, etc.
  • 4. Investigate and develop scalable quantitative methods, tools and services that contribute to a better understanding of the structure and dynamics of cryptocurrency ecosystems. CRYPTOCURRENCY ANALYTICS | GOALS 4 Macroscopic AnalysisMicroscopic Analysis
  • 5. CRYPTOCURRENCY ANALYTICS | APPROACH 5 A A A AA C T BlockchainAddress Graph Address Cluster Tags Enrichmentprocess Statistics (as of Sept. 2017) Transactions: 249,408,683 Addresses: 296,862,290 Clusters: 30,645,426 Address graph - nodes (= addresses): 296,862,290 - edges (= aggregated transactions): 1,567,227,841 All data points are pre-computed and stored in a de-normalized form
  • 6. 6
  • 7. CRYPTOCURRENCY ANALYTICS | IMPLEMENTATION 7
  • 9. • Cryptocurrency Analytics • Stakeholders and Use Cases • Future (Research) Directions • Q & A MY PLAN FOR TODAY 9
  • 11. • Ransomware has become dominant cybercrime threat • Over 500 families • Ransom payments almost exclusively in Bitcoin • More comprehensive, evidence-based picture still missing SCIENCE | RANSOMWARE STUDY 11
  • 13. PUBLIC AUTHORITIES | LAW ENFORCEMENT 13 “Bitcoin is […] accounting for over 40% of all identified criminal-to-criminal payments.” - Europol 2015 Internet Organized Crime Threat Assessment Report
  • 14. PUBLIC AUTHORITIES | LAW ENFORCEMENT 14 Suspect Address Ecosystem Exit Point (e.g., Exchange) Use Case: Follow the digital trace of criminal cryptocurrency payments.
  • 15. PUBLIC AUTHORITIES | LAW ENFORCEMENT 15 2014 20202017 BITCRIME EU H2020 TITANIUM Legal, Societal, Ethical Aspects Tool and Service Ecosystem Darknet Marketplaces Cross-ledger Analytics Mixing-Service Detection Information Sharing Post-Bitcoin Cryptocurrencies Blockchain-based Electronic Markets GRAPHSENSE EU H2020 DANTE
  • 17. • Anti Money Laundering: analytics procedures to ensure that customers are not aiding in money-laundering activities. FINTECH | AML 17 Darknet Marketplace Mixing Service Exchange Wallet Provider Use Case: Check incoming/outgoing cryptocurrency payments for AML compliance.
  • 18. • There is a strong discrepancy between • expectations in blockchain technologies • current technical realities and scientific findings • Major issues • Anonymity / Privacy • Scalability • Degree of decentralization / Tamperproofness • Security • Trustworthiness of Smart Contracts • Blockchain – public + editable ≈ Distributed Database FINTECH | BLOCKCHAIN TECHNOLOGY Our focus: Technical grounding of ideas and business cases.
  • 19. • Cryptocurrency Analytics • Stakeholders and Use Cases • Future (Research) Directions • Q & A MY PLAN FOR TODAY 19
  • 20. • Cybercriminals increasingly turn their attention to services in cryptocurrency ecosystems • Major target: cryptocurrency exchanges • Attacks are conducted in the same way as targeted attacks on banks with similar or sometimes identical tools and tactics • Comeback of fraudulent schemes • Ponzi scheme • Investment / ICO scams • … FINANCIAL CRIME FORENSICS 20
  • 21. • Technology for scalable, instant Bitcoin / Blockchain Transactions • Machine-to-machine payments, Micropayments • Channel ”entry” and settlement transactions on public blockchain • Intermediate payments off-chain • Uses of multisignature addresses and smart contracts OFF-CHAIN TRANSACTION CHANNELS 21 The Bitcoin Lightning Network http://lightning.network The Lightning Network is a decentralized system for instant, high-volume micropayments that removes the risk of delegating custody of funds to trusted third parties. Bitcoin, the world's most widely used and valuable digital currency, allows anyone to send value without a trusted intermediary or depository. Bitcoin contains an advanced scripting system allowing users to program instructions for funds. There are, however, some drawbacks to bitcoin's decentralized design. Transactions confirmed on the bitcoin blockchain take up to one hour before they are irrevesible. Micropayments, or payments less than a few cents, are inconsistently confirmed, and fees render such transactions unviable on the network today. The Lightning Network solves these problems. It is one of the first implementations of a multi-party Smart Contract (programmable money) using bitcoin's built-in scripting. The Lightning Network is leading technological development in multiparty financial computations with bitcoin. Instant Payments. Bitcoin aggregates transactions into blocks spaced ten minutes apart. Payments are widely regarded as secure on bitcoin after confirmation of six blocks, or about one hour. On the Lightning Network, payments don't need block confirmations, and are instant and atomic. Lightning can be used at retail point-of-sale terminals, with Alice Bob Source: https://lightning.network/lightning-network-summary.pdf