Detecting money laundering through Bitcoin mixer by traces

PI: Dr. K.P. Chow, HKU

Project Abstract: 

Bitcoin technology is a distributed, peer-to-peer system, and Bitcoin users communicate with each other using the Bitcoin protocol. When spending Bitcoin, the current Bitcoin owner presents his/her public key and digital signature in a Bitcoin transaction to spend those Bitcoin. A Bitcoin mixer service is a cryptocurrency service that allows users to “anonymise” their Bitcoin by eliminating any possible connection between their original deposited Bitcoin and the mixed Bitcoin that they withdraw later from the service. It is not possible to trace the flow of transactions in a mixer as the owner of the deposit address is not the one moving them after the deposit.

The anonymous nature of Bitcoin addresses and the existing of Bitcoin mixer make Bitcoin the perfect currency for money laundering. Many criminals therefore use Bitcoin together with the mixing services to help make their “dirty” money into “clean” money. Tracing the flow of Bitcoin through the mixing services is a challenge to the law enforcement.

We propose here to do research in finding traces that may left behind in the Bitcoin transactions that can help investigators to determine the flow of Bitcoin into and out of a mixer, with the purpose to determine relationship between incoming and outgoing Bitcoin of a mixer. We plan to research heuristic rules that can help us to determine
1. A group of addresses that may belong to a mixer
2. The Bitcoin incoming addresses and the Bitcoin outgoing addresses belong to the
same user or related users
3. Potential money laundering activities with respect to a group of transactions