How do "they" tag BTC (from gambling, mixers, dark markets, etc.)?

[OROBTC]

...

Recently I have wondered about BTC fungibility as mixed BTC and even BTC that has been "ricochetef" a few times retains "taint", meaning, IMO, that there may be some problems when an owner wished to turn BTC into FIAT$, say, at an exchange.  Some exchanges apparently do not like heavily tainted BTC it seems...

LeGaulois provided an example of a wallet from another thread, showing origins of some of the BTC in a wallet:



I myself have wallets that are "dirtier" than his, I mix most of the coins I get, but those newly received coins can come from anywhere.


My question is:

How do "they" mark or tag coins that come from gambling sites, dark markets, mixers, etc?

I can understand that stolen BTC could be "tagged" fairly easily (at least until mixed?), but who does that?  Who has that authority? 

[odolvlobo]

In short, they create large numbers of accounts at those services and deposit and withdraw coins, noting the addresses involved. If your coins come from an address linked to any of the known addresses at a particular service, then they can reasonably assume that your coins came from that service.

[DaveF]

Far gambling; many casinos have known hot wallets where they send payments from, so that is fairly simple to track.

Mixers are a bit more difficult, but since most of them are taking everyones coins and mixing them and then giving them back to people there is a good chance that there might be some coins in there from some transactions that some places will not like. But, mixers do create anonymity.

For darnket markets and other places it depends. When raided / seized the feds usually find the wallet addresses and post them.

-Dave

[tranthidung]

What @DaveF said is right.

You can check list of top richest wallets there https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html. If you exclude inactive addresses, you will have clearer overview.

[Darker45]

It's probably through transaction links created over time.

I remember a particular article about how Bitcoin could end up imitating the kind of clean and purity standards of gold, especially the ones implemented by the London Bullion Market Association (LBMA).^[1]

As of now, we are probably aware that there are certain premiums added to virgin Bitcoins. If this kind of standard is being implemented, those which are marked as tainted are going to be considered dirty and therefore relegated as second class Bitcoins. Those that do the tagging are probably the exchanges and custodians.

However, I would stick to Bitcoin's fungibility and that 1 BTC is always worth 1 BTC regardless of where it came from.

[1] https://www.coindesk.com/bitcoin-gold-staying-clean

[pooya87]

what is the site that screenshot belongs to? i really wish the address wasn't omitted so that we could investigate more or at least have the site to try other addresses and see the results.
in any case in most cases i've seen the "taint analysis" is pretty crappy. for example the worst thing i have seen so far is walletexplorer.com (belongs to a blockchain analysis company) used to categorize a lot of transactions that had absolutely nothing to do with coinjoin under "coinjoin mess".

as for how, they always use the known information and follow the transactions down the line to try and link them to some sources. exchanges, gambling sites,... all have publicly known addresses and it is linked to their hot wallets and is linked to all the transactions they send (both withdrawals they pay out and deposits they move). similarly a lot of other places including dark market also have known addresses. you'd be surprised to learn how many of them are linked to their coinbase accounts! just check the news of how they catch them from time to time.

[jseverson]

I can understand that stolen BTC could be "tagged" fairly easily (at least until mixed?), but who does that?  Who has that authority? 

Pretty much every analytic service is independent, and are mostly worthless and shouldn't worry you -- exchanges and most people wouldn't care about their findings.

Large firms like Chainanalysis and Coinbase have their own analytics and being tagged by them could actually carry consequences, but their methods aren't public. We can only reasonably assume that they follow movement, and are probably a lot more sophisticated (they can probably reasonably guess when coins change hands, etc.) than tools available for the public.

[davis196]

I can understand that stolen BTC could be "tagged" fairly easily (at least until mixed?), but who does that?  Who has that authority?  

Nobody(except the authorities) has the authority to claim what BTC are "dirty".In reality,companies like Coinbase can abuse their users by claiming that clean Bitcoins are dirty and blocking their accounts for no reason(which is illegal and Coinbase must be sued).
Mixers might not provide protection,since most mixers might get banned after a few years,since they are used for mostly illegal activities.Getting "dirty darkweb bitcoins" thru a BTC mixer can be considered money laundering and sooner or later,the authorities will ban mixers...

[avikz]

How do "they" mark or tag coins that come from gambling sites, dark markets, mixers, etc?

This is only possible for any known addresses. So I must say that such analysis are flawed and can't be 100% true! Also it is incorrect to tag all coins coming from casinos as dirty! These are generalization that simply doesn't make sense because not all casinos are illegal. This fungibility crisis is a smart business technique by the mining companies which are fetching them some premium over the actual market price. The less we think about it, the faster it will go away!

[20kevin20]

The thing with blockchain analysis is, the more addresses are analyzed, the easier it is to find the source of coins. It's like some kind of puzzle where you have missing pieces.

These addresses are tagged by certain parties, most of them probably being blockchain analysis companies and authorities. One issue I personally see is that they can be wrongfully flagged - it's like receiving a $5 bill from a complete stranger and being accused of being part of some kind of crime proxy because the said bill has been used before you in some kind of crime.

Most people don't know that using previously used addresses in new transactions actually links the present to the past of a Bitcoin owner. That, along with some information such as addresses that belong to a certain company/individual, helps with finding out the source of someone's coins.

[Karartma1]

Blockchain analysis companies have been funded largely by governments (guess why). I saw their tools in action and they are incredibly accurate. You guys should never forget that every public blockchain is basically a time chain where all transactions are linked together. AI and machine learning, given the right inputs, can do crazy shit with data.
They have deep analytics on every blockchain tx ever made and don't forget many exchanges (if not all) do real-time tx monitoring giving your coins scores as the ones you see in that image. They go back and forth, doing many hops, to judge if your coins are clean enough. Then, never forget, under AML requirements they link your blockchain profile to your financial situation: if things do not match you will be asked for the SoF. Quoting below what I wrote elsewhere on the matter

In Europe, under AMLD5, if one has to use whatever exchange to go in and out of fiat then expect to be asked for the infamous source of funds.
If we are talking peanuts there shouldn't be many problems but for large sums expect to be scrutinized like hell.
I believe all our privacy tools are good only into the bitcoin world: if we do real p2p btc txs or if we use the LN, for instance. The moment we link that to the fiat world, unfortunately, all those checks are inevitable.
Exchanges do real-time monitoring nowadays and every tx is flagged: they mixed analytics services and chain analysis tools to understand where your btc have originated in the past. If there's no link between your documentation and their analysis, game over.

tl;dr Privacy tools are fantastic, but don't expect them to be useful when you want to cash out from exchanges.

[Kakmakr]

It is basically a hit&miss strategy with them.. They look at the Blockchain history of the source coins and they compare it to common known Bitcoin addresses (exit addresses) from casinos and also mixer services and if it originated from there, they taint it.

People like myself will use mixer services to protect myself and not for criminal reasons and most of my coins will be tainted according to their methods. (You have a right to mix the coins you received to destroy the bread crumb trail to your main hoard, so there is nothing wrong with that)

Just imagine if you bought something online with bitcoins and the owner of that site can trace your Blockchain history back to your main hoard to see how many coins you have. (Easy if all your transactions are linked back to a bitcoin address with a fat balance)  

[witcher_sense]

How do "they" mark or tag coins that come from gambling sites, dark markets, mixers, etc?

In a nutshell, this is how they do that:

[PDF]Automatic Bitcoin Address Clustering
https://www.researchgate.net/publication/322670022_Automatic_Bitcoin_Address_Clustering/link/5ab338feaca272171001ceba/download

[PDF]btctrackr : Finding and Displaying Clusters in Bitcoin
https://www.cs.princeton.edu/~arvindn/teaching/spring-2014-privacy-technologies/btctrackr.pdf

[PDF]Breaking Bad: De-Anonymising Entity Types on the Bitcoin Blockchain
Using Supervised Machine Learning
https://core.ac.uk/download/pdf/143481278.pdf

[PDF]Unsupervised Clustering of Bitcoin Transaction Data
https://www2.atmos.umd.edu/~ide/data/teaching/amsc663/14fall/amsc663_14proposalpresentation_stefan_poikonen.pdf

[PDF]Bitcoin Blockchain Analysis
https://is.muni.cz/th/v2dsl/bp_petkanic.pdf

[PDF]Deanonymization and linkability of cryptocurrency transactions based on network analysis
https://orbilu.uni.lu/bitstream/10993/39724/1/biryukov-tikhomirov-deanonymization-and-linkability.pdf

[PDF]BITSCOPE: Scaling Bitcoin Address De-anonymization using Multi-Resolution Clustering
https://izgzhen.github.io/bitscope-public/paper.pdf

[PDF]Evaluating User Privacy in Bitcoin
http://book.itep.ru/depository/bitcoin/User_privacy_in_bitcoin.pdf

[PDF]User Categorization and Community Detection in Bitcoin Network
http://snap.stanford.edu/class/cs224w-2017/projects/cs224w-62-final.pdf

[PDF]Unsupervised Learning for Robust Bitcoin Fraud Detection
https://digifors.cs.up.ac.za/issa/2016/Proceedings/Full/paper%2074.pdf

[PDF]Applying the ETL Process to Blockchain Data. Prospect and Findings
https://res.mdpi.com/d_attachment/information/information-11-00204/article_deploy/information-11-00204.pdf

[Lucius]

what is the site that screenshot belongs to? i really wish the address wasn't omitted so that we could investigate more or at least have the site to try other addresses and see the results.

Screenshot from OP originally belongs to this thread, and here you can see exactly what it is about. It is more than obvious that there is a great demand for better software that analyzes transactions on blockchain, not only for internal use of large crypto companies - but also for ordinary users who want to check if their coins are clean before sending them to exchange and take risks having their account frozen.


And how do they do it? Well, considering that they have been working on it since 2012, there is no doubt that they have perfected various methods to date - witcher_sense is posted methods that are known to the public, and there should be no doubt that there are those that are still unknown.

[Karartma1]

How do "they" mark or tag coins that come from gambling sites, dark markets, mixers, etc?

snip

I hope you used sarcasm when you used the word in a nutshell  I knew most of those documents already but missed a few. Thanks for sharing: I will occupy many hours in the next weeks to read everything you posted.
Allow me to add a report from CipherTrace to the compilation: gives an idea of how those intelligence companies use their data.
https://ciphertrace.com/wp-content/uploads/2020/06/spring-2020-cryptocurrency-anti-money-laundering-report.pdf

[thirdkiller]

Some do not understand what BTC really is, continuing to mislead others.

[o_e_l_e_o]

The less we think about it, the faster it will go away!

The only reason it is an issue is because people continue to use and support centralized exchanges which engage in this kind of privacy invading behavior. If everyone stopped using exchanges like Coinbase which shut down accounts whenever they decide they don't like how you are spending you own money, then they would quickly adapt to stop doing it or they would cease to function. If you use bitcoin without trusting any third parties with your money, as it was intended, then this becomes a non-issue. As time goes on, this becomes an increasingly nonsensical position for exchanges to hold. As coins are forever being split and consolidated, mixed together, coinjoined together, and so on, at some point pretty much every bitcoin in active circulation will be "tainted" according to these algorithms.

If everyone took their privacy seriously and mixed all their coins, this kind of "tainting" would become immediately useless.

[bitcoin_paypal]

They just collect wide list of addresses on diffrent "hirisk" sites and monitor their addresses. Totally unhonest

[OROBTC]

...

Thank you all for your replies!   


o_e_l_e_o and Karartma1

I mix "most" of the BTC I get, though usually not right away (if I buy $300 worth with my cell phone for example).  And for the same reasons mentioned: making it harder for criminals to track finances and for better general privacy.  I do hope that others, preferably many others, will mix their BTC as well to make more BTC equal to others...

witcher-sense and Karartma1

Thanks as well for the links provided.  I now have some reading (likely too advanced for me, still...).

*   *   *

General comment.  I sense, have no proof of course, that all this "analysis", KYC/AML, PofFunds, etc. is all aimed at making BTC less useful.  And by the "usual suspects" (.gov and/or banks).

Since converting to BTC costs money (always more than 1% in my experience, often MUCH higher (BTC ATMs)), it's beginning to look like BTC will not be a game-changer for privacy.  If the exchanges get overly picky about sources of BTC and make it harder to cash out, then that is bad news AFAIC.

[fiulpro]

...

Recently I have wondered about BTC fungibility as mixed BTC and even BTC that has been "ricochetef" a few times retains "taint", meaning, IMO, that there may be some problems when an owner wished to turn BTC into FIAT$, say, at an exchange.  Some exchanges apparently do not like heavily tainted BTC it seems...

LeGaulois provided an example of a wallet from another thread, showing origins of some of the BTC in a wallet:



I myself have wallets that are "dirtier" than his, I mix most of the coins I get, but those newly received coins can come from anywhere.


My question is:

How do "they" mark or tag coins that come from gambling sites, dark markets, mixers, etc?

I can understand that stolen BTC could be "tagged" fairly easily (at least until mixed?), but who does that?  Who has that authority? 

See the thing is Bitcoins is not Private, contrary to popular belief Bitcoins is semi-transparent at the same time any transaction can be tracked and rechecked by a number of people which is actually a good thing since this way transactions can be rechecked . This is good when it comes to tackling the problem of corruption or tracking some problematic users but at the same time this has:

- Increased value of Virgin coins
- Incorrectly blaming people for receiving tainted coins even though they might not have any hand in the illegal stuff

People have been using the mixing and blending services now more than ever. Other than that even wallets are now linked to the banks and banks to the particular ID of a person which is very easy to link.

This is an issue that does need to be resolved but for a normal bitcoiner I do believe until and unless you are not involved with any illegal activities it is of any significance.