Software solution to identify the end receiver of a cryptocurrency transaction
Abstract : Background: Use of cryptocurrencies like bitcoin, USDT, Monero etc. for drug trafficking activities are increasingly becoming common. The relative anonymity and speed provided by cryptocurrencies are misused by drug traffickers as a mode of transaction for drug sales and also as an asset to amass the proceeds of crime.
Description: Drug traffickers operating on darknet and elsewhere on internet enabled platforms like social media apps, messaging services etc receive the value of drugs through cryptocurrencies.
In a few cases, the drug traffickers save their proceeds of crime in cryptocurrencies. During the course of investigations and also through intelligence, wallet addresses and transactions hash related to drug transactions are obtained by Drug Law Enforcement Agencies, Further, it has also been observed that these finds are often passed through variety of services like tumblers, mixers, bridges etc to further anonymize the transactions.
It is important to follow the trial of funds associated with drug transactions to identify the real persons behind the drug trafficking network. Expected Solution: Development of a software solution to follow the cryptocurrency transaction trial associated with a wallet id/transaction to find out the real receiver of the funds in a drug related transaction.
Cryptocurrency transaction is all about confirmation. The transaction can beforged till confirmation is not received or it’s in the pending status. Whenever a transaction is initiated, its information is received by the whole network.
As soon as the confirmation of a particular transaction is being received, it gets set in stone. Once transaction is being made and confirmation received of that transaction, it can’t be reversed at any cost and it becomes non forgeable. It becomes a part of an irretrievable record of historical transaction of the so called block chain.
Here, in the world of cryptocurrency, miners are of vital aspect and importance, their job is all about to confirm the transactions. In the network of cryptocurrency, transactions are received by miners; to confirm legality of the transaction and to spread them in the network. Every node has to add to its database, as soon as the transaction is confirmed by the miner
Privacy Concerns: Many cryptocurrencies, like Bitcoin, are designed with pseudonymity in mind, which means that while transaction data is publicly accessible, linking that data to real-world identities is not straightforward. Software solutions that try to de-anonymize transactions might infringe on user privacy and could potentially be misused.
Complexity and Cost: Developing and maintaining software to track and identify transaction endpoints can be complex and expensive. This often requires sophisticated algorithms, extensive data processing, and regular updates to adapt to evolving blockchain technologies and obfuscation techniques.
Inaccuracy: Even with advanced algorithms and data analysis, software solutions might not always accurately identify the end receiver. Transactions can involve multiple addresses and layers of transactions, making it difficult to trace the final recipient with certainty.
Regulatory Compliance: Different jurisdictions have varying regulations on cryptocurrency and privacy. Software solutions must navigate these regulatory landscapes, which can be challenging and may impact their deployment and effectiveness
A hash has a fixed length. Therefore, all of the transactions, whether they are unmodified or malleable transactions, have the same size hash. The transaction ID serves as a reference in a subsequent transaction that tries to redeem the unspent Bitcoins in it. Therefore, the modification or removal of this information from the transaction script will be a hardfork and will need a major change in protocol.
Thus, it is desirable to keep the current structure of the transaction script. The idea of our solution is to use the hash of the transaction on which the signature is calculated (i.e., h(Tx_script)). That means, we aim to use the hash that is calculated without the input script (i.e. scriptSig).
Note that the values of this hash cannot be modified and any change to scriptSig in Final_Tx will not modify this hash. We propose that this hash should be appended with the hash of the final transaction to be used as the transaction ID. We refer to this as hashnew. Our proposed format for the transaction ID will look like hashprev || hashnew, which is shown in Fig. 3, where hashprev = h(Final_Tx), which serves as the transaction ID in the current protocol.
Enhanced Security and Compliance: By identifying the end receiver, organizations can better monitor and enforce compliance with regulatory requirements, such as anti-money laundering (AML) and counter-terrorism financing (CTF) laws. This helps in preventing illegal activities and ensuring that transactions adhere to legal standards.
Improved Transparency: For organizations and individuals seeking greater transparency in financial transactions, such solutions provide insights into the flow of funds. This can be valuable for auditing, reporting, and understanding transaction networks.
Investigative Assistance: In the case of financial investigations, such as those conducted by law enforcement or forensic teams, identifying the end receiver can provide critical leads and evidence. This can aid in tracking down criminal activities and enforcing legal actions.
Blockchain Analytics: These solutions can contribute to broader blockchain analytics by providing insights into transaction flows and network behaviors. This can help in understanding market trends, user behaviors, and overall network dynamics.
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