Bitcoin's Transparency Exposed as a Surveillance Vector

Bitcoin's transparency is often seen as a key feature of its design, but it also makes the network one of the most traceable financial networks. Each transaction on Bitcoin leaves a permanent and verifiable digital footprint, which can be used to track fund movement forward and backward through the transaction graph.

The co-spend heuristic, also known as the common input ownership heuristic or multi-input heuristic, is a fundamental method used in blockchain analysis. This technique groups addresses that appear as inputs in the same transaction as belonging to the same controlling entity. Other heuristics, such as the change address heuristic, are also used to attribute clusters of addresses to real-world entities.

Tools like BACH (Bitcoin Address Clustering based on multiple Heuristics) implement multiple clustering heuristics and visualize the internal structure of clusters, enabling more granular analysis. Chainalysis has proposed a formal ontology for clustering and attribution that separates the structural layer from the attribution layer, aiming to standardize these processes.

The FADE framework represents an advance in this direction, integrating three modules: deanonymization, graph construction, and graph analysis. Its deanonymization module combines improved methods for identifying single-use change addresses, reused change addresses, and change addresses based on peel chains. Validation experiments demonstrate that FADE outperforms reference methods in terms of completeness and precision.