Bitcoin is neither anonymous nor “trustless”: Researcher identifies just 64 key players in the first two years

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According to the Bitcoin whitepaper written by its inventor Satoshi Nakamoto in 2008, the cryptocurrency system was intended to be anonymous and based on “cryptographic proof instead of trust”.

But the system behind Bitcoin is neither anonymous, nor without the need for trust and decent behaviour, as was otherwise promised.

This is evident from the new research that The New York Times has taken a closer look at. The research has not yet been peer-reviewed.

In Bitcoin transactions, users use pseudonyms or addresses that hide their true identity. Over time, investigations revealed data leakage. The identity protection was not so watertight after all.

Bitcoin is not anonymous

American data scientist and researcher Alyssa Blackburn has for several years been looking into the identities of Bitcoin users.

By collecting multiple leakages, she aggregated many Bitcoin addresses, which could represent multiple users, into a few. She compiled a catalogue of users and concluded that in the first two years, bitcoin was mined by 64 key players—some of whom were among its founders.

According to Alyssa Blackburn, there were very few people who took on a leading role and acted as a kind of arbitrator for the network—which should not be a hallmark of a truly decentralized and “trustless” cryptocurrency, she tells The New York Times.

Once the researcher had adopted various methods that made it possible to erode the protection against identity masking, she began to link addresses, connect nodes on a graph, and gather the effective population of users who perform bitcoin mining, who are called “agents” in the research paper.

She then cross-referenced and validated the results with information from Bitcoin-related forums and blogs. Initially, there were a few thousand agents who created most of the bitcoins, and then the number fluctuated for a while around 200. In the end, the researcher’s model identified 64 unique users.

Bitcoin can be exploited with practical attacks

Among the 64, it was in in some cases possible to attribute names to the users. Agent No. 19 is Michael Mancil Brown, who has been found guilty of fraud and extortion. Agent No. 67 was linked to Ross Ulbricht, founder of the Silk Road criminal marketplace. Agent No. 1 is Bitcoin founder Satoshi Nakamoto, whose true identity the researchers, however, have not tried to establish.

On several occasions, individual agents had more than 50 percent of the computational power, and could therefore have taken over the system, in what is called a “51% attack”. These users had the ability to repeatedly spend the same bitcoins on different transactions.

Sarah Meiklejohn, cryptographer at University College London, tells The New York Times that this confirms the suspicions that researchers in the field have had for a while:

“We all kind of knew that mining was fairly centralized. There aren’t that many miners. This is true even today, of course, and it was even more true at the beginning.”

Alyssa Blackburn’s research also shows that the agents who had the power to carry out “51% attacks” repeatedly chose not to take advantage of the opportunity.