Sandia National Laboratories Develops Tools to Deanonymize Bitcoin with US Government Support

Sandia Research is receiving support from the U.S. government to create a tool that will help law enforcement deanonymize Bitcoin transactions.

Bitcoin has become almost mainstream these days, with more and more global businesses and entities accepting Bitcoin as a form of payment. Even people are getting their salaries paid in Bitcoin. As Bitcoin becomes more and more popular, it is no wonder that law enforcement agencies want to be able to link Bitcoin transactions to the identity of the entity that made the transaction, rather than to a string of numbers and symbols. While using Bitcoin is not extremely difficult, fully understanding the technology that powers this ever-growing and expanding cryptocurrency is very difficult.

Law enforcement will be looking at more illegal operations rather than the law-abiding transactions you conduct every day.

Andrew Cox, principal researcher at Sandia, said his team's job is to understand how Bitcoin works, noting that the semi-anonymous currency could well change the way transactions are conducted for the benefit of the national economy.

In a blog post for Sandia National Laboratories, Cox said:

“It’s clear that criminals have pioneered the use of Bitcoin for drugs, guns, child pornography, and all sorts of other bad things.”

In fact, that's why Sandia's research is supported by the U.S. Department of Homeland Security, which hopes to set up a graphical interface for users so that law enforcement and other agencies can test algorithms that they can use for real-time investigations.

The blog also states:

"This will allow us to tailor what we're doing to make sure that those things are getting the most use possible."

The amount of time and resources required to slow down or even stop law enforcement investigations is causing law enforcement to fall behind in technology because of the speed of Bitcoin’s development. Law enforcement does not have the tools they can use to combat the problems they are having in tracking these cryptocurrency transactions.

Cox said Sandia needs to understand the many patterns of Bitcoin transactions and look at past investigations to find other configurations. Although Sandia and Cox both hope to be able to do this, he is reluctant to admit that it is not an easy task.

Cox said in a blog post:

“There is no ‘new’ algorithm that can effectively deanonymize Bitcoin.”

Sandia has been conducting research into illegal businesses focused on Bitcoin. They conduct their research by experimenting with other algorithms that can deanonymize users of illegal cryptocurrencies. They have been focusing on investigations that have been successful for law enforcement.

Once Bitcoin transactions are de-anonymized, law enforcement will be able to trace a Bitcoin address back to its owner, providing law enforcement with the information they need.

Cox stressed in his blog post:

“This doesn’t mean we can get the real names of the users, because their names are not associated with Bitcoin, but it can show that some transactions are controlled by the same user.”