Tracking Within Blockchain and DLT

There is an erroneous assumption that Blockchain, specifically Bitcoin, transactions are beyond the reach of tracking and deanonymization. This, however, has been demystified by a broad range of papers that go into details about how these transactions can be identified and even the identity of users potentially being surfaced. Incidentally, even so-called privacy tokens can to some extent be traced back and subjected to the same fate as Bitcoin.

Dash is one of the most well-known privacy-related forks of Bitcoin that claims to have a robust unidentifiable transaction path. In simplified terms, there is a combination of transactions when each sender issues one. By creating a single transaction and obfuscating each sender in particular, Dash claims to have a solid foundation of privacy and an identity concealment solution. Recent research examining the validity of privacy of Dash has been conducted, showing that the hidden recipient address can in fact be disentangled and such links can be created on the basis of the value being transacted.

Monero’s intricate use of mixing can in fact obfuscate the destination of the transaction. One of the usages of Monero then is to muddle the retroactive path of the transaction and make it impossible to follow the lead. Nevertheless, Monero also suffers from potential deanonymization and users disregarding mix-ins or exploiting inferences about the age of the coins used as mix-ins. Zcash also represents one of the mainstays of privacy coins. Zcash uses a shielded pool hiding in the transaction the values and addresses of senders and recipients. It is possible though to if not completely strip the anonymity layer but substantially reduce its efficacy by identifying links between concealed and partly hidden transactions.

The objective of this paper, however, is not to debase the privacy value of cryptocurrency but instead showcase the readability of blockchain solutions that would enable a decentralized equivalent of security and compliance to be enacted. One of the actuators for this lies deep in the design of blockchain - distributed ledger.

Distributed ledgers have allowed an unprecedented intersection of publicly available messages that coincidentally safeguard private and sensitive data such as identity, geolocation, and destination of the transaction. It is a permissionless, ungoverned, and fully self-sufficient storage that subsists on the activity within it. This embedded notion of openness paradoxically becomes the guarantor of the veracity of the whole system and essentially is the core element of blockchain technology. Unlike the centralized renditions, DLT is impossible to tamper with by the nature of the peer-to-peer design of the technology in question.

Public Ledgers made it possible to unite transparency and security while shifting the base framework of the process behind the scenes, eliminating intermediaries, and in some cases even cheapening the cost of an operation. Despite the robustness of the distributed ledger technology and its irrefutable quality of security and invulnerability to outside manipulation, there is still a myriad of methods utilized that are employed in order to undermine the rigidity aspect, not of the entire technology but rather individuals actively interacting within it. Specifically, Blockchain being codified and secured by the cryptographic hash functions is impenetrable to simple brute hacking attempts that are focused on deciphering it. Bypass approaches on the other hand can be manifold. Ranging from social engineering, wallet fishing, and negligence, to more sophisticated exploits via smart contract backdoor techniques. In this vein when talking about the security of the network it is essential to consider the outer layer of confidentiality, soundness of code, and absence of malevolently hidden loopholes or backdoors.

“Traffic analysis” or tracing of the activity on the public ledger of an individual wallet address can be leveraged effectively with the help of innate openness of transactional activity without impinging on the ironclad ideals of decentralized infrastructure and abiding by the privacy conformity of each player in the system. In the traditional cyber security field traffic analysis is the first stepping stone employed that enables and lends a fairly accurate representation of chronology and history of transactional intersections of a particular player. Logically, this basic method can seamlessly be translated into the blockchain realm and even arguably instated much more relevantly because of the above-mentioned "publicness" of the ledger.