How does Blockviewer work? (tool to discover identities of "anonymous" bitcoin transactions)

Question

I'm trying to follow the logical sequence of how Blockviewer works and only see this one blog entry for the process, but no "part 2".

Can someone describe the techniques to link a wallet address to the owner?

Answer 1

The technique was first described in form of formal study by researchers with the Clique Research Cluster at University College Dublin, blog post: An Analysis of Anonymity in the Bitcoin System, the research paper is here.

Imagine transaction of 1 BTC from address:Alice to address:Bob, blockchain shows that there was transfer of 1 BTC

• 1 BTC source:Alice, destination:Bob

Now, if a person controlling address:Bob wants to spend the 1 BTC he or she has to construct transaction that shows in blockchain as

• 1 BTC source:Bob, destination:Charlie

Lets say you see next three transactions in the blockchain:

• 1 BTC source:Jessica, destination:Alan
• 1 BTC source:Bill, destination:Erik
• 2 BTC source:Alan,Erik destination:Manhattan

To construct the 2 BTC transaction he or she has to have control over both Alan and Eric addresses in another words the person knows the private keys of it, therefore it's the same person, this is not true for a Bitcoin exchange or web based wallet were many people have limited access to the same private key.

Now if you know for sure, e.g. from forum signature, that address:Erik belongs to Gavin Anderson then you also know that address:Alan belongs to Gavin Anderson.

So far this technique didn't uncover any BTC theft and remains to be a toy. Also, there is many ways to block it, e.g. by using Bitcoin Anonymizer.