I recently met a person who helped police track the IP address of a Bitcoin transaction. I wanted to learn more about it but he didn't have time to discuss about this topic in the meet.

I am curious in understanding how cryptocurrency transactions can lead to trace back of the IP address from which the transaction originated.

How does this stuff work?


IP address is bold because I do not mean wallet transaction address.

I know originating wallet address can be traced back with blockchain.

  • I have no doubt that the person claimed they were tracing the IP address...but like with Andrew's answer, I'm skeptical.
    – Jestin
    Jul 15 '17 at 14:28

If an entity runs a large amount of relay nodes on the network, they could figure out which of their nodes was the first to see a transaction, and which peer that transaction came from. That does not necessarily tell them the originating IP, as it could have been a a node relaying a transaction rather than sending one.

This leaves a large amount of uncertainty in the trace. Due to the decentralized nature of Bitcoin, no single entity is likely to be in control of the majority of relay nodes. Let's say, for arguments sake, that there is a company that runs 40% of all relay nodes. They have a very good chance that a wallet sending a transaction is directly connected to one of their nodes, and therefore they can work out the originating IP. But what about the other 60% of nodes? Can they ever say for sure that a transaction didn't bounce around the other 60% for a few hops before they saw it? No, and odds are petty high that just that happens often. And to my knowledge, no single entity runs that many nodes.

Point is, the more relay nodes there are, the less possible it is to trace an originating IP address.

  • And that's without beginning to consider the effect of onion routing if the originating node is using Tor.
    – Willtech
    Mar 5 '18 at 10:45

I find that claim (tracing the IP address of a transaction) highly suspect as transactions don't have an IP address associated with them. Once a transaction has been broadcast, it is incredibly difficult to figure out what IP address first sent the address. To do so requires that you have a connection to every single node and wallet and determine the IP address by seeing which node first broadcast a transaction. Otherwise you cannot figure out what IP address a transaction originated from.

The person you met may have meant that he traced the Bitcoin addresses in a transaction to figure out who spent created the transaction. That is far easier to do and far less expensive as you only need a copy of the blockchain to do so.

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