The crackdown on the darknet marketplace Silk Road and other criminal cases involving bitcoin has proven that the cryptocurrency in nature is not anonymous. Using state resources, the U.S. Department of Homeland Security (DHS) Science and Technology Directorate stated that it intends to create a bitcoin deanonymization tool with the help of government-backed Sandia National Laboratories.
Sandia, a security firm, and contractor for the U.S. Department of Energy’s National Nuclear Security Administration (NNSA), has been working closely with U.S. government agencies and law enforcement over the past 60 years to mitigate and detect potential cybersecurity and terrorism-related threats.
Recently, the firm secured a contract with the DHS to develop a bitcoin deanonymization tool and graphical user interface to help federal law enforcement agencies to test their technologies and use them in actual bitcoin-focused investigations.
In the early stages of software development, Sandia will use past investigations and patterns of transactions to find relevant configurations. Once a set of patterns are analyzed and evaluated, the firm will create a series of algorithms that will be integrated as an integral part of the user interface platform for federal agencies to utilize.
“The basic obstacle was trying to truly understand all of the various patterns associated with bitcoin transactions,” Sandia researcher Andrew Cox stated. “We can use past investigations as examples of patterns that will enable us to find other configurations.”
Cox understands that it is virtually impossible to build a single algorithm that could effectively and completely deanonymize bitcoin. A proper roadmap and strategy must be established to cross-reference various sets of data and transaction patterns to figure out the optimal configuration for its algorithm.
The Sandia-led development of this bitcoin deanonymization technology will require a substantial number of hours solely for the investigation and analysis of data sets. Cox explains that the Sandia team is ready for an “old-fashioned police work,” to develop a rigorous and meticulous software for detecting and untangling transactions.
“To be successful, the reality is it’s going to take different types of algorithms and additional types of investigative techniques including good old-fashioned police work,” Cox explained. “They’re all going to have to be combined.”
The end goal of Sandia’s software is to help federal law enforcement agencies to deanonymize any transactions or activity in illicit darknet marketplaces. Cox claims that once a transaction is properly anonymized with the Sandia bitcoin platform, the government will be able to link the bitcoin address used to initiate the transaction to a specific alias.
However, Cox and the DHS understands that unraveling the bitcoin address of a darknet marketplace user won’t necessarily lead to the identification of the buyer. Since a bitcoin address is not linked to any personal data, the address alone won’t be of any value to the law enforcement. If government agencies can use the address to observe other transactions and use that as the basis to track the buyer, then Sandia’s deanonymization tool can be utilized efficiently.
“Our clients are happy about the requirements we’ve developed and the research we’ve done on what types of tools and capabilities are needed ,” said Cox. “The bottom line is, the work is about spending time with law enforcement officers and making sure that we put their needs first.”
Sandia nor DHS is aiming to release the software or the deanonymization tool anytime soon. After a series of proper testing and thorough analysis, the DHS may roll out the technology to other federal law enforcement agencies across the country.