Under Cloak and Dagger ... Investigating Blockchain Payments and 1 August

I have a new academic book coming out around Blockchain and Cryptocurrencies and have been doing a good deal of development around them. One thing that is becoming obvious is that there are some serious amount of money being transacted and that the movement of vast amounts of money across multiple wallets shows how difficult it is for law enforcement to investigate.

From today, for example, there are three transactions within a few minutes of each other, and between three different wallets, but for similar amounts. Each of these transactions are worth around $680,000 each. So in a minute, you see over $2 million move between three different wallets [here]. At 5:19am today we see:

If we look at the middle account, we 1,803 transactions have been received over $310,076,800 in payments (in today's valuation) and has a balance of zero [here]. At 5:23 am, money was moved to:

If we then follow this payment on we see it goes to another address which has received $805,596,400 (at today's exchange rates), and which have zero balance [here]. At 5:57 am money was moved to:

And then trace again for the output of this account and now we have an account which has dealt with $852,126,800 in transactions (and again has a balance of zero) [here]:

And then we move these to [here]:

And then, at 2017-07-24 05:25:39, we move this to [here]:

and then at 5:57pm onto:

Then onto:

and we can keep observing the money flowing through the system. I think these transations show trading activity where computer programs are moving money around and optimizing the income.

I'm going to post another article to show the basic signatures of activity that I have seen, and identify (I think) where we see possible money laundering.

Soft Fork

On 1 August 2017 Bitcoin faces one of its greatest challenges in its history, with a soft fork, which could become a hard fork is something goes wrong.

It requires a fork, it has it has outgrown its current blocksize, and needs room to further expand. Investors have thus shied-away from purchasing them, the mining community have now agreed to the changes, and which could have ended-up with a split in the blockchain, between BIP (Bitcoin Improvement Proposal) 91 (here) and BIP 141 (here). At the current time there is 97% support for BIP 91. Bitcoin prices have in the last week rallied and hit $2789.74 for each Bitcoin.

There are still risks and the miners must agree, within two days, as to the new hashing of the blocks.

The problem

A code fork for Bitcoin will require an update to the code and to the format of the blockchain. This will mean that we are likely to create a new blockchain (or even have two in existence). And so Bitcoin is facing the greatest challenge to overcome its current bump in the road. Its major current problem is that it can only process up to 1MB of transactions every 10 minutes, as this is the limit of the block size. As we can see, the block size for the block created at 6:08am on 14 July 2017 is 993.8 KB, and is thus full of transactions (mined by shawnp0wers):

Thus bitcoins are proving too popular that it has to change. It basically has growing pains, and a fork in Github will provide it with a short-term fix. For just now, at peak times, the 1MB limit on blocks causes delays in the transactions being approved, as the transactions must wait for the next block to be transacted (as the current block is too full of transactions and no space for more). This has caused some miners to increase their transaction fee as there is limited space on the blocks.

The solution

Unbelievably the Bitcoin blockchain has remained largely untouched, and the methods used have stayed pretty consistent to the original design. While the first reward for miners was 50 BTC, we have seen that fall to 12.5 BTC, but still they eagerly wait for new blocks to mine, and the supply of bitcoins seems to match the demand. Ethereum, after its DAO hack, for example, has seen a fork of the currency with Ethereum and Ethereum Classic. In the case of Ethereum, it has a hard fork of the code, but in the case of the new Bitcoin update, it will be a soft fork.

On 1 August 2017, we will see the activation of the Bitcoin User Activated Soft Fork (UASF) and which will address some of the scaling issues. For this, it is hoped, that the bitcoin mining network will adopt Segregated Witness (SegWit). This could create two blockchains, where one would be dominant and have a low adoption, and value. The other scenario is that both will have equal weighting and two blockchains will thus exist. To make sure the switch-over goes seamlessly, and where we jump in the block size, there will be a pause on the trading of bitcoins on GDAX (Global Digital Asset Exchange), in order to guard against replay attacks and payment spikes.

Segregated Witness

SegWit keeps the bitcoins more decentralised, and moves away from being controlled by miners. With this the network could double the transactions per second capacity of bitcoin by reforming the format of transactions, such as for signatures, along with adding new functionality, and make the blockchain more distributed. As bitcoins are meant to have no overall control on them, with no controlling bank or government, this move will free the current infrastructure from the control of any one entity.

The implementation of SegWit would also address one of the fundamental problems of Bitcoin, which is the small amount of storage for blocks. It would thus increase, over time to 2MB (which will double the current limit), and be triggered with three months of the activation of SegWit.

SegWit2x is now being deployed on test networks with a live adoption which started on 21 July, and with 1 August being the official roll-out. Currently there is a great deal of support from the miners:

We can see that 71% of the miners have adopted it, and nearly 86% have the intention to support it [here].