Crypto Wallet Tracing and the Future of Cryptocurrencies

Blockchain is a completely transparent and open system, its key advantage is the ability to conduct transactions without any facilitators or middlemen. Blockchain’s working principle is based on the creation of identical copies of data that is stored in a chain of blocks — that is, computers of the network participants. To complete a transaction, it needs to be passed through 6 nodes (give or take a few), with each movement being recorded in the network.

There exist public blockchain explorers that allows one to track transactions and wallet addresses. For example, is used for the Bitcoin network, — for Ethereum. They can also be used to track smart contracts and individual tokens, which comes in handy for due diligence on allows users to browse ETH transactions and ethereum-based smart contract activity. Another valuable function is a smart contract source code analysis.

Blockchain and cryptocurrencies appeared as an alternative to the traditional banking system, where it could take up to several days to process international money transfers. The current speed of transactions for Bitcoin network is 78 minutes, for Litecoin it’s 30 minutes, Dash coins can be moved from one wallet to another in 15 minutes, and Ethereum needs only 6 minutes on average (but in certain cases it can take more than 24 hours). Blockchain initially was not meant for large-scale transactions or big volumes. As cryptocurrencies grow in popularity, networks face increased strain, causing delays in transaction authentication.

The waiting process is stressful and unpleasant for many people. Thus developers are faced with the task of creating a high-quality solution that would automate and speed up transaction authentication, making cryptocurrencies more secure and convenient for general users. Transaction automation is known as tracing. Creation of a solid crypto wallet tracing system requires three components: C++ code, AI connection, and machine learning protocol.

C++ coding. Only a solution based on C++ code can solve the problem of blockchain analysis speed, as it would provide the quickest access to every transaction in BTC blockchain. There exists a ready-made solution called Bitcoin ABE that allows users to gather info on transactions for any given wallet address. Yet due to the structure of Python programming language, the tracing procedure is not fast enough and cannot be used for large-scale tracing.

AI integration. In order to block crypto wallets connected to illicit activities, there needs to be a constantly updated “black list” of wallets. The best tool for this task would be an AI-based solution that would be able to sift through terabytes of data and locate suspicious activity. There are currently tree prominent vectors of development:

AI for analyzing darknet forums and creating their database;

AI for analyzing forum boards and tracking users and wallets connected with fraudulent activities;

AI for analyzing Twitter messages and looking for scams (for example, “free distribution” of ETH).

Machine learning. Creation of a neural network solution is relatively straight-forward and would require special hardware, software and large quantities of relevant data. In order to classify data, the AI needs to be able to filter the data and mark relevant information.
The biggest impediment for the development of tracing solutions is the requirement of large sets of marked data for neural network learning. Acquiring a proper data set means the problem is already 75% solved. Similar results could be achieved with binary classificators that build algorithms by assigning each object with a “yes/no” answer, but neural network solutions still show better results than classificators.

Feedforward neural networks are well suited for these tasks as they can learn the backpropagation process. It means that in the learning process the network studies an object, makes a decision and then compares it to an expert decision. Then it corrects itself to raise the probability that future decisions are closer to the expert decision.

Blockchain was initially created as a fast and efficient solution for data transfer, but it does not yet fully live up to these expectations. The lack of a full-scale system for crypto wallet tracing is a pressing issue. The popularity of cryptocurrencies is poised to grow, thus the development of such a system is of vital importance for the market in general. Fast and efficient tracing solutions would definitely appear in the near future.