Coinalytics has demonstrated a good example of a use case for its tools in an analysis exploring the movement of bitcoins in the ongoing Moolah saga.
Coinalytics is a startup creating tools to gain deep, sophisticated insights into Blockchain data. It was one of five bitcoin companies to be accepted into 500 Startups' incubator program, securing funding of $100,000.
It advertises the benefits of these tools insofar as their relevance to understanding what's going on in the Bitcoin ecosystem. One can, for example, gain advance insight into potentially market-moving information. Here, however, they proved useful for forensics: where did the Moolah funds go and what are they being used for? While concrete answers weren't derived- and may never be- the analysis gets you much further than without it.
In the blog post, it shows how the bitcoin community, working together, can prevent these funds from getting "laundered" by blocking them from entering their platforms. To do this, businesses need to be able to know from where "dirty" funds may arrive.
Coinalytics' two tools in development are graph viewer and address tracker. They were used to find the whereabouts of 3701 bitcoins (= $1.3 million) originating from a single address, which is now empty.
With graph viewer, Coinalytics visually depicted how from its origin, BTC flowed to more than 250 addresses- but the top 10 received 1600 out of the 3701 bitcoins. Based on analysis of the top recipient address, two accounts were identified to be currently holding 700 BTC.
Address tracker comes into play by allowing you to enter any address and seeing how it relates to other addresses in a given time period.
The tools essentially automated what would have been a prohibitively tedious, cumbersome manual task of connecting the dots, and on top of that, piecing the puzzle together to form a hypothesis or draw conclusions.
A potential challenge- or opportunity- for Coinalytics is the advent of technology aiming to mask the flow of bitcoin transactions. In many cases, the technology splits a transaction into tiny parts, later recombined at their final destination but routed separately along the way. Herein lies an opportunity for Coinalytics: its tools can theoretically trace the pathways of these tiny parts to their start/end points. When transaction routes are even harder to track, the value-add over and above the manual/unsophisticated methodology is even greater.
They may hit a roadblock, however, when it comes to technologies that encrypt the addresses themselves in such a way that makes it impossible to connect the dots. Or, where the routing of a transaction becomes exceedingly complex and meaningful conclusions cannot be derived from the patterns recognized.
