Exploring Unconfirmed Transactions for Effective Bitcoin Address Clustering

Abstract: The development of clustering heuristics has demonstrated that Bitcoin is not completely anonymous. Currently, existing clustering heuristics only consider confirmed transactions recorded in the Bitcoin blockchain. However, unconfirmed transactions in the mempool have yet to be utilized to improve the performance of the clustering heuristics. In this paper, we bridge this gap by combining unconfirmed and confirmed transactions for clustering Bitcoin addresses effectively. First, we present a data collection system for capturing unconfirmed transactions. Two case studies are performed to show the presence of user behaviors in unconfirmed transactions not present in confirmed transactions. Next, we apply the state-of-the-art clustering heuristics to unconfirmed transactions, and the clustering results can reduce the number of entities after applying, for example, the co-spend heuristics in confirmed transactions by 2.3%. Finally, we propose three novel clustering heuristics to capture specific behavior patterns in unconfirmed transactions, which further reduce the number of entities after the application of the co-spend heuristics by 9.8%. Our results demonstrate the utility of unconfirmed transactions in address clustering and further shed light on the limitations of anonymity in cryptocurrencies. To the best of our knowledge, this paper is the first to apply the unconfirmed transactions in Bitcoin to cluster addresses.