Assessing the Efficacy of Heuristic-Based Address Clustering for Bitcoin

Abstract: Exploring transactions within the Bitcoin blockchain entails examining the transfer of bitcoins among several hundred million entities. However, it is often impractical and resource-consuming to study such a vast number of entities. Consequently, entity clustering serves as an initial step in most analytical studies. This process often employs heuristics grounded in the practices and behaviors of these entities. In this research, we delve into the examination of two widely used heuristics, alongside the introduction of four novel ones. Our contribution includes the introduction of the \textit{clustering ratio}, a metric designed to quantify the reduction in the number of entities achieved by a given heuristic. The assessment of this reduction ratio plays an important role in justifying the selection of a specific heuristic for analytical purposes. Given the dynamic nature of the Bitcoin system, characterized by a continuous increase in the number of entities on the blockchain, and the evolving behaviors of these entities, we extend our study to explore the temporal evolution of the clustering ratio for each heuristic. This temporal analysis enhances our understanding of the effectiveness of these heuristics over time.