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Blockchain Analysis Ties 5 Bitcoin Addresses to QuadrigaCX Exchange

Blockchain watchers must identified a group of bitcoin addresses that likely belong to one of the so-called cold wallets of failed crypto reciprocate QuadrigaCX.

The discovery is notable in light of QuadrigaCX’s claim that it has been unable to access these wallets – which held the lion’s dispensation of the $190 million owed to customers – since the death in December of CEO Gerald Cotten. In court filings, the company has foretold Cotten had the sole responsibility of moving funds from the exchange’s “hot,” or active, wallet to offline “cold” storage.

But Quadriga did not allotment its cold wallet addresses, driving many researchers to try to trace transactions to determine which wallets these were, as coolly as whether they truly contained the $136 million in cryptocurrencies, including about $92 million worth of bitcoin, said to be clutched offline. (Another $53 million of customers’ fiat currency has been held up at payment processors.)

A clue be communicated on Tuesday, from Ernst & Young (EY), QuadrigaCX’s court-appointed monitor in the creditor protection case. In its first progress dispatch to the Canadian court, EY revealed that on Feb. 6 Quadriga had mistakenly transferred 103 BTC (around $350,000) to the “cold purses which the Company is currently unable to access.”

Internet sleuths then found a group of addresses that had acquired multiple small transfers on that date totaling 104.335 bitcoin – nearly the same amount mentioned in the explore. Prior to this, these addresses had not seen any transactions since April.

Reddit user Decoze published the approach devotes of these wallets on Wednesday:

1HyYMMCdCcHnfjwMW2jE4cv9qVkVDFUzVa — received 36.37786282 BTC,
1JPtxSGoekZfLQeYAWkbhBhkr2VEDADHZB — received 33.19556316 BTC,
1MhgmGaHwLAvvKVyFvy6zy9pRQFXaxwE9M — made 19.54328527 BTC,
1ECUQLuioJbFZAQchcZq9pggd4EwcpuANe — received 10.34268585 BTC,
1J9Fqc3TicNoy1Y7tgmhQznWrP5AVLXj9R — received 4.87560516 BTC.

Further fortifying the connection, the first address once received a small amount of bitcoin from 3N8auHdN9rtmHDHqNnXK4eWhfukBAQcve1, the in any event address that was listed as QuadrigaCX’s hot wallet by the exchange’s owners in a court affidavit.

Plus, those five talk ti had earlier been “clustered” together, or determined to belong to the same entity, by two blockchain analysis sites, Walletexplorer and OXT.

Laurent, a developer at OXT who disposition not disclose his last name, told CoinDesk he also believes the cluster to be related to QuadrigaCX based on patterns of bargain proceedings it sent and received.

Careful now

Stepping back, it’s important to be careful when analyzing the bitcoin blockchain, or any other segment ledger that relies on unspent transaction outputs (UTXOs).

Unlike the account-based ethereum, in bitcoin, what can be over a “wallet” is often not one address but a group of them. In the UTXO model, addresses designate not accounts but transaction outputs, i.e. the departs into which initial amounts of bitcoin are split during transactions.

“These addresses are automatically clustered thanks to a scenario processing a conservative version of a method called the ‘merged inputs heuristic’,” Laurent said in explaining how OXT hauls connections between addresses. “In its basic version, the ‘merged inputs heuristic’ states that all addresses associated to the inputs of a bitcoin negotiation are controlled by [the] same entity and should be clustered.”

However, Laurent warned that bitcoin blockchain analysis, by its feather, cannot lead to exhaustive, unambiguous conclusions.

For example, he said, the Mt Gox exchange, which failed spectacularly in 2014, had a feature that disconcerted the analytics platforms, “leading to the appearance of a giant cluster merging wallets controlled by independent entities. As a result, some analytics programmes label all the addresses of this cluster as ‘suspicious’ because some transactions found in the cluster seem related to villainous markets.”

The lesson, he said, is simple:

“Despite what many people think, blockchain analysis is far to be 100% trusty.”

Older transactions

With those caveats in mind, there’s one more interesting piece of information about the five sermons now believed to be QuadrigaCX’s cold wallet.

In his Reddit post, Decoze noted that in December 2017 – a year ahead QuadrigaCX’s unraveling – the first and second addresses in the group sent transactions to address No. 1PdBMFkicx1vTHs9P6whPGondSVcmndVha, which he firm belongs to another exchange, Bitfinex.

“Experience (or google) with the BTC blockchain and popular exchanges shows this is the power supply collection address of Bitfinex’s hot wallet,” Decoze wrote. “This means we can be very confident 1PdBMFkicx1vTHs9P6whPGondSVcmndVha was a bank address generated by Bitfinex for a customer.”

Laurent told CoinDesk he, too, had identified transfers to Bitfinex from the cluster.

“My plain theory is that it might be a wallet controlled by QCX and used as a kind of ‘pivot wallet’ between QuadrigaCX hot wallet and diverse exchanges. Large financial flows (in/out) can be observed between this wallet and exchanges like Bitfinex,” Laurent told.

This would be consistent with a pattern observed on the ethereum blockchain, where CoinDesk and independent researchers specified a significant flow of Quadriga’s funds to Bitfinex and other exchanges as well.

Gerald Cotten circa 2015 image via Decentral.

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