Synthetic KYC: Detecting Irregularities and Money Laundering on Blockchains

Abstract

This research introduces a new technique for the rapid classification of wallets based on their associations with other wallets on the blockchain. Using Ethereum as an example platform, we test our technique and document significant irregularities in the user structure. We show that questionable user "wallets" and transactions are widespread on Ethereum. Consequently, extensive money laundering and fraud cannot be ruled out. These insights should benefit investors, regulators, and developers of future blockchain platforms.