Dragnet: A Method for Tagging Bitcoin Addresses of Exchanges

Currently, there are hundreds of Bitcoin exchanges on the market, so choosing a reliable exchange is a critical issue for users. We know that the amount of Bitcoin holdings is an essential indicator for evaluating an exchange, but people have very few ways to access this information. Besides, many reports indicate that the trading volumes of most Bitcoin exchanges do not match their real situations, and the fake volume has become an unspoken rule of the whole industry. It causes the public to doubt the actual amount of Bitcoin owned by each exchange.
To solve the problem of information asymmetry between users and exchanges, we propose a method for tagging Bitcoin addresses of exchanges. Through vertical, forward, and backward address mining, the method can utilize only one or several addresses of an exchange to find out all its addresses and distinguish different address types: deposit wallet, hot wallet, and cold wallet. Then the balance and transfers of the exchange can be further obtained through these addresses, helping users understand the real Bitcoin holdings of the exchange. Several experiments are conducted to evaluate the effectiveness of the proposed Bitcoin address tagging method.
Our method has very little dependence on off-chain information. Only one address is needed for each exchange as a seed to find out all the other addresses. Such a seed address can be easily obtained by depositing some Bitcoin into the exchange or withdrawing some from it, which makes our method feasible for all exchanges.