Wallet Clustering refers to the analytical process of identifying and grouping multiple cryptocurrency addresses that are controlled by the same entity or individual. In the crypto domain, this technique is crucial for tracing transaction flows, enhancing regulatory compliance through improved Know Your Customer (KYC) and Anti-Money Laundering (AML) efforts, and gaining market intelligence on institutional trading activities or large-scale asset movements.
Mechanism
The mechanism typically involves heuristic analysis of on-chain data. Techniques include identifying addresses that participate in the same transaction as inputs or outputs, addresses that are consolidated into a single entity’s cold storage, or those associated with known exchange deposit addresses. Graph analysis algorithms are often applied to construct a network of linked addresses, thereby revealing the underlying ownership structures and transaction patterns that would otherwise be obscured by pseudonymity.
Methodology
A sound methodology for wallet clustering requires extensive data collection
On-chain analytics provides immutable, real-time financial telemetry, which, when integrated with traditional diligence, creates a superior, adaptive counterparty risk system.
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