Cryptocurrency addresses are unique identifiers used to send and receive transactions on blockchain networks. While these addresses may appear as a random string of alphanumeric characters, there are various parameters that help determine their purpose, structure, and origin. This article will explore the essential parameters for determining cryptocurrency addresses and provide insight into how to identify different types of addresses, including wallet addresses, centralized exchange addresses, and mixer services.

A) Length and the starting character of Cryptocurrency Addresses
The length of a cryptocurrency address varies depending on the blockchain network it is associated with.

• Bitcoin (BTC): Bitcoin addresses typically range from 26 to 35 characters.
• Ethereum (ETH): Ethereum addresses are always 42 characters long, starting with “0x.”

The length is an important factor when determining whether an address belongs to a specific blockchain. Any deviation in the expected length could indicate a different network or a potential error.

Fraud detection perspective: You can build a rule that flags or blocks transactions if the address length does not match the expected format for a given cryptocurrency. For example, if a user inputs a 35-character address when sending Ethereum (which should be 42 characters), the system can automatically detect and flag it for review.

The starting characters of a cryptocurrency address are crucial indicators of the type of network or format used. Here are a few examples:

• Bitcoin (BTC):
• Bitcoin address: 1A1zP1******fi2DMPTfTL5SLmv7DivfNa
• Legacy (P2PKH): Starts with “1”.
• Pay-to-Script-Hash (P2SH): Starts with “3”.
• SegWit (Bech32): Starts with “bc1”.

• Ethereum (ETH):

• Ethereum Address: 0x32Be******f860124dC4fEe278FDCBD38C102D88
• A valid Ethereum address, which is 42 characters long and starts with the prefix “0x,” indicating that it belongs to the Ethereum network. Ethereum addresses follow the typical format of starting with “0x” and consist of 40 additional hexadecimal characters (0-9, a-f).

• Cardano (ADA):

• Address Length: 103 characters for Shelley addresses (new format) and 59 characters for Byron addresses (old format).
• Address Prefix: Shelley addresses start with “addr1”, and Byron addresses start with “Ae2”.
• Sample Shelley address – addr******xxav2fjjrke4d3ygx9u2m2pzty7apq8h52w5u2sn0qqqwqq9z25k65mfhk9sw9k8sdft66l3sqwvtrdcdqf2tmq3wp2lg.
• Sample Byron address – DdzF******sn8Ne5RB4UUDed8oxro6WDBrX1Mm1pzEuyujBmUytEPLXtLKnz6CeJ5J6XAsRvdC9knNfi8i84UVrZpFGRMRd7VhDe5j57.

• Dogecoin (DOGE):

• Address Length: 34 characters.
• Address Prefix: Starts with “D” or “A”.
• Sample Dogecoin address – D7Y5******MP9thAr3Fchc2AQ8HE8xW9Wb.

• Polkadot (DOT):

• Address Length: 48 characters.
• Address Prefix: Starts with “1” or “1x”.
• Sample Polkadot address – 13m1******dYxVb7c1rNFX2M4QozBv94woAhQddrBxAqeyev.

• Monero (XMR):

• Address Length: 95 characters.
• Address Prefix: Starts with “4” or “8” depending on the type of Monero address.
• Sample Monero address – 48zX******g5LFpahSbjxNyrxu2TGvAG1PfXFKHsaP5Xgi6uDC5ZDsrQYCEc4u3Qz2VyK3fH6ZARbbodKMDKzTXdWJdFkvD.

Identifying the starting characters and the length of the address can help determine the type of address and which blockchain network it belongs to.

Fraud detection perspective: By setting rules to check the starting characters, you can quickly identify address format mismatches. For example, if a user tries to send Bitcoin to an address starting with “0x” (an Ethereum address), the system can block the transaction to prevent losses due to address mix-up or fraud.

Creating a transaction monitoring rule that verifies both length and starting characters together to determine if the address is valid for the cryptocurrency being used. If either criterion fails, the system flags the transaction for manual review, preventing potential fraud or errors.

B) Distinguishing Between Wallet Addresses and Centralized Exchange Addresses

Centralized exchange addresses often process large volumes of transactions and have certain identifiable characteristics which usually isn’t the case for wallet addresses.

• Wallet Addresses:

• • Generally, wallet addresses exhibit sporadic transaction patterns.
  • They often have long periods of inactivity between transactions.
  • Transactions are usually initiated by the owner (manual input).

• Centralized Exchange Addresses:

• • Exchange addresses tend to have high-frequency transactions due to the large number of users.
  • These addresses often receive small deposits from multiple users and batch withdrawals in larger amounts.
  • You may see a regular inflow and outflow of cryptocurrencies, sometimes hundreds or thousands of transactions per day.

Certain websites and services, such as blockchain explorers, label known exchange addresses, making them easier to distinguish.

C) Identifying Mixers and Privacy Services

Cryptocurrency mixers (also known as tumblers) are services designed to obscure the origins of transactions by mixing coins from different users before redistributing them. These services are often used to enhance privacy, but they can also be used for money laundering.

• Transaction Patterns:

• • Mixer addresses often display repetitive, cyclical transaction patterns, moving funds in and out in rapid succession.
  • Funds are broken down into smaller amounts, sent through multiple addresses, and eventually combined again in a final address.
  • Fraud detection perspective: Develop rules that flag abnormal transaction patterns consistent with mixing services. For instance, if a single address sends out multiple smaller transactions in rapid succession to various addresses, this could indicate mixer usage and trigger a fraud alert.

• Identifying Mixer Addresses:

• • Some mixers use certain identifiable wallet patterns, such as distributing funds across a large number of new addresses.
  • Blockchain analysis tools like Chainalysis or CipherTrace can help identify known mixer addresses based on previous monitoring and classification.
  • Fraud detection perspective: Write rules to flag transactions that involve sending or receiving funds to/from known mixer addresses. For example, if an address is flagged as being associated with a known mixer, the transaction should be escalated for further review.
• Multi-Hop Analysis:
• Why It’s Useful: Mixers typically involve multiple “hops” (intermediary addresses) to break the trail of funds.
• Fraud Detection Use: Create rules that flag transactions involving an unusually high number of hops between the source and destination addresses, particularly when large amounts of funds are split into smaller amounts and re-aggregated elsewhere.

D) Other Useful Parameters

1. Transaction Volume:

• High-volume addresses could indicate use by an exchange, a mixer, or other high-frequency service, rather than an individual wallet.

1. Address Clustering:

• Clustering refers to the technique of linking different addresses together based on transaction patterns, shared ownership, or known associations (e.g., an exchange using multiple addresses for different customers).

1. Script Types:

• Certain cryptocurrencies, like Bitcoin, allow for different script types such as Pay-to-PubKey-Hash (P2PKH), Pay-to-Script-Hash (P2SH), and SegWit. The type of script used can offer insight into the wallet’s functionality (e.g., multi-signature wallets, smart contracts, etc.).

1. Time-Based Analysis:

• Analyzing the timestamps of transactions can help you determine if an address is used regularly (like an exchange or service) or sporadically (like a personal wallet).

Conclusion

Cryptocurrency addresses, while seemingly random strings of characters, contain vital clues that can help you determine their function, origin, and behavior. Parameters like length, starting characters, transaction patterns, and identifying markers for mixers and exchanges all contribute to understanding the nature of the address. Tools like blockchain explorers, clustering algorithms, and transaction analysis can further enhance your ability to distinguish between different types of addresses and ensure a better understanding of the cryptocurrency ecosystem.

By considering these parameters, you can accurately analyze and assess cryptocurrency addresses, improving your knowledge of blockchain technology and enhancing your ability to track and monitor transactions effectively.