KeyLinker: Deductive Method for Bitcoin Address Grouping Based on Public Key Reuse

A Bitcoin address is a unique identifier for participants in cryptocurrency transactions. The Bitcoin network supports various address formats, including Legacy, Script, Seg-Wit, and Taproot, each distinguished by its specific functionalities and associated transaction fees. Although best privacy practices advise using each address only once for both input and output, our findings indicate that users frequently reuse addresses and may even derive different address types from the same private key. This study investigates the phenomenon of address reuse, provides detailed usage statistics, and introduces KeyLinker– a novel method for grouping addresses by user based on this reuse pattern. Unlike traditional heuristics such as one-time change (OTC) and common spending (CS), KeyLinker is not reliant on heuristics; it offers a dependable solution grounded in the practical impossibility of private key collisions. Through KeyLinker, we identified reliable reuse information for over 260,000 addresses, offering more data than the strict version of OTC and around hundred times less than the information from CS. The method is particularly valuable for AML/KYC compliance in centralized exchanges (CEX) and decentralized exchanges (DEX), providing a deductive and error-free approach to address grouping.