2014 is the end of Bitcoin’s sixth year. Analysts at the Coin Cadence Bitcoin Index compiled Bitcoin’s transaction data for the past six years. In 2014 Bitcoin Transaction Volume Doubled; growing 45.5%. Apparently, fake transaction chains could account for up to 50% of this network traffic.
Critical minds in the community are quick to point out the pros and cons of using transaction volume as a metric for growth. Primarily, that a transaction can be “fake” if sending coins back to yourself to no economic end. Effectively, its taking money from your left pocket and putting it in your right. New data going back years reveals Bitcoin has a history of fake transaction chains inflating its velocity.
The transaction velocity of money is a measurement of how frequently a unit of currency is part of any transaction. Fiat transaction fees vary depending on providers. Fees for using cash are low. However, services running on top of the fiat system, like credit cards or remittance companies, charge additional processing fees.
Gaming the System with Fake Transaction Chains
Bitcoin fees are low, pennies, and transactions do not always require fees. Falsifying transactions makes Bitcoin’s velocity appear higher than it is. Unless you are a Keynesian, sending a transaction that moves bitcoins from one address you control to another is not economic activity. Bitcoin transaction volume may have doubled in 2014, how much of that usage was genuine?
yCombinator user sanswork found what they believed to be tens of thousands of fake bitcoin transaction volume. These transactions account for up to 50% of all transaction volume in the past days.
Bitcoin’s block chain is public and transactions like these form “chains.” Analysis can reveal and track their activity. Other yCombinator users joined the conversation. Eventually, years worth of data is shared that tracks “Long Chain” transactions.
One of the reasons surrounding this activity that make it suspicious are the transactions paying miner’s fees. Economically, it would make sense to package all of these transactions inputs and outputs into one, large, transaction. Thus paying the fee only once.
For now, no one has claimed responsibility for the activity. It could be poorly written software, a bizarre mixing program for laundering coins or just someone trying using fake transaction chains to forge
Images from Voin Cadence, yCombinator and Shutterstock.