Remuneration represents one of the essential applications of a practically appealing financial system. Information regarding the compensation amount allocated to various individuals is unarguably sensitive, requiring certain levels of privacy. Given the fact that bitcoin and other cryptocurrencies are steadily evolving into accepted exchange mediums for considerable swaths of the global economy, a large number of individuals worldwide will bring home income in the form of various cryptocurrency payments. As per the nature of blockchain based transactions, even minor details regarding an individual’s compensation plan and his/her spending habits will be publicly available for everyone. In some instances, this infringes on cultural norms which usually respect salaries’ confidentiality; however, it is occasionally regarded as a minor issue compared to the level of transparency offered by blockchain transactions.
Interestingly enough, a couple of researchers recently analyzed bitcoin’s blockchain transaction records to identify periodic bitcoin payments recurring to a specific address in exchange for merchandise or offered services. The researchers used the obtained data in determining the extent of insight that could be gleamed regarding the parties involved in the transactions, as well as the privacy implications if this insight.
An overview of the study:
The researchers were given access to a bitcoin address, which they referred to as Alice, that receives periodic payments for merchandise and offered services, from an entity, which they referred to as Bob & Company. Bob & Company paid Alice around once every week, during the period between August and December, 2016. The fact that payments to Alice took place at regular intervals from the same bitcoin address strongly indicates that these payments constitute remuneration. By further analyzing the transaction behavior of Bob & Company, they found out that Bob & Company has a consistent group of addresses (mostly employees) to whom periodic payments are sent.
The researchers created a heuristic to identify bitcoin addresses that are compensating workers, or employees, via bitcoin’s blockchain:
Heuristic 1 (Remuneration Profile):
If the bitcoin address αo is sending payments to a group of addresses (α1, α…..,αn), for an amount of money in the range ρ at interval ι, with regularity ιτ, then we can assume that αo represents an organization and (α1, α…..,αn) are its employees.
Remuneration is characterized by regular payments, yet it is usually associated with irregularity in the value of each transaction, mainly due to the volatility of bitcoin. Accordingly, if payments closely follow a consistent reference point or a benchmark of value in national currency, such as the USD, this strongly indicates that these payments are salary payments. This led the researchers to the formulation of Heuristic 2, to identify remuneration.
Heuristic 2 (Benchmark Target):
If the median value M of the number of payments PT made by the address αo to a group of bitcoin addresses (α1, α…..,αn), consistently follows a target value in national currency N, when various exchange rates are considered (E), then PT represents remuneration for merchandise or services offered.
The paper represented 2 Heuristics that can provide the basis for formulating mechanisms to search the blockchain for proof of remuneration behavior, not only for bitcoin, but also for other cryptocurrencies as well. The implications of remuneration using blockchain payments should not be overlooked, especially when explaining them to employees before adding them to an organization’s bitcoin payroll.
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