Cryptocurrency Tracking via Forward-Transaction Analysis

Solution Overview

Problem

Tracing movements of cryptocurrencies on a blockchain is challenging due to the lack of external personal identification and the complexity of transactions, where a single cryptocurrency can be derived from numerous previous transactions, making it impractical to track using naive methods.

Innovation Solution

Implementing a forward-tracking method that performs a top-down analysis of cryptocurrency transactions, continuously monitoring new transactions and determining cost values proportionally, allowing for the identification of cryptocurrencies and their components across multiple transactions.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Measurement precision

If naive backward-tracing methods are used to track cryptocurrency transactions, then complete transaction history can be obtained, but computational complexity and time requirements become impractical

Engineering Contradiction:

Improvetransaction tracking accuracyVSAvoidtracking time

Core Design Contradiction:

Measurement precisionVSLoss of time

Solution Approach 1:

The system performs preliminary actions by continuously monitoring and recording transaction data as it occurs on the blockchain. Instead of waiting until tax calculation is needed to trace transactions backward, the system proactively builds and maintains a structured database of transaction histories, cost bases, and ownership information in real-time, making the data ready for immediate retrieval and calculation.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system segments the complex transaction tracking problem into manageable components by organizing data into distinct categories such as transaction records, cost basis information, ownership history, and tax calculation data. This segmentation allows the system to process and store information in a structured manner that can be efficiently queried and analyzed without requiring exhaustive backward tracing.

Inventive Principle:

Principle #1Segmentation

2Measurement precision

If exhaustive backward tracing of all transactions is performed to determine cost basis, then accurate tax calculation is achieved, but computational resources become excessive

Engineering Contradiction:

Improvecost basis accuracyVSAvoidcomputational resources

Core Design Contradiction:

Measurement precisionVSUse of energy by moving object

Solution Approach 1:

The system performs preliminary actions by continuously monitoring and recording transaction data as it occurs on the blockchain. Instead of waiting until tax calculation is needed to trace transactions backward, the system proactively builds and maintains a structured database of transaction histories, cost bases, and ownership information in real-time, making the data ready for immediate retrieval and calculation.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The system creates a simplified copy or representation of the blockchain transaction data tailored for tax calculation purposes. Rather than processing the entire raw blockchain data structure, the system maintains a curated database that mirrors essential transaction information in a format optimized for cost basis determination and tax reporting, reducing computational overhead significantly.

Inventive Principle:

Principle #26Copying

3Reliability

If real-time monitoring of all cryptocurrency transactions is implemented, then accurate tax reporting is enabled, but system complexity increases

Engineering Contradiction:

Improvetax reporting accuracyVSAvoidsystem complexity

Core Design Contradiction:

ReliabilityVSDevice complexity

Solution Approach 1:

The system segments the complex transaction tracking problem into manageable components by organizing data into distinct categories such as transaction records, cost basis information, ownership history, and tax calculation data. This segmentation allows the system to process and store information in a structured manner that can be efficiently queried and analyzed without requiring exhaustive backward tracing.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The system introduces an intermediary layer between the blockchain and the tax calculation process. This intermediary component continuously monitors blockchain transactions, extracts relevant information, and transforms it into a structured format suitable for tax reporting. This intermediary layer simplifies the overall system architecture by handling data processing and organization centrally, reducing the complexity of direct real-time monitoring.

Inventive Principle:

Principle #24Intermediary (Mediator)

Data Source

PatentEP3844702B1Tracing cryptocurrencies

Publication Date: 2025.04.30 G B BITTAX LTD

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AI summary

A method, system and product for cryptocurrency tracing, including obtaining user information indicating addresses of a user; detecting transactions of the user in a blockchain history based on the user information; identifying, in the one or more transactions of the user, a subgroup of outputs, wherein each output is associated with one of the addresses of the user; classifying cryptocurrencies associated with respective outputs as internally transferred cryptocurrencies or externally transferred cryptocurrencies; obtaining a first cost value of a first externally transferred cryptocurrency associated with a first output of a first transaction; and identifying a second transaction that has a first input that corresponds to the first output of the first transaction.