The Largest Zetacoin Wallet is Cryptsy's Cold Storage
(Update, June 27 2014. I was correct in identifying this wallet as an exchange based on its behavior, but I was mistaken in which exchange owned the wallet. It belongs to BTER, not Cryptsy. At some point one of the transactions I was tracing must have been a withdrawal between Cryptsy and Bter. At any rate, the crucial point remains that this is not a "partner wallet" and that these coins aren't off the market waiting to be implemented in a payment system.
See this post for details)
Originally I had planned a longer post explaining my techniques for how I came to this conclusion, but I keep seeing people on Twitter basing their Zetacoin buys / sells around the idea that "The Biggest Wallet Hasn't Moved" and I feel like there needs to be a discussion about the nature of this "biggest wallet."
The wallet in question belongs to address ZGfz94PBE2D3yhgSSooqMbtSiLNLozYsbv. It was created in late January 2014 and immediately began acquiring Zetacoin in 50,000 ZET denominations (the denominations are exact, with no fraction-of-a-coin exchange fees subtracted), every 3 minutes, or 1 million ZET per hour, topping off at a maximum balance of over 40 million ZET. On Coinplorer, you can see that the first 1,000 transactions take place between January 28 and January 31, then a handful in February, and after that no more until early April. When news of potential Zetacoin "deals" emerged in late March / early April, this wallet was revealed, with a balance equivalent of over $1 million USD. People began speculating that this was the currency reserve of a partner corporation that was going to use Zetacoin as a payments system.
The #1 Wallet Was Loaded Quickly, But Exchange Prices Didn't Move
One thing that we can determine from the pattern of how the wallet was filled was that these coins were not purchased on an exchange. Cryptsy was only doing a maximum of 1 million ZET in total volume at that time, and BTer and CoinEx, the only other 2 exchanges selling ZET, were much smaller. The price also didn't move at all during the 3 days that this wallet was loaded, which would be extremely unlikely if 25% of all existing currency was purchased and taken off the market. The coins couldn't have been mined during that time because mining was almost completely over by January 2014 - the only time when close to that volume of coins was generated was in August 2013, the few days after launch (due to the combination of high block rewards and inaccurate difficulty targets that were common before KGW was implemented in new coin launches). If they were purchased privately, off an exchange, then why the 3-day load-in? And if they were purchased privately, then who gathered up all of these coins to sell, them, and where were they sold from?
Most Funds in the #1 Wallet Entered and Left Through a Single High-Volume Wallet
Most of the inbound transactions to the #1 wallet come from another wallet, ZUGDRKbSFSpMccJ4VKnLoEsRqCT3T3hfHm. This wallet is the crucial link in revealing that the largest wallet is cold storage for Cryptsy. Wallet ZUGDRK... has an extremely high transaction volume, currently over 120,000,000 ZET (or about 75% of all ZET in existence) but the final balance stays relatively low (currently 1.3M). Transactions always occur in denominations of 100,000 ZET, usually clustered in groups of 1.5 M or 7.5M. This wallet serves as the transfer point between the #1 wallet (cold storage) and single use hot wallets which connect to individual Cryptsy users' deposits and withdrawals.
On April 15, there was a brief, orchestrated pump-and-dump of Zetacoin set off by a supposedly "leaked" document detailing a business plan involving MPesa and Zetacoin. The price quickly tripled from 6k satoshi to 18k satoshi, before falling back down. Shortly thereafter, coins started moving out of the #1 wallet for the first time. Some were speculating that this was a price-crashing "dump" while others thought that this was a test run of the payments system.
If you look at outbound transactions from the #1 wallet on April 15, you'll see that all of those millions of coins moved pass through wallet ZUGDRK... the same wallet that the coins came from in the first place. Likely conclusion - the volume of the pump and dump on April 15 depleted the exchange hot wallets of enough coins that more coins had to be brought out of cold storage to fulfill withdrawals. The last time coins came out of the #1 wallet was April 4th and 5th, as the panic buys from the original "news" were just settling down.
Inbound and outbound transactions from wallet ZUGDRK follow the same pattern. For an outbound transaction, coins are split off in ever-shrinking denominations, and a new wallet is created with the balance, until the 100,000 ZET have all been used up. For inbound transactions, larger and larger denominations are bundled up until a balance of 100,000 coins is reached, then that balance is sent back to wallet ZUGDRK. Tracing these chains of transactions and single-use wallets requires clicking through dozens of pages of transactions on a blockchain explorer - there's currently no easy way to visualize them.
I Traced My Own Cryptsy Deposit to the #1 Wallet in Just a Few Hops
I wanted to test my hypothesis that the #1 wallet was Cryptsy, so I figured that if I sent coins to Cryptsy and sold them, they should end up in that wallet.
On April 19, I sent 200 ZET from my laptop wallet to Cryptsy and sold the coins. This is the transaction:
Status: 94895 confirmations
Date: 4/19/14 00:59
To: cryptsy ZHnicRYwuhGn7RTMdTh5CJzjtmr8db2yP4
Debit: -200.00 ZET
Net amount: -200.00 ZET
Transaction ID: 0151654c92b35aa84de1c953850fd7c00e52b6afd9bc15e80fcc7ff17464e759
You can see on Coinplorer that the funds hit my wallet at 5:00 and are taken out a few hours later in this transaction which bundles together several other transactions into one denomination of 509 ZET and change, and one transaction of 0.01 ZET. If we follow the larger transaction, we end up at wallet ZMonXxZwD2gDv74ToVvrAucFbbX93sHKZV
a currently empty wallet that had a few thousand ZET pass through it between April 15th and April 20th. Funds are added, and then the balance is zeroed out. And where do those funds end up? The high volume wallet, ZUGDRK, which you can see shows up several times in the transaction history. If you look at the last outbound transaction you can see how the 200 ZET I deposited on Cryptsy end up bundled up with other transactions into a single transaction of 100,000 ZET that is deposited to the high-volume wallet which is the source of funding for the #1 wallet.
Can We Close the Circle and Connect the #1 Wallet as the Source of these Funds?
OnO OnNow this temporary wallet was opened on April 15 with a deposit of 1,340.83675244 ZET from wallet ZXujpwAg81RhhuQNFEv9Vb3SHWTTqDaA9Y. This wallet has funding one 1 inbound wallet, and is zeroed out to 2 outbound wallets. It was funded from wallet ZD8SbUcJickWtN8hxpgnSPM2R7S4BGWfL8, which had a deposit of 1,621.4421708 ZET. That wallet was funded from ZZYSfTFrz6QPBBpZVFyoTR4vLFRS5egxoi (again, one in, two out, zero balance). That wallet got its funds from ZR7sXCBviDaD4hqgBRJ7HdUCk6kcjRKQNM (1 in, 2 out, zero balance) and that from ZY6CDCj3vpUtFSo4UDAe2immRMY9VoDfvu, and that wallet was opened on April 15 with a deposit of 6,793.10 ZET from ZUGDRKbSFSpMccJ4VKnLoEsRqCT3T3hfHm, the high volume wallet, on the same day that 7.5 million ZET were moved out of the #1 wallet to here.
What about going the other direction? Can we connect a withdrawal from Cryptsy back to this wallet? On APril 20, I withdrew 1,668 ZET from Cryptsy in this transaction. In that transaction, the I bought Zetacoin from wallets funded by ZHtQPqJZr23d3xuAYciBPYbHxxKw5PewJ6 which was funded from wallet ZUi6YHiSQcgQ35bPrnRZwvuLfPcikRmWiP which again, has wallet ZUGDRK all over its transaction history.
For both buying and selling, you can trace a chain of transactions from individual withdrawls and deposits back to the high volume wallet ZUGDRK. This was the source of most of the funds for the #1 wallet, and received 7.5 million ZET from this wallet on April 15, which it has put into circulation, with those funds entering and leaving wallet ZUGDRK multiple times. Cryptsy transactions trace back to this wallet, so this must be Cryptsy cold storage.
This is why we need tools that are better at visualizing how funds move through a blockchain. The tools that we have are good for validating individual transactions or auditing the balance of a single known wallet, but we need more sophisticated graph searches and visualzation to be able to see where the money is collecting, or to trace funds back to their sources.
