Wallet clustering

Wallet clustering is the analytical technique of grouping multiple blockchain addresses that are likely controlled by the same real-world entity, even though the underlying blockchain itself treats each address as anonymous and unrelated. Because a single person or organization can create unlimited addresses, raw on-chain data alone does not reveal who controls what.

Clustering relies on heuristics observed in transaction behavior, most commonly the "common input ownership" heuristic: if multiple addresses are used together as inputs to the same transaction, they are very likely controlled by the same wallet software and owner, since spending from them requires the same private keys. Other signals include address reuse patterns, deposit addresses tied to known exchanges, and timing correlations. This differs from formal identity resolution in traditional analytics, since clustering typically infers common control statistically without ever linking a cluster to a verified real-world identity unless combined with off-chain information such as exchange know-your-customer records.

Analysts use wallet clustering to estimate the true number of active participants behind a set of addresses, trace fund flows for investigations, and attribute activity to exchanges, funds, or known entities as part of on-chain analytics and metrics like the MVRV ratio that need realistic entity counts. A common pitfall is over-clustering, merging unrelated addresses that happen to share a coincidental pattern, which can distort estimates of entity-level activity or wrongly attribute funds.