Privacy Crypto Part 1: Bitcoin, tumbler and privacy in the digital age

How private companies gather around the possibilities of tracing pseudo-anonymous Bitcoin, the crypto community is becoming all too aware of the need for privacy applications. Such a need has generated bushels of altcoins hoping to outlast the last. However, far more serious consequences of a market boom are at stake. A company that lacks fundamental openings for privacy is probably in an Orwellian future in which every financial transaction is also linked to any personal information.

Fortunately, two sides offer legitimate, though distinct, solutions to these problems. The analysis of both Zcash is Monero of the privacy technology will eventually lend itself to a better orientation that are worth considering the emerging cryptocurrencies.

The first of this three-part series will first examine the deficiencies of Bitcoin's privacy features and those of third-party solutions, such as tumblers.

Definition of privacy for Bitcoin: threats, loopholes and risks

In 2018, as observers have already seen from the reports of Chainalysis is elliptical, it is not difficult to combine bitcoin activities with users. Whether it's portfolio transactions, exchanges, mining pools or gambling websites, pioneering cryptocurrency can be followed relatively quickly by viewing your public ledger.

Such as reported in 2013, a team of researchers from the University of California, San Diego and George Mason University outlined the fact that while "ownership of money [Bitcoin] it is implicitly anonymous, its flow is globally visible. "

Briefly looking at how these observations are conducted will also provide a quality carrier for what makes an excellent one privacy-centric cryptocurrency. It will become clear that the very nature of an open ledger, while initially tempting, is Bitcoin's biggest fault with regards to privacy. Philip Gradwell of Chainalysis said BTCManager that this happens explicitly by grouping the transactions:

"Bitcoin addresses do not have associated IP addresses, so the cluster is protocol-based. "

As a side note, similar procedures have been used to better visualize the movement of stablecoin Tether (USDT) in combination with small volume coins.

Tether is almost exclusively a token to facilitate trading. 91% of all Tether chain transactions involve an exchange and 73% of all Tether balances are on the stock exchange. However, Tether is increasingly used to trade against low-volume cryptocurrencies pic.twitter.com/poY6roSK07

– Philip Gradwell (@philip_gradwell) 27 August 2018

In the first, it is not difficult to link an identity to a specific Bitcoin address. When buying or selling goods or services in the form of bitcoins, most of the time the user must also include some form of identification. This idea is extended magnitudes as a result of news exchanges and cryptographic services adhering to the rigorous Know Your Customer (KYC) and Anti-Money Laundering (AML) legislation. Examples include the ShapeShifts of the first mandatory translators membership program and the fading of anonymous bitcoin exchanges like LocalBitcoins.

This first problem is easy to mitigate, however, and is the best practice in managing cryptocurrencies. These methods include the use of new addresses every time a Bitcoin transaction is made and keeping the public addresses (even those for donations) distinct from the identifying information.

The second and third degree threats to privacy are much more difficult to circumvent. The nature of Bitcoin's peer-to-peer network means that the nodes that handle the accuracy of the public ledger must always be in touch with each other. They achieve this goal by joining an Internet relay chat (IRC) to observe the activity of similar nodes joining that channel.

A node is identified by its IP address, which is easily traceable. This variety of identification is accelerated because each node can also "ask" every other node on all the other nodes (and, therefore, the IP addresses) with which it is in contact. A vast network of transparency is rapidly developing. This network becomes an easy attack vector if the bitcoin is also held on the node in question; otherwise, it is not a threat. Gavin Andreson one time has explained what:

"Unless you are very careful with the way you use Bitcoin (and you have the technical know-how to use it with other anonymous technologies like Tor or i2p), you should assume that a persistent and motivated attacker will be able to associate your IP address with your bitcoin transactions. "

Band-Aid Solutions

An immediate response to this lack of opacity was the emergence of glasses or mixers. These services allow interested parties to "clean"The identity from the cryptocurrencies in question TumbleBit, CoinMixer, is BitBlender, they are perhaps the best known but differ in a variety of ways.

TumbleBit, which is based on the founder of Ecash, David Chaum blind signatures, gained most of the traction as it was implemented in Stratis & # 39; Breeze's portfolio in 2017.

TumbleBit generates "Puzzle-Promise" and "Puzzle-Solver" protocols that, when combined with the authority of Alice and Bob, release bitcoins in question from the engagement.

(source: TumbleBit: an anonymous payment hub that is not compatible with Bitcoin)

Another technique often acclaimed as an alternative is obtained through a grouping technique called "CoinJoin. "Developed by Bitcoin's main developer Gregory Maxwell in 2013, CoinJoin groups the transactions together to obscure the owner and recipient of specific operations.

(source: Bitcoin Wiki)

The confidentiality limits of this method revolve around the centralized nature of the service. Data on who opts for which the transactions are likely to be recorded and stored in one place and thus become an attractive honeypot for the tenacious hacker. Developments like JoinMarket I hope to fulfill this risk, but the traction has been limited despite its enormous potential.

In any case, both TumbleBit and CoinJoin fail for a number of reasons. TumbleBit requires that all users are taking the best practices of anonymity. If participants use unsafe portfolios or perform transactions through compromised IP addresses, the mixer will also be faulty.

CoinJoin and JoinMarket also require more liquidity and more participants than what has been offered to date to achieve their privacy goals. In the end, there are still variables and weaknesses that exist even before these options become preference.

No, we've never had CoinJoin.

– Riccardo Spagni (@fluffypony) March 27, 2018

Before taking a dip in privacy solutions offered outside the bitcoin, the importance of privacy in the digital age should be repeated.

Privacy: not published and not reached

In 1993, a small group of science fiction writers, entrepreneurs and technologists predicted the future of the Internet for the world at large. This included Eric Hughes, John Gilmore and the end Timothy C. May. Even before the rise and rise of the massive conglomerates of Internet technology, these three and twenty others began to imagine the spectrum that pursues the modern world, "the specter of crypto-anarchy".

The idea behind the manifesto was to respond to the unrecognized opportunities of a hyper-connected world. The social effects of such a jump at that time rarely included the need for privacy in such an environment. In many ways, these warnings fell on deaf ears and at that point the quasi-Orwellian technological state in which we are trampling emerged. The Encrypted Anarchist Manifesto law:

"Just as print technology altered and reduced the power of medieval corporations and the structure of social power, so too cryptographic methods fundamentally alter the nature of societies and the government's interference in economic transactions."

Fortunately, the madness of Google and Facebook was the best lesson. The violations of incessant data and the loss of sensitive data have worked better than any manifesto to bring the importance of online privacy into the mainstream. The power of the Internet has also triggered numerous states to react aggressively to control its ability to break down borders.

China, for example, is l & # 39; app a similar pressure on the economic freedoms generated by Bitcoin. In any part of the world, the increase in cryptographic resources gave citizens a second chance to capture what was missing during the arrival of the Internet. In the upcoming articles, an investigation into two privacy-centric technologies will reveal why bitcoin is not enough if society hopes for economic freedom in the digital age.