Since its inception, Bitcoin has never been truly confidential. Although satoshi Nakamoto's whitepaper suggests that privacy is the goal of developing a protocol, government agencies, analytics companies and other stakeholders - call them "spies" - have ways to analyze public blockchain and peer-to-peer network, grouping Bitcoin addresses and establishing their connection to IP addresses or other information that allows identification.
Lack of privacy is a problem. Bitcoin users may not want the whole world to know what they are spending money on, how much they earn, or how much they have in their account, while businesses may not want to merge transaction details to competitors - these are just a couple of examples. In addition, a lack of privacy can lead to a loss of interchangeability: properties that mean that each monetary unit is worth as much as any other, which is an important criterion for money. If, for example, you can establish that certain coins were once used for politically ambiguous purposes, someone may not be very eager to accept payments with such "dirty" coins, which harms the interchangeability of Bitcoin as a whole.
Fortunately, spying on Bitcoin users is becoming increasingly difficult. In particular, in recent months there have been a number of promising technologies that improve privacy, and some more solutions are due out before the end of the year or next year.
Here's an overview of the most promising projects.
TumbleBit
TmbleBit, which has been in development for almost two years, was among the most anticipated privacy solutions for Bitcoin.
TumbleBit is a coin mixing protocol that uses a (centralized) mixer to create payment offset channels between the participants of the mixing session. All participants send coins through these channels and receive in return the same amount of coins, only others. This process confuses traces of ownership for all: neither spies nor any of the participants can determine who paid to whom. It is also important that TumbleBit uses ingenious cryptographic tricks to ensure that even the mixer itself cannot establish a connection between users.
TumbleBit requires each participant to have two transactions in the blockchain (one to open and one to close the channel). Although this decision does not require trust, it has a slightly higher commission than the alternatives.
TumbleBit was proposed in 2016 by an academic research team from Boston University, George Mason University and North Carolina State University led by Ethan Heilman and presented in the fall of that year at the Scaling workshop Bitcoin in Milan. Full work began when NBitcoin developer Nicholas Dorier implemented an early version of the technology, which was later perfected by privacy developer Adam Ficior and others, and finally it was implemented in the wallet Breeze from Stratis.
This Breeze wallet officially came out just over a month ago, which means that TumbleBit is now available to everyone - although there are not many users of this privacy solution yet.
Chauum's CoinJoin and zeroLink
CoinJoin is an old idea by Bitcoin standards, proposed by Bitcoin Core developer Gregory Maxwell in 2013. final ("exits").
As a simple example, let's say that Alice, Bob and Carol want to mix their coins. With CoinJoin, they can create a transaction that sends money to them by using new addresses that are not tied to their personal data. If Alice, Bob, and Carol use an equal number of coins, spies can't find out who owns each of the new addresses. (If they use a different number of coins, then it is obvious where the coins moved).
CoinJoin transactions have long been a reality, but for a long time there was one problem: someone - Alice, Bob or Carol - has to create a transaction. This person should know from which old addresses and to which new addresses are sent bitcoins; otherwise, you can't create a transaction. If this person is a spy - which is often impossible to know for sure - everything is meaningless: the spy can track down the owners of the coins.
This problem can be solved with the technique mentioned by Gregory Maxwell in his 2013 proposal, which was called "Chauum CoinJoin" (in honor of David Cchaum's blind signature scheme).
In short, Alice, Bob, and Carol now connect to the central server of the Chamov CoinJoin, for example, supported by a wallet provider. First, they all provide their original addresses, as well as the "blind" (encrypted) end addresses that the server cryptographically signs. Alice, Bob, and Carol then disconnect to reconnect anonymously (e.g. via Tor) and provide their addresses in an unencrypted form. With the magic of Chaumov's blind signatures, the server can verify that non-encrypted addresses correspond to the blind. This makes sure that the addresses actually belong to Alice, Bob and Carol - not the attacker - without knowing where the address is.
The proposal of The Chamovsky CoinJoin remained unfulfilled for four years. But a year ago, Adam Fichor - while working on the implementation of TumbleBit in Breeze - rediscovered it and decided to implement it.
Chaumovsky CoinJoin, introduced into the ficourized framework of zeroLink, is now available in the new confidential purse of Fichor Wasabi, recently released in beta. And more recently, the confidential cat Samourai announced the release of a mobile implementation called Whirlpool. The new Bob Wallet wallet is also working on the implementation of the zeroLink.
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