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# System prepended metadata

title: Bitcoin and Anonymity

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# Bitcoin and Anonymity
## Anonymity = pseudonymity + unlinkability
- Bitcoin addresses are public key hashes instead of real identities
    - Implies Pseudonymity
- Unlinkability:
    - Different interactions of the same user with the system should not be linkable to each other
### Why is unlinkability needed?
- Many Bitcoin services require real identity (e.g., buying a coffee at a shop with Bitcoin)
- Linked profiles can be deanonymized by a variety of side channels

### Defining unlinkability in Bitcoin
- Hard to link different addresses of the same user
- Hard to link different transactions of the same user
- Hard to link sender of a payment to its recipient
### Quantifying anonymity
- Complete unlinkability (among all addresses/transactions)
- **Anonymity set**: the crowd that one attempts to blend to
- To calculate anonymity set:
    - define adversary model
    - reason carefully about: what the adversary knows, does not know, and *cannot* know

### Why anonymous cryptocurrencies?
- Block chain based currencies are totally, publicly, and permanently traceable
- Without anonymity, privacy is much worse than traditional banking!

## What about money laundering?
- Legitimate worry
- Bottleneck: moving large flows into and out of Bitcoin ("cashing out")

## Anonymity & decentralization: in conflict
- Interactive protocols with bank are hard to decentralize
- Decentralization ofter achieved via public tracability to enforce security

## Linking addresses
- Shared spending is evidence of joint control

![](https://i.imgur.com/9246fQG.jpg)

## Identifying service providers by tracking address activities
- Shared spending:
    - Accounts that pay for the same transaction would likely be linked to the same person
- Idioms of use:
    - Each address only used once as change
- Making transactions:
    - To tag service providers
![](https://i.imgur.com/iRPDG0t.jpg)

### To de-anonymise users
1. High centralization in service providers
    - Most flows pass through one of these -- in a tracable way
2. Address -- identity links in online forums

## Network layer de-anonymization
- Peer-to-peer network layer
- "The first node to inform you of a transaction is probably the source of it"
- Solution
    - Use Tor

## Mixing
- use of an intermediary
![](https://i.imgur.com/Ox41fVh.png)
- Online wallets
### Dedicated mixing services
- Promise not to keep records
- Don't ask for identity
#### Online wallets: reputable, often regulated, businesses
- Typically require identity, keep records => no anonymity w.r.t. wallet service
- Users trust them with their bitcoins => keep them for longer => bigger anonymity set w.r.t. everyone else

## Principles for mixing services
1. User a series of mixes
Mixes should implement a standard API to make this easy
![](https://i.imgur.com/4kkSbsX.png)
2. Uniform transactions
In particular: all mix transactions must have the same value *"chunk size"*
3. Client side must be automated
Desktop wallet software
4. Fees must be all-or-nothing
Probabilistic fees: 0.1% mixing fee = mix will swallow chunk with 0.1% chance

Current mixed follow none of these principles

## Trusting mixes
1. Stay in business, build up reputation
2. Users can test for themselves
3. Cryptographic "warranties"