Jalaly

Bitcoin Transaction Privacy

December 29, 2020

Private Transactions

The idea behind a private transaction in the Bitcoin world is often over looked, with most stating the core Bitcoin principles such as your wallet hash being a measure against censorship.

This works to a certain extent, you are able to send and receive without the need of verifying your identity as the Bitcoin protocol is based on trustless cryptographic procedure. Though with taint analysis, transaction tracking technology, IP address monitoring nodes, web-spidering and many other mechanisms, your privacy may be difficult to maintain.

This post aims to look into the concept of CoinJoin, a method of combining multiple Bitcoin payments from multiple spends in a single transaction. Making all the previous methods of breaking privacy harder.

What is CoinJoin?

"CoinJoin is a trustless method for combining multiple Bitcoin
payments from multiple spenders into a single transaction to
make it more difficult for outside parties to determine which
spender paid which recipient or recipients. Unlike many other
privacy solutions, coinjoin transactions do not require a
modification to the bitcoin protocol"
- CoinJoin wiki

Investopedia describes the CoinJoin strategy as a first generation privacy hack for Bitcoin, this is interesting as prior to this there were not methods of enabling privacy on the blockchain.

Another interesting aspect to this article is the mention of Monero (XMR), Monero uses a similar method to enable privacy, by mixing users signature with other users breaking privacy is nearly impossible.

Tools for CoinJoin

Several tools were made to automate this strategy, DarkWallet, JoinMarket, and SharedCoins were one of the original automated methods for coin mixing (CoinJoin).

Currently wallets that do this at a acceptable level is Samourai Wallet’s Whirlpool and Wasabi Wallet.

Sources


Written by Mansour Jalaly.
“Raise your words, not voice. It is rain that grows flowers, not thunder.” - Jalāl ad-Dīn Muhammad Rūmī