Here’s Why Bitcoin Privacy Sucks and How It Can Be Drastically Improved
One of the first things people think they learn about Bitcoin is that it is some sort of system for completely anonymous payments on the Internet; however, the reality is that all transactions are logged on a public ledger for the whole world to see.
Having said that, researchers have made strides in improving Bitcoin privacy. One of the most widely-known Bitcoin privacy tools is CoinJoin, which is a way of mixing transactions together with other users on the network.
But this method of achieving better privacy doesn’t actually work that well. As Saarland University’s Tim Ruffing put it at the recent Scaling Bitcoin workshop at Stanford, “I can tell you why mixing actually sucks.”
During one part of his presentation, Ruffing covered the three key reasons as to why current mixing techniques are problematic, in addition to a workable solution to these issues.
All Participants Don’t Have the Same Amount of Bitcoin
According to Ruffing, the first major problem with bitcoin mixing is that current solutions assume all participants in the mix have the same amount of bitcoins. Ruffing provided an example where one user, Bob, is attempting to mix 1.2 bitcoins with two other users who both have 1 bitcoin each to mix.
Since Bob has a different amount of coins than the other two users (Alice and Carol) it’s extremely easy to figure out where his bitcoins ended up by taking a quick glance at the blockchain. His 1.2 bitcoin input is obviously attached to the 1.2 bitcoin output.
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