Bitcoin right now is not really anonymous . While Bitcoin addresses aren’t necessarily linked to real-world identities, they can be. Monitoring the unencrypted peer-to-peer network, analysis of the public blockchain, and Know Your Customer (KYC) policy or Anti-Money Laundering (AML) regulation can reveal a lot about who’s using Bitcoin, and for what.
This is not great from a privacy perspective. Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own, while businesses may not want to leak transaction details to competitors – to name some examples.
Additionally, bitcoins being traceable, possibly “tainted,” and potentially worth less than other bitcoins is at odds with fungibility. This could even challenge Bitcoin’s value proposition as money.
But there are potential solutions to increase privacy, and improve fungibility.
A solution that has been around for a while is CoinJoin.
Background
At its heart, the Bitcoin protocol consists of transactions. All these transactions are completely public on the blockchain, which means that anyone can see which addresses sent bitcoins to which addresses. If some of these addresses are linked to real world identities, it can reveal who transacted with whom ‒ or what for. This is at odds with privacy and – in particular ‒ fungibility.
Additionally, each particular transaction spends one or several “inputs,” referring to the addresses bitcoins are sent from . (These inputs are spent to “outputs,” referring to the addresses bitcoins are sent to .) This poses another challenge to privacy and fungibility, since all input-addresses would typically belong to the same user: the sender of the transaction. If even one of all clustered input-addresses can be linked to a real-world identity, all of them are.CoinJoin – proposed in 2013 by Bitcoin Core and Blockstream developer Gregory Maxwell – is designed to […]
