Stealth Transactions and Reusable Payment Codes: How Bitcoin Addresses Can Be Hidden in Plain Sight

By July 5, 2016Bitcoin Business

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.

One solution to address this issue – Stealth Transactions – was introduced in 2014; and a new twist on this concept – Reusable Payment Codes – was proposed last year.

The Problem

In part to increase privacy (there are security benefits as well), it is recommended that Bitcoin users generate a brand new address for each transaction they receive. While this is not an airtight solution in itself, this can make it significantly harder to connect addresses to real world identities ‒ both on the sending and the receiving end of the transaction.

However, this also means that the receiver must share a new Bitcoin address with the sender each time a transaction is to be made. This can be a bit of a hassle and in some cases even impossible (think of donation addresses posted on websites). And it’s not ideal from a privacy perspective either: If the new addresses are shared over an insecure channel, privacy is potentially lost entirely.Stealth Transactions, first proposed in 2014 […]

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