Bitcoin right now is not really anonymous . Monitoring the unencrypted peer-to-peer network, analyzing the public blockchain or Know Your Customer (KYC) policies and Anti-Money Laundering (AML) regulations can reveal a lot about who is using Bitcoin and for what. This is not great from a privacy perspective. For example, Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own; similarly, businesses may not want to leak transaction details to competitors. Additionally, the fact that the transaction history of each bitcoin is traceable puts the fungibility of all bitcoins at risk. “Tainted” bitcoins may be valued less than other bitcoins, possibly even calling into question Bitcoin’s value proposition as money. But privacy and fungibility can be improved. An older method to break a link of transactions — CoinSwap — was recently revived and improved upon, with promising results. TumbleBit, as the new solution is called, is set to realize a completely private and trustless mixing service — and even offers increased scalability as a bonus. CoinSwap A key problem for privacy and fungibility is that Bitcoin-addresses are trivially linkable. If Alice pays Bob a bitcoin, blockchain analysis reveals that their addresses did the transaction. To break this link, Bitcoin Core developer Gregory Maxwell proposed CoinSwap, first introduced on the Bitcointalk forum in 2013. The idea behind CoinSwap is very simple: it uses an intermediary for payment. If Alice pays one bitcoin to an intermediary, and this intermediary pays a different bitcoin to Bob, Alice will have effectively paid one bitcoin to Bob, but no link exists between their addresses on the blockchain. The problem is that this intermediary can steal funds. If Alice pays the intermediary a bitcoin, the intermediary can simply decide not to pay […]
