Bitcoin correct right away is not actually anonymous. Monitoring the unencrypted peer-to-peer network, analyzing the populace blockchain or Know Your Customer (KYC) policies in addition to Anti-Money Laundering (AML) regulations tin give away a lot well-nigh who is using Bitcoin in addition to for what.
This is non corking from a privacy perspective. For example, Bitcoin users mightiness non necessarily desire the earth to know where they pass their money, what they earn or how much they own; similarly, businesses may non desire 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 live on valued less than other bitcoins, peradventure fifty-fifty calling into inquiry Bitcoin's value proffer equally money.
But privacy in addition to fungibility tin live on improved. An older method to suspension a link of transactions — CoinSwap — was of late revived in addition to improved upon, amongst promising results. TumbleBit, equally the novel solution is called, is laid to realize a completely soul in addition to trustless mixing service — in addition to fifty-fifty offers increased scalability equally a bonus.
CoinSwap
A key work for privacy in addition to fungibility is that Bitcoin-addresses are trivially linkable. If Alice pays Bob a bitcoin, blockchain analysis reveals that their addresses did the transaction.
To suspension this link, Bitcoin Core developer Gregory Maxwell proposed CoinSwap, get-go introduced on the Bitcointalk forum inwards 2013.
The persuasion behind CoinSwap is really simple: it uses an intermediary for payment. If Alice pays 1 bitcoin to an intermediary, in addition to this intermediary pays a dissimilar bitcoin to Bob, Alice volition stimulate got effectively paid 1 bitcoin to Bob, but no link exists betwixt their addresses on the blockchain.
The work is that this intermediary tin pocket funds. If Alice pays the intermediary a bitcoin, the intermediary tin only create upwards one's take away heed non to pay Bob, in addition to instead hold the bitcoin.
This is solved amongst Hash Time-Locked Contracts (HTLCs). Alice in addition to the intermediary gear upwards a exceptional type of payment channel, piece Bob in addition to the intermediary gear upwards a payment channel equally well. Through clever Bitcoin tricks that include embedding dedicated cryptographic keys inwards transactions, these payment channels are effectively linked. Bob tin claim 1 bitcoin from the payment channel betwixt him in addition to the intermediary, but only inwards such a mode that the intermediary tin likewise claim a bitcoin from the payment channel betwixt him in addition to Alice. No 1 tin pocket funds.
(The specifics of HTLC is beyond the range of this article; for to a greater extent than details encounter ‘Understanding the Lightning Network, Part 2: Creating the Network’.)
CoinSwap breaks the link of transactions on the blockchain. But, unfortunately, that doesn’t solve all privacy in addition to fungibility issues precisely yet. Most importantly, the intermediary nevertheless knows that Alice transacted amongst Bob. The intermediary tin re-establish the link.
These issues are what the novel TumbleBit improvement solves.
TumbleBit
TumbleBit was proposed past times Boston University’s Ethan Heilman, Leen Alshenibr, Foteini Baldimtsi, Alessandra Scafuro in addition to Sharon Goldberg terminal summer, in addition to was recently presented at the Scaling Bitcoin workshops inwards Milan.
TumbleBit resembles CoinSwap, but adds 3 of import features.
First, it adds anonymity inwards numbers. TumbleBit allows many users — many “Alices” in addition to many “Bobs” — to gear upwards payment channels amongst the same intermediary. And all Alices tin shipping bitcoins to all Bobs through that intermediary.
Second, the payment channels betwixt the intermediary in addition to all Bobs are replaced past times sophisticated cryptographic puzzles. If Bob tin render the solution to the puzzles, he tin claim — say — a bitcoin. The flim-flam is that Alice buys the answers for these puzzles from the intermediary for a bitcoin. She therefore sends the reply to Bob equally payment, which Bob volition happily bring since he tin claim a bitcoin amongst it.
And importantly: all this is done through several layers of cryptography. This ensures that the intermediary does non know which solution he sold to which Alice, nor exercise the Alices know which puzzle solution they gave to Bob. As such, in 1 trial the Bobs claim their bitcoins, the intermediary sees that puzzles are solved. But due to the anonimity inwards numbers, the intermediary cannot link whatever of the Alices to whatever of the Bobs.
And third, the Alices in addition to Bobs tin fund their payment channels amongst the intermediary such that they tin brand several payments. And again, whatever Alice tin pay whatever Bob; it doesn’t require to live on the same Bob each time. This makes the intermediary a useful payment hub.
Furthermore, these puzzle-solving transactions betwixt all Alices, the intermediary, in addition to all Bobs, never striking the blockchain. Rather, in 1 trial everyone is done transacting, the end-state of all payment channels is recorded on the blockchain once, to allow everyone bring their funds out. TumbleBit is a scalable second-layer payment hub on tiptop of a privacy-friendly solution.
Reality
Last but non least: TumbleBit tin live on realized without requiring whatever changes to the Bitcoin protocol.
The squad from Boston University has already coded a proof of concept in addition to run successful tests on the blockchain. While the software is non quite create for production role yet, it is opened upwards root in addition to gratis for anyone to role in addition to contribute to.
Furthermore, TumbleBit actually exclusively requires a unmarried political party to constitute the service. In fact, it would live on ameliorate if exclusively 1 (or really few) parties offering it: if everyone uses the same TumbleBit service, that 1 service offers corking anonymity inwards numbers. (Since it’s completely trustless, centralization is non an issue.)
And since fees are trivially implemented inwards the design, moreover, at that topographic point is fifty-fifty an incentive to constitute a TumbleBit server. It seems it’s exclusively a affair of fourth dimension earlier someone realizes this potential.
Thanks toEthan Heilmanfor data in addition to feedback.
For technical details on TumbleBit, encounter the TumbleBit white paper, the TumbleBit presentation at Scaling Bitcoin Milan, or Adam Gibson’sTumbleBit for the tumble-curious.
The post With TumbleBit, Bitcoin Mixing May Have Found Its Winning Answer appeared get-go on Bitcoin Magazine.
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