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In Bitcoin, is anonymous really anonymous?

With an increase in the utilization and popularity of bitcoins and the overall blockchain ecosystem, anonymousness in transactions is becoming the preference of many users. There’s some distinction between anonymity while transacting via cryptocurrency, and anonymity while using a search engine. As Bitcoin’s one of the many fundamental principles is decentralization, keeping some portion of the user’s information hidden is somewhat complicated. The complicatedness occurs concerning the algorithms being written at the backend. Another reason for the increase in anonymity is the fact that models around the blockchain framework are experimenting on making it utilized across industries and in a sustainable fashion. This piece focuses on various protocols through which one may decide whether a scenario could be built practically or not.

Anonymity in a Bitcoin

The whole concept of bitcoin when designed and built was to become an anonymous payment system. A framework where information between public key/Bitcoin addresses isn’t linked. But in practicality, there exist some properties through which one could analyze the features of a transaction, and how a transaction is being implemented. Through some techniques, one could identify the owner’s behavior via bitcoin address. One reason identified for anonymity not being effective was that not many users were present in a network making a specific feature get quite visible and easy to detect. Anonymity in a protocol may not operate properly without a communication channel. As the anonymity characteristic is still being researched and experimented by technical experts to date, there’s a probability that a fresh prototype may be built in the future.

Another prototype being developed to make transactions anonymous is Dandelion. Anonymousness includes two variables, ‘recall’ and ‘precision’. A recall is a probability of identifying, while precision detects the exactness of the estimator. The prototype uses a dandelion spreading technique for achieving anonymity. The technique consists of two phases. In the first phase, the message is spread over a randomly-selected area for a non-structured number of hops. In the second phase, the message is broadcasted using diffusion until the entire grid receives the message. Employing these phases helps in optimizing anonymity and latency.

Tracking Digital Footprints:

The most recent digital currency started being utilized by some percentage of the population in Cryptocurrency. The idea of using a decentralized currency daily came around 2008-09, but it became a reality only around 2014-15. A currency’s worth increases as the trust in individuals using it increases. It was so when gold or silver was used as a currency. It certainly was true and even is true up to some extent even today regarding currencies like Dollar, Yen, Pound, etc. The same is happening with cryptocurrencies. As major financial institutions are realizing it, they’re also starting to invest in them. But to avoid using it illegally, some form of tracking is required for accountability’s sake. One such prototype is mentioned below.

Tracking Digital Footprints image

As one may see in the image above, the proposed prototype takes into account a little complex route involving regulatory organizations also so that the probability of the transaction being done illegally doesn’t arise. There are many web browsers (like Tor) in which money laundering, funding terrorist organizations, and similar activities take place. To avoid such scenarios and to intensify the reliability, and trust of the user towards regular usage of cryptocurrencies, such type of fresh mechanism was built.

Blindly Signed Contracts:

Many experts have been researching in resolving the anonymity issue. Another piece of research shows that through ‘epochs’ (on-blockchain) and ‘micro-payment channel networks (off-blockchain)’, the issue of anonymity could be resolved. By using the off-blockchain method, the confirmation of blocks happens within a few seconds rather than a few minutes. Using these techniques, it was observed that the transaction was unforgeable, DoS Resistant, and Sybil Resistant as well. Employing the on-blockchain and off-blockchain technique turned out to be quite effective, just like its comparatively harder (almost impossible) to crack an iOS operating system in comparison with an android or a windows operating system.

Anonymity in Bitcoin via P2P network Traffic:

Technically speaking, bitcoin functions as a data structure. Just like in a linked list, some data from the prior block is used, after which it’s added and then sent to the consecutive block. The block which receives the data again takes some data as input, and then adds the data before sending it to the consecutive block. P2P network uses a gossip protocol for circulating the messages to the rightful receiver. CoinSeer was developed after getting inspired by Dan Kaminsky’s Black Hat presentation in 2011. To develop the protocol, initially, a certain type of pattern was found. Then, the pairing of bitcoin address and internet protocol (IP) was created. After this, the pairings were computed and analyzed statistically. Then came the part where ownership pairings were detected. Finally, the insignificant pairing was removed. In the end, applying highly conservative constraints, the desired outcome was achieved.

2nd Generation Bitcoins Anonymization Techniques:

With constant up-gradation in technology and blockchain being decentralized, mechanisms to overcome the anonymity issue becomes like a ‘piece of cake’. The second generation of anonymization techniques aims at eliminating the single point of failure while being deployable in the present Bitcoin ecosystem. Some techniques include Fair Exchange, Coin Swap, Coin Join, Stealth Address.

2nd Generation Bitcoins Anonymization Techniques image

The above image is an example of Coin Join. In layman words, using this technique is like using a one-time-password (OTP). The transaction’s input needs to have a genuine signature independent of other inputs. Each input is computed over the complete transaction and hence is valid for only that particular transaction. The anonymity in this type of technique depends on the extent of differentiability and the difficulty of inferring valid subsets of inputs and outputs.

Concluding Remarks:

As one could infer that numerous prototypes have been developed to date, and still researches are going on to build a foolproof technique. PrimaFelicitas is among few companies which have offices located at prime areas across the world i.e. where research around the blockchain happens 24*7. Besides that, the company’s founders have an educational background in computer science in the engineering field, and extensive experience related to such technologies as well.

Contact us now if you are interested in Blockchain / NFT Services etc, PrimaFelicitas can bring you the best results.

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Last modified on July 25th, 2023 at 4:10 pm