An Analysis of Anonymity in the Bitcoin System

in use (that is, all you can know is that there are transactions that have not been spent yet, and if the same address is used to receive multiple transactions you have additional information that indicates the wallet is not in use… but it can never indicate that it's dead). If you managed to claim ownership of a dead wallet, there's nothing at all stopping you from claiming ownership of an in-use wallet too. But SHA256 is looking pretty secure right now. As for the way Bitcoins will inevitably be lost over time, it's generally considered in the Bitcoin community [2][3] that there's nothing to worry about (it will just add a bit more deflationary pressure). I don't like this aspect of the currency — money disappearing into the void with no hope to correct for mistakes might make it perfect for computers, but it's not so good for humans. As for tracking stolen Bitcoins, if the transaction hashes of the thefts were made public, an exchange should be able to tell if the Bitcoins that somebody is trying to turn into real money were once stolen. This is because the blockchain contains the entire history of Bitcoins — the way Bitcoins are spent is by taking the Bitcoins from a previous transaction and making a new transaction based on them; all this information is stored in the blockchain[4]. Some work has been done[5][6] at looking at what can be discovered by looking at the blockchain — it's not nearly as anonymous as many think it is. 1. https://bitcointalk.org/index.php?topic=7253.0 2. https://en.bitcoin.it/wiki/Myths#Lost_coins_can.27t_be_repla... 3. https://bitcointalk.org/index.php?topic=109117.0 4. https://en.bitcoin.it/wiki/Transactions 5. http://arxiv.org/pdf/1107.4524.pdf 6. http://eprint.iacr.org/2012/584.pdf

information, and which will re-issue currency to reset its size. In the case of Bitcoin, there is no such authority, meaning that either you'll hit this scalability problem or you cannot have secure offline payments. In Bitcoin's case, solutions have been given for the scalability problem; it is safe to conclude that offline payments are impossible. Lacking offline transactions is a big deal in practice. It means that we cannot meet anywhere "off the grid" and expect to be able to transfer money. It means that gas pumps need reliable Internet connections. It means that hot dog stands need Internet service. In other words, it means that Bitcoin cannot replace paper money -- whereas Chaumiam-style systems could, or at least have a stronger case for being able to. There is also reason to doubt Bitcoin's security model. See, for example, this work on analyzing the publicly available information in Bitcoin to de-anonymize its users: http://arxiv.org/abs/1107.4524 Really, if I were to be as conservative about security as possible, I would say that the only security Bitcoin provides is protection against double-spending in online transactions; I would not rely on anonymity, and I would not even think about offline payments. Considering how much work was done in the early 90s on digital cash systems that not only protect against double spending, but which also allow secure offline transactions and which ensure the anonymity of users, I don't think it is unfair to say that Bitcoin has technical weaknesses compared to other systems.

level, this is true). So, that then shows any passively listening third party that all those addresses were under control of a single user. This knowledge can then be applied transitively, to consolidate ownership of large quantities of accounts. (We tried explain this in our paper: http://arxiv.org/pdf/1107.4524v2.pdf Fig 1.6) What the report is probably getting at, is that an alternative thing to do, would be to instead send all the payments to a new account, in separate transactions. This would introduce a lot more ambiguity for a passive attacker - passive ownership assumptions become a lot less clearcut. You can still try make deductions, but its going to be much larger to do at large scale, and require more statistical assumptions. Its not completely obvious that this is what the paper is suggesting, but thats my reading of it, and I think that makes sense.

a technical problem that will be solved with a more mature ecosystem, but I like the way that a real bank always has ways to access money when bad things happen (at least in a functioning banking system). This thread[4] documents the loss of about 70,000 Bitcoins, which is worth about ten million dollars today. Related to this, if somebody hacked the EFF's Twitter account and posted that they were accepting Bitcoin donations on some address, a lot of Bitcoins would disappear into somebodies wallet. You could argue that Bitcoin is a more perfect sort of system, but it's not without downsides. Maybe another crypto-currency will come along and solve these problems. I think I hope it does. But I don't see Bitcoin supplanting modern state-backed currencies. I find it hard to see Bitcoin being used more widely than by the idealogues, the speculators, and those who find utility in it (like Silk Road, but not just that). 1. http://arxiv.org/pdf/1107.4524.pdf 2. http://eprint.iacr.org/2012/584.pdf 3. https://en.bitcoin.it/wiki/Anonymity 4. https://bitcointalk.org/index.php?topic=7253.0