The Capital
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The Capital

Anonymization Technologies In Cryptocurrencies

By CoinJoy on The Capital

Users of crypto are worried that the information about their assets is quite transparent, just like Monero project manager Riccardo Spagni. Here is a brief overview of how this problem can be solved, the advantages and disadvantages of the methods. In his Twitter account: “What if I simply don’t want the cashier in the grocery store to know my account balance and spending habits?”

CoinJoin

CoinJoin is a Bitcoin transaction anonymization technology introduced in 2013 by Bitcoin Core and Blockstream developer Gregory Maxwell.

Bitcoin does not offer complete anonymity. If someone analyzes the public blockchain, transactions will be associated with a specific person.

Bitcoin transactions consist of inputs (sending addresses) and outputs (receiving addresses). When a user wants to arrange a transaction, he selects the unspent incoming transaction balances (UTXO) as inputs, designates the outputs, and signs the inputs. Each entry is signed autonomously, and users can set multiple exits.

An analogy of the CoinJoin model is a situation when a group of people combines their cash into one amount, puts it in a wallet, and goes to the store. All members of the group can make sure that no one spends more than they should, however, in the process of making purchases, they do not necessarily use the banknotes they put into a common wallet.

In the case of CoinJoin, several parties jointly create a transaction; each side provides entrances and preferable exits. When all inputs are correlated, the analyst can’t say exactly to which user this or that output belongs.

  • CoinJoin does not provide complete anonymity: senders and recipients are displayed on the blockchain;
  • Also, transactions can be identified through the CoinJoin Sudoku analysis instrument. You can deal with this problem by using only certain amounts for transaction output values (0.1 BTS, 1 BTS, 10 BTS, etc.), but this creates additional difficulties and limitations;
  • To form a transaction, it is necessary to create groups and establish interaction between participants.

To improve CoinJoin, the developers proposed several extensions and improvements to the protocol: JoinMarket, CoinShuffle, and Charmian CoinJoin technologies.

Two wallets support CoinJoin technology — the mobile version of Samourai Wallet with its associated Whirlpool technology and the desktop version Wasabi Wallet.

On April 5, 2020, on Satoshi Nakamoto’s alleged birthday, the Bitcoin community first celebrated CoinJoin Day. In honor of this day, the Wasabi developers introduced a new release. CoinJoin is also used in MimbleWimble, a PoW protocol with scalability, and increased privacy.

ZeroLink

ZeroLink is a protocol that provides anonymous use of Bitcoin that was presented in August 2017 by the developers of Samourai Wallet and Hidden Wallet.

When creating ZeroLink, the Wallet Privacy Framework was used, combining wallets with functions for pre- and post-mixing, as well as the technology of mixing coins.

Zero Link principle of operation: users connect, give inputs and exchange addresses, as well as the masked address to which their coins should arrive, after which the server pits the signature on crypto coins and returns them. The users reconnect anonymously, unmask the output addresses and give back the addresses to the server. The server agrees that all the outputs were properly signed and came from legitimized holders. After that, users reconnect again and sign transactions.

In this case, a full round of mixing takes place in seconds and is quite inexpensive, and anonymity, if necessary, can spread much further, then a separate CoinJoin transaction.

Stonewall

Stonewall is a technology for protecting transaction anonymity from cluster analysis by Samourai Wallet founders in May 2018. It does not use CoinJoin technology but creates the appearance of such use, and transactions are ordinary transactions: with their help, one user sends Bitcoins to another. The trick is that users combine their transactions into one and add an arbitrary number of exits to the normal Bitcoin transaction.

Transactions with Stonewall are distinguished by a higher entropy compared to standard Bitcoin transactions, which increases the cost of automated chain analysis and complicates the analysis of the transaction graph. Stonewall transactions are carried out in such a way that they get a that exceeds zero. The technology is built-in by Samourai Wallet as a default feature but is not necessarily involved in every transaction.

Conclusion

For many virtual asset holders, crypto mixers are very important. Fraudsters and special public services try to disclose information about people who use cryptocurrency transactions.

It is sometimes better to pay a commission to cryptocurrency mixers to avoid troubles and significant losses. If we neglect the basic tenets of protecting digital capital, then each user who has some knowledge, skills, and technical capabilities will be able to get important information from the coin blockchain against anyone who has committed a simple operation with virtual currency.

Description: Blockchain is called a glass safe, where all transactions are locked, but at the same time in plain sight. This works with Bitcoin, but several mixing services that use anonymization technologies in cryptocurrencies can provide privacy to their owners. CoinJoin, ZeroLink, and Stonewall are among the most popular ones.

Originally published at https://coinjoy.io.

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