New system increases anonymity for bitcoin transactions
Fri 10 Feb 2017
Researchers from the U.S. have developed a system to increase the anonymity of parties involved in bitcoin transactions, using a mixing service to make it more difficult to track individuals sending and receiving bitcoin payments.
The new system, called TumbleBit, is a computer protocol that uses a mixing service layered on top of existing bitcoin services to provide immediate cryptocurrency anonymization.
The mixing service is off-blockchain and enhanced by encryption and a three-phased approach to payments, created as a secure payment protocol that provides anonymity to payer and payee in the transaction.
Using a unidirectional, unlinkable and untrusted payment hub, called a tumbler, parties sending and receiving payments in a bitcoin transaction are mixed in with other parties making different payments – thereby obscuring the transaction, making it difficult to determine who paid what to whom.
In order to combat the possibility that a tumbler could be accessed by an outsider, and transactions unraveled, the researchers implemented a three-phased approach to increase security and further anonymize transactions. In the first, an escrow phase, the payer places the correct amount of bitcoin into an escrow account on the tumbler, and the payee is provided with a puzzle-promise protocol.
In the second phase, called the payment phase, the payer receives the puzzle-solution protocol and moves the bitcoin in question to the off-blockchain tumbler. In the third phase, payments are claimed from the tumbler by the payee and the transaction is completed.
TumbleBit achieves what the researchers refer to as k-anonymity within an epoch. This means that within a specific time frame, blockchain will reveal which payers and payees were active; but no one, not even the tumbler itself, can tell which individuals participated in each specific transaction. If ‘k’ is the number of participants active within the time frame, participants have ‘k’ anonymity, which increases as the number of transactions rise, as more participants use
If ‘k’ is the number of participants active within the time frame, participants have ‘k’ anonymity, which increases as the number of transactions rise, as more participants use TumbleBit.
The team conducted a test of TumbleBit, using 800 parties to make 3200 transactions through the tumbler. They found TumbleBit to be a secure, effective anonymizer and that the off-blockchain transactions through the TumbleBit protocol could be made in a matter of a few seconds. They also found that fair exchange could be enforced even if the parties involved were uncooperative or malicious, and that anonymity would not be compromised.