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Bitcoin is Not Anonymous

• lukesandberg 15y ago
  I don't understand why someone would hold a large amount of money in BTC. The only real value i see for BTC is in secure online transactions. Basically a 'last mile' currency that should be used much like cash. So having some money in BTC would make sense (say < $200 US) just for the convenience of secure online purchases. But why would someone transfer a large amount of wealth into BTC? It seems like the digital equivalent of stuffing your money into your mattress. Am I wrong on this? is there some major benefit that im missing?
  • simonsarris 15y ago
    Because to many people it is not the digital equivalent of stuffing money into your mattress; it is the exact opposite. It is the digital equivalent of investing. Hell its not even the digital equivalent of investing. It's just plain old investing. (Or speculating, you might say)
    • rbanffy 15y ago
      You can invest in a foreign currency and BTC is as foreign as it can possibly get
      • lukesandberg 15y ago
        Yeah but when you do currency speculation you can hold the assets in banks and be protected by deposit insurance.
        • sliverstorm 15y ago
          What you're saying is currency speculation is usually safe. You should be familiar with the old tradeoff- safety (aka risk) vs reward. Traditional currencies do not fluctuate very much. Bitcoin does, and being a fledgling currency, has the potential to explode in value.
  • nazgulnarsil 15y ago
    bitcoin represents a set of capabilities that haven't been combined before. People believe that the market hasn't discovered the correct market price for this set of capabilities yet.
    • politician 15y ago
      Great answer.
      • lukesandberg 15y ago
        but what exactly is that set of capabilities, i've heard anonymity touted as one, but according to this article anonymity is clearly not a given.
        • sliverstorm 15y ago
          Besides anonymity, liquidity and the freedom from control by a government, particularly the US Treasury.
        • nazgulnarsil 15y ago
          the distributed ledger means that you don't have to trust anyone to perform a transaction. bitcoins act as digital bearer bonds in the same way that cash does in meatspace. In addition I can securely store an encrypted file containing my private keys on several cloud services and access it from anywhere in the world. If done correctly, it is possible that no one knows that I have this asset until I try to cash it into a national currency. That's just bitcoin itself. The bitcoin protocol opens up the possibility of all sorts of distributed and secure interactions, contracts or property titles for example. namecoin is a distributed DNS service based on this idea.
    • adrianwaj 15y ago
      I totally agree. There has been some criticism of bitcoin's technical aspects. I just wanted to post a thought I've been having for the last week or two, given your great answer (perhaps you could respond): If someone creates a better cryptocurrency than bitcoin, they should lock in a 1:1 exchange with bitcoin - so give 1 bitcoin and get 1 of the new currency back. At any time, one can recall bitcoins with the new currency at the same 1:1 rate. This way current bitcoin holders don't lose out to the new currency. There might be a minuscule commission to the creator. One issue in uptake is trusting the issuer of this new currency to stick around to make good on their promise. One weakness I see with bitcoin is speed of transactions across the network.
  • kiba 15y ago
    That is not the only real value of BTC. For example, it can be used to transfer wealth halfway across the globe in at least ten minutes. Also, the network operated 24 hours 7 days a weeks, so you don't have to plan around banking holidays or banking time nonsense. It is also used a store of wealth because the network put an upper limit on bitcoin money supply.
    • lukesandberg 15y ago
      Banks are annoying, but they provide an extremely valuable service (deposit insurance) and interest, which is why people tend to store wealth in banks. Are there any similar institutions for BTC?
      • sliverstorm 15y ago
        You are fixated on deposit insurance. The folks letting lots of cash float in Bitcoin are not using it as a bank. You need to shift your mental thinking from banks. "Investing" in BTC can probably be likened to stocks more than banks. P.S. The concept of deposit insurances does not hold much meaning with Bitcoin. Deposit insurance applies to banks, which hold on to & handle your money. Bitcoin is money. Now, if a Bank of Bitcoin was founded, because maybe you are afraid your PC will get hacked, and you deposited BTC with them, then deposit insurance would be meaningful.
      • eru 15y ago
        There's no deposit insurance in New Zealand. And deposit insurance isn't that old to begin with.
      • SkyMarshal 15y ago
        Banks have deposit insurance because they operate under the fractional reserve system and loan out almost all of their deposits, putting them at risk of failing and losing all your money. Hence FDIC and whatnot. The bitcoin network doesn't do that, hence no need for FDIC. The apparent risks to the BTC network are that a malicious entity gains control of > 50% of the network's computing power and uses that to illegally modify the blockchain, or the network goes down. The network is so big now that only the largest botnets would have a hope of the former, and it would take a global calamity like a scorched earth world war, asteroid, or EMP from an intense solar flare to accomplish the latter.
  • drivebyacct2 15y ago
    I don't see why people would hold JPN yen in the United States. (hint, investing)
• feral 15y ago
  I'm one of the authors. This work is about looking at the Bitcoin transaction history as a network, and investigating privacy and anonymity, in practice, on it - something there's been a good bit of discussion around recently. You can see a lot of non-obvious things, when you 'collapse' addresses, as we describe in the paper, and look at it as a network. We're not really talking about the extent to which Bitcoin itself is useful as a currency, or investment - that's a whole other topic, and a big one. If anyone has any questions on the work we did, if you post them here or on the blog, I'll try and answer.
  • randomwalker 15y ago
    This is very nice work, thank you. I've only had time to skim the paper; pardon me if these questions are answered therein: 1. You stop short of actually identifying the thief; is this primarily due to ethical concerns or the paucity of off-network information? Could you speculate on whether non-public information available to law enforcement would be enough to resolve the thief's identity? 2. How easy is it for users to protect themselves to foil your analysis techniques? Could client software automate some of these obfuscation mechanisms? Incidentally, you cite my Netflix work, but my work on deanonymizing social networks based on topology (http://33bits.org/2011/03/09/link-prediction-by-de-anonymization-how-we-won-the-kaggle-social-network-challenge/ http://33bits.org/2011/03/09/link-prediction-by-de-anonymiza..., http://33bits.org/2009/03/19/de-anonymizing-social-networks/ http://33bits.org/2009/03/19/de-anonymizing-social-networks/) might be more relevant, and some of the techniques potentially applicable to deanonymization of the bitcoin transaction network if and when it grows larger and gains a more substantial resemblance to the network of real-life relationships.
    • feral 15y ago
      Those are great questions. 1) We made a decision that the purpose of this specific work was to illustrate anonymity pitfalls, for the benefit of users generally, and not to de-anonymise any individual users. As such, we haven't dug deep to try and identify the thief. We've just examined the theft as a case study, to show that specific flows can be followed in practice. We think that law enforcement would have, at the least, some leads to follow, if they used similar analysis techniques - we could also have looked deeper into this incident, but didn't. We can't speculate on whether there's enough information to identify the thief - a lot would depend on whether the leads panned out, and on what sort of assumptions the thief made about trying to hide their identity - outside the scope of this work. 2) I think that some of our analysis would be possible to foil. Its probably possible for client software to avoid a lot of the account 'linking' that is due to transactions inputs being merged, perhaps by breaking the connected components formed, by putting merged Bitcoins through intermediate accounts, or perhaps by supporting mixing of some form. There are other leakages, of off-network information, such as the Bitcoin Faucet displaying IPs, that could trivially be turned off. But as to whether this would render Bitcoin anonymous overall, it is very hard to say. It is extremely difficult to get anonymity into your system, unless it has been an explicit design goal; and it would be possible to take this kind of analysis much further than we did. Thanks for the tip about the paper - we should probably reference it. That was nice work - it occurred to me it was possible to use such a strategy when the competition was announced, and when we saw the results, we knew someone had!
• deleted 15y ago
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• dfc 15y ago
  Bitcoin is pseudonymous. I have always been a little irratated that the developers have not tried to dispel the myth that it is anonymous. I am not sure if they ever said it was anonymous but they do not do enough (in my opinion) to stress that it is not anonymous.
  • atnnn 15y ago
    All transactions are public. It is one of the central ideas behind bitcoin and leaves no doubt about the anonymity of the transactions. It is a well publicised idea and it is even mentioned on the main page of the bitcoin wiki (http://bitcoin.it http://bitcoin.it).
    • feral 15y ago
      The fact that the transactions are public is a separate issue vs. whether they are anonymous. The reason people think Bitcoin is anonymous is because they think that identities cannot be linked to the addresses involved in the public transactions.
  • wladimir 15y ago
    The feature that people confuse with anonymity is that everyone can create a wallet and join the network. No need to sign up or provide personal information. Hence the myth. When careful enough, bitcoin can be used anonymously. But the developers do not claim that it's anonymous by default, certainly not in the current mainline client. For example, the wiki page about anonymity: https://en.bitcoin.it/wiki/Anonymity https://en.bitcoin.it/wiki/Anonymity Anonymity is not guaranteed. There are various initiatives under way to improve this. But people should stop thinking that anonymity is the single redeeming feature of bitcoin, anyway.
• drivebyacct2 15y ago
  Okay, it's not anonymous but it's easy to receive money at a wallet that is otherwise unidentifiable (and thus can be sent in a way equally unlinked to your real identity or public wallet endpoint).
• gigantor 15y ago
  Of course Bitcoin is not anonymous. The moment you make a purchase that contains some personal information about you (whether your name, IP, address, etc.) with your current wallet, any future purchases can be mapped back to you using your purchase graph. Difficult, yes, but the frequent intent with security is not to stop things cold in its tracks, but to make it such a chore to thwart all but the most dedicated intruders. But that's not the point of Bitcoin's anonymous capabilities. The relative ease which you can create multiple wallets and keep your questionable Silk Road and Wikileaks donation purchases separate, as opposed to creating multiple offshore bank accounts in Switzerland, can establish a high degree of anonymity. Almost like how drug dealers use prepaid cell phones and discard them for new ones the moment they suspect something is compromised.
  • sp332 15y ago
    But if you ever transfer money from your secret wallet to your identifiable wallet, the anonymity gets a lot weaker.
  • danenania 15y ago
    Could a service that creates a new ´wallet´ for every single transaction provide effectively unbreakable anonymity? Forgive me if the question doesn´t make sense... I haven´t used bitcoin.
    • gigantor 15y ago
      Such service could work, although it could possibly create a nuisance for continuosly updating your wallet that are tied to other services such as bitcoin mining deposit accounts, or if you ever treated your bitcoin wallet to handle monthly subscriptions, like a credit card. For the sake of true anonymity though, such inconvenience may still be worth it.
    • xtacy 15y ago
      Even if it was possible to create new wallets for every transaction, wouldn't you want to spend it somehow? Then, the "flow" of cash from a subset of wallets at the same time indicates _something_.
• hasanove 15y ago
  https://en.bitcoin.it/wiki/Anonymity https://en.bitcoin.it/wiki/Anonymity says pretty much the same, though in a general terms "The main problem is that every transaction is publicly logged. Anyone can see the flow of Bitcoins from address to address (see first image). Alone, this information can't identify anyone because the addresses are just random numbers. However, if any of the addresses in a transaction's past or future can be tied to an actual identity, it might be possible to work from that point and figure out who owns all of the other addresses. This identity information might come from network analysis, surveillance, or just Googling the address. The officially-encouraged practice of using a new address for every transaction is designed to make this attack more difficult." Not that you are saying they claimed otherwise and it is exactly your article that made me look through this page in detail, so thanks for that.
  • feral 15y ago
    Yes, absolutely. We actually wrote a sentence in our paper addressing this: "While there is an under- standing amongst Bitcoin’s technical users that anonymity is not a prominent design goal of the system, we believe that this awareness is not shared throughout the community." Also, there is a gap between 'might be possible to work from that point' and actually trying to do it; and it is this gap that a lot of Bitcoin users are counting on. The idea is out there that while it might be possible to tie things together in theory, its really not doable in practice. The discussion mentioned on this blog, and the post its replying to, is an interesting example of the uncertainty that's out there, even among very tech savvy users: http://blogs.forbes.com/timothylee/2011/07/14/advanced-bitcoin-anonymity/ http://blogs.forbes.com/timothylee/2011/07/14/advanced-bitco... So, we knew that Bitcoin didn't try make hard guarantees of anonymity, but we wondered how well analysis would work in practice; and it turned out to be work much better than we expected. The problem of linking accounts, too, turned out to give us a lot more information than we think most people would have expected. We aren't trying to claim any more than that - some people will read this and say 'huh, obvious' but we think a large number of people will also be surprised this practically worked - we were.
• Groxx 15y ago
  Awesome depth, many many thanks for the analysis! I'll definitely be reading this more thoroughly when I'm more awake :) The moral of the story is still what it's always been, and it's a two-parter: 1) anonymity is only as anonymous as how you use it. And, because Bitcoin's transaction history is public, it's very very hard to use it truly anonymously. And 2) very few people go to even reasonable lengths to stay anonymous. For most, I simply doubt they think it's worth the effort - why anonymize legitimate use?
• jsmcgd 15y ago
  "We contract all vertices whose corresponding public-keys belong to the same user." How?
• seanalltogether 15y ago
  I imagine it will be much harder to track the flow of bitcoins as soon as larger laundering services start popping up. For instance if a major poker site switched entirely to bitcoin then then it would be very easy for someone to stash a large amount of coins in the service and pull them out slowly over time to a separate wallet. Right now it's hard to stay anonymous because there are no large anonymous entities processing transactions to hide your own transactions within.