How a paper destroyed Bitcoin’s anonymity

Alyssa Blackburn, a researcher at Rice University’s Baylor School of Medicine, and her team used a technique known as “address linking” to study transactions in the first two years of Bitcoin: from January 2009 to February 2011. They found that “the majority of bitcoins were mined by a mere 64 proxies for a combined value of B2,676,800 (currently $84 billion) over the two years.” “Mining” refers to minting coins by solving computer challenges the process of. They observed that this number — 64 people in total — “is 1,000 times smaller than the previous estimate of the early size of the Bitcoin community (75,000).” The 64 included some famous people who have become legends, such as Ross Ulbricht, best known as Dread Pirate Roberts. Ulbricht was the founder of Silk Road, a black market for illicit transactions in Bitcoin — until it was shut down by the FBI.

For Blackburn and his team, the focus is on studying situations in which people participate anonymously in game-theoretic scenarios. They found that early insiders like Ulbricht could take advantage of the relative scarcity of participants for a “double-spend” that would destroy Bitcoin, but they didn’t. They take an “altruistic” approach to maintaining the integrity of the system. This is interesting, but the more pressing discovery is that addresses can be traced and identities revealed. To find out who was making these early transactions, Blackburn and his team had to reverse engineer the entire premise of Bitcoin and all cryptocurrencies: anonymity.

As described by Satoshi Nakamoto in the original Bitcoin white paper, privacy will be protected in two ways: using an anonymous public key and creating a new key pair for each transaction. Blackburn and the team had to trace these key pairs to reveal who was transacting in early Bitcoin. For this they developed a scheme called a new type of address linking. The scheme found two patterns that pointed to users: one was a recurring code bit, and the other was a duplicate address for certain transactions. The result, they write in the paper (PDF), is that it is possible to start with a known identity, identify the identity by following the associated chain in the address graph, and “trace funds.” In addition, they assumed that “many cryptocurrencies could be vulnerable to a track-money attack.” Blackburn told Siobhan Roberts of The New York Times, “When you encrypt private data and make it public, you can’t assume it’s kept secret forever.” As the As the team concluded in the report, “Information leakage has eroded once insurmountable barriers bit by bit, opening up a new landscape of socioeconomic data.”

This article is reprinted from: https://www.solidot.org/story?sid=71791
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