SUMMARY

In this chapter, we detailed a number of prominent attacks on the privacy provisions of Bitcoin. More specifically, we outlined a number of network-based attacks that leverage information exchanged by Bitcoin peers throughout their participation in the network. We also discussed a number of protocol-based attacks on the system and quantified the privacy offered by Bitcoin in light of these attacks. Finally, we discussed a number of research attempts, such as ZeroCash and Extended Zerocoin, to enable privacy-preserving payments in Bitcoin.

Our analysis shows that existing implementations of Bitcoin leak considerably information about the profiles of users. This is especially evident when an adversary can leverage the use of behavior-based clustering algorithms and combine their use with a number of heuristics that capture multi-input transactions and shadow addresses. Note that the manual creation of new addresses can only partly conceal the profiles of users who participate in a small amount of transactions. Such a countermeasure, however, does not increase the privacy of users who are active in the network and participate in a large number of transactions.

To enhance user privacy in Bitcoin, mixing transactions emerges as an effective technique to hide the linkability between inputs and outputs of Bitcoin transactions. Existing solutions rely on a mixing server to harden the tracing of coin expenditure in the network; here, the mixing server still needs to be trusted to ensure anonymity, since it learns the mapping of coins to addresses. Even when mixers can be instantiated without the need of a centralized mixing server, such protocols cannot fully prevent clustering analysis since they do not hide the amounts and times of payments.

On the other hand, although privacy-preserving cryptographic enhancements of Bitcoin can prevent the leakage of transaction amounts and times, such protocols incur considerable computational overhead and require significant modifications to the Bitcoin protocol.

We note that the lack of privacy offered by the current Bitcoin system can however be seen as an enabler for accountability measures in the system. Recall that incorporating accountability measures in Bitcoin is essential to deter misbehavior, especially given the lack of workable mechanisms to ban/punish Byzantine nodes.