Is Bitcoin’s Anonymity Busted?
Cryptography researchers at the University of Luxembourg detailed a method to trace a Bitcoin user’s transaction history to their IP address, which could potentially be linked to their real-world identity.
The study, presented at the Association of Computing Machinery conference, details a method to exploit Bitcoin’s network structure by tracing a user’s transaction history to their IP address. According to the researchers, “it shows that the level of network anonymity provided by Bitcoin is quite low.”
Bitcoins are like the digital equivalent of gold, where users with high-powered PC’s crack complicated math problems to mint new bitcoins and then trade them for goods and services over a network.
Bitcoin is often touted for being decentralized and anonymous, which sets it apart from traditional currency that is controlled and monitored by federal agencies. This has led to volatile financial speculation, as well as a notorious association with black market sites such as The Silk Road, where anything from drugs to guns could be purchased.
It is believed that the FBI used a similar type of attack to unmask and prosecute the owner of The Silk Road 2.0 in November 2014, so unscrupulous Bitcoin users could potentially face jail time if the study’s findings are utilized by law enforcement agencies.
The de-anonymizing attack could also undermine the reputation of Bitcoin, but according to the researchers, the method “might be applicable to other digital currencies derived from Bitcoin,” reducing the viability of alternatives like Ripple and Litecoin.
The attack has its limitations though. The researchers claim a theoretical success rate of 60 percent, but state that the true effectiveness could be as low as 11 percent.
The de-anonymizing process requires a significant amount of computing power that is unattainable with a standard PC. According to the study, an attacker would have to rent servers at a rate of roughly $1700 per month.
The researchers pose certain countermeasures to the attack, including widening the amount of connections the user initially makes to the network, and slowing down the overall speed of transactions.
While researchers stated that “all vulnerabilities … were reported to Bitcoin core developers,” it remains unclear what improvements, if any, will be addressed in future revisions of Bitcoin technology.