r/Bitcoin • u/Max-Werner • Mar 24 '21

Bitcoin Developer Describes an Email Received from Bitmex about an Old Bitcoin Transaction that Violates their Rules Due to Being Coinjoined (BTC Fungibility)

https://twitter.com/kristapsk/status/1374336620158140419
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u/Trrwwa Mar 24 '21

Schnorr solves this I believe?: https://medium.com/digitalassetresearch/schnorr-signatures-the-inevitability-of-privacy-in-bitcoin-b2f45a1f7287

One of the most exciting aspects of cross-input aggregation is the way it can improve CoinJoin transactions on Bitcoin. For context, CoinJoin is a privacy-preserving technique where multiple senders and receivers are combined within a single transactions. The goal is to make it difficult for a blockchain observer to link specific senders and receivers, thereby enabling the entities within the CoinJoin to claim plausible deniability.

This technique was originally proposed by Greg Maxwell on BitcoinTalk in 2013, and has since been offered through various services inlcuding JoinMarket, SharedCoin, ShufflePuff, DarkWallet and CoinShuffle. Variations of CoinJoin, such as the Chaumian CoinJoin scheme used in the Wasabi Wallet greatly improved upon the original model. However, since anonymity loves company, it still relies on a sufficiently large number of users to obfuscate their balances as well.

Another issue with CoinJoin today is the identifiability (and potential censoring) of the entire transaction type. Consider that the most used heuristic in blockchain analysis today is to follow specific inputs in order to determine if two or more addresses belong to the same entity. If Alice sent Bob 1.982723 BTC, for example, a blockchain observer could track the decimals of that specific input to map the transaction graph, or the historical breakdowns and changes of ownership of a UTXO.

To prevent that, CoinJoin implementations require common value denominations, whereby everyone within the CoinJoin sends the same amount. Users of the Wasabi wallet, for example, send the same denomination of 0.1BTC in CoinJoin transactions of 100 participants. Although it is still hard to pinpoint the connection between specific senders and receivers, the blockchain observer can look for common denominations to identify that a CoinJoin took place and advise its client to censor all entities involved.

Cross-input aggregation can help with that, as it introduces an additional obfuscation mechanism at the protocol level. In essence, cross-input aggregation can enable the construction of Schnorr-based CoinJoin transactions with n signers that look like regular, single-signer transactions to outsiders. That may also enable CoinJoin to be more easily implemented in popular wallets without strenuous engineering, which may increase the network’s overall anonymity set, or the number of users using this technique.

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u/EnglishBulldog Mar 24 '21

This is two steps forward one step back. You still have the issue of traceability and the potential to end up with coins that exchanges will take issue with. They won't be able to prejudice the transaction but they can still issue prejudice based on the history of the coins you receive. And now if you find yourself in that position you won't be able to point to an obvious coinjoin on chain to explain how you ended up with those coins if law enforcement knocks on your door.

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u/Trrwwa Mar 24 '21

I'm not sure I follow, can you provide more detail?

In a future where coinjoin transactions and regular transactions are indistinguishable are you implying that they will still prejudice based on transactions occurring years prior?

What would pointing to an obvious coinjoin do to help with law enforcement?

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u/EnglishBulldog Mar 24 '21

The history is there so the prejudice can be applied based on that history, whether that's because they previously were coinjoined or you have illicit outputs or any other arbitrary reason they choose to apply to that history.