Summarizing and Analyzing the Privacy-Preserving Techniques in Bitcoin and other Cryptocurrencies
Chaitanya Rahalkar, Anushka Virgaonkar
TL;DR
The paper addresses privacy in Bitcoin and related cryptocurrencies by surveying well-known attacks and privacy-preserving techniques. It presents a taxonomy of privacy tiers, catalogs attack vectors such as transaction graph tracing, taint analysis, and dusting, and reviews countermeasures including CoinJoin, off-chain networks, and advanced cryptographic schemes like RingCT and zk-SNARKs. It then compares privacy across Bitcoin and other currencies (e.g., Monero, Zcash) and discusses legality and ethics, highlighting the dependence of privacy on anonymity sets and user behavior. The work provides guidance for protocol designers and policymakers by clarifying what each technique achieves, where it falls short, and how practical privacy is constrained by implementation choices and regulatory contexts.
Abstract
Bitcoin and many other similar Cryptocurrencies have been in existence for over a decade, prominently focusing on decentralized, pseudo-anonymous ledger-based transactions. Many protocol improvements and changes have resulted in new variants of Cryptocurrencies that are known for their peculiar characteristics. For instance, Storjcoin is a Proof-of-Storage-based Cryptocurrency that incentivizes its peers based on the amount of storage owned by them. Cryptocurrencies like Monero strive for user privacy by using privacy-centric cryptographic algorithms. While Cryptocurrencies strive to maintain peer transparency by making the transactions and the entire ledger public, user privacy is compromised at times. Monero and many other privacy-centric Cryptocurrencies have significantly improved from the original Bitcoin protocol after several problems were found in the protocol. Most of these deficiencies were related to the privacy of users. Even though Bitcoin claims to have pseudo-anonymous user identities, many attacks have managed to successfully de-anonymize users. In this paper, we present some well-known attacks and analysis techniques that have compromised the privacy of Bitcoin and many other similar Cryptocurrencies. We also analyze and study different privacy-preserving algorithms and the problems these algorithms manage to solve. Lastly, we touch upon the ethics, impact, legality, and acceptance of imposing these privacy algorithms.