Are Bitcoin transactions truly anonymous?

NetEase Technology News, November 26, Bitcoin is a brand new currency: it is made and traded online, faster and cheaper than banks; this virtual currency service has attracted the attention of the world. However, there is a top question that remains to be clarified: Are Bitcoin transactions really anonymous?

Studies by several research groups around the world have shown that it is possible to find out which transactions are made by the same person, even if the users use different pseudonyms. However, it was not clear whether it was also possible to reveal the IP address behind each transaction. Now there is an answer: Researchers at the University of Luxembourg have now shown that it is easy to crack IP addresses with just a few computers and around £1,500.

"While it is still difficult to predict the future of Bitcoin, some people believe that Bitcoin will reshape the financial industry just as the Internet has revolutionized human communication," said Professor Alex Biryukov, who is in charge of electronic currency research at the university. "So I think it is important, especially for Luxembourg, to get a glimpse of what Bitcoin is like."

The Bitcoin system is not controlled by a central authority network, but relies on a P2P network on the Internet. Anyone can join the network as a user or provide computing power to process Bitcoin transactions. On the network, the user's identity is hidden behind a cryptographic pseudonym, which can be changed at will. After the transaction is signed with a pseudonym, it is broadcast to the public network for verification of its authenticity, and then the Bitcoin is distributed to the new owner.

Researchers at the University of Luxembourg's Algorithms, Secrets and Security Laboratory have shown in their latest research that Bitcoin does not protect the user's IP address, and that the user's IP address can be matched to the user's transactions in real time. In order to find the user's IP address, a hacker only needs a few computers and about £1,500 per month to cover the server and transportation costs. In addition, the popular anonymous network "Tor" is also powerless to ensure the anonymity of Bitcoin users because it can be easily blocked.

The basic idea behind these findings is that a user must connect their computer to a Bitcoin login node to make a transaction, and the Bitcoin login node constitutes a unique identifier for the duration of a user's usage activity. This unique pattern can be linked to the user's IP address. Furthermore, all transactions made during a session can be grouped together, even if they are made under unrelated pseudonyms. With this method, hackers can identify the IP addresses behind up to 60% of all transactions made on the Bitcoin network.

"Combined with previous research on Bitcoin transaction traffic, this Bitcoin network analysis shows that the level of anonymity in the Bitcoin network is quite low," explained Dr. Alex Biryukov. In a paper presented at the ACM Conference on Computer and Communications Security, the research team also described how to prevent hackers from stealing user privacy. Bitcoin core developers are currently discussing the software patch written by the researchers.