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Bitcoin Perfectly Anonymous — Until You Spend It
jfruh writes "One of the great attractions of Bitcoin as a currency is that it's completely secure and anonymous. But according to researchers (PDF) from UC San Diego and George Mason University, that anonymity starts to vanish the minute you exchange bitcoin for real-world items or conventional currencies. The researchers tracked transactions across the Bitcoin ecosystem and found points where it would be easy for a government with subpeona power to find the identity of a Bitcoin user. They also concluded that the currency wasn't especially attractive for money-laundering purposes."
Graph theory explains many things.
One of the ways that you can increase anonymity with Bitcoin purchases is by issuing a different hash key for each different kind of transaction. There are other techniques for moving around large numbers of Bitcoins as well including swapping the coins between wallets.
I'll agree that the exchange of Bitcoins for government-backed currencies is particularly problematic as current exchange laws require all sorts of identification for such transactions. On the other hand, you can live "off the grid" and just exchange Bitcoins for stuff like food, shelter, clothing, and other stuff and not bother with pesky details of exchanging into a government currency.
Almost everything mentioned in the article as some sort of deep revelation was acknowledged by the developers and "fans" of Bitcoins on forums within weeks of the original software published by Satoshi was released.... and happened years ago. Talk about stale news. The only real news is that somebody with "credentials" in a "scholarly paper" has made the same claims.... thus it can be included on Wikipedia or some other similar website.
So, you mean if I have a transaction for $576.23 from Bob's Porn emporium, someone can sift through the transactions for $576.23 and figure out that was me?
Well, color me completely un-surprised. I'm not sure I've ever believed it was anonymous -- aren't the signatures of everyone who ever spent it tacked onto it?
It isn't quite that, but it is more. Most people use the same traceable money pool where you can trace multiple transactions and use that to track people down. It isn't just Bob's Porn Emplorium, but also noting that from the same pool of bitcoins a transaction took place to Steve's Marijuana Farm, Sally's Whorehouse, and Chuck's Supermarket in Podunk, Kansas. That same pool of Bitcoins might have also received money from several people who are also all blood relatives.
The point is that each individual bitcoin can be traced from the first work unit where it was "mined" and be followed to every transaction where it was used. Anonymity happens if you change hash values (as individual users can use new public/private pairs to claim individual bitcoins), but it isn't perfect. It still can be traced to show how similar pools of coins are used for related transactions and can be eventually used to identify people.
Most people don't realize it's already mandatory (in the US) to scan currency serial numbers at every large transaction with a financial institution. The government is content with that, so I assume it gives them all the power they need, or they'd demand it of all merchants.
Socialism: a lie told by totalitarians and believed by fools.
No, zerocoin is not further along. Zero coin has made only imaginary progress. It requires rewriting the bitcoin protocol, and involves transactions which are very slow to validate. People are already using that coinjoin stuff.