Bitcoin Is Not Anonymous After All

Taco Cowboy points out a new study that shows it is possible to figure out the IP address of someone who pays for transactions anonymously online using bitcoins. "The Bitcoin system is not managed by a central authority, but relies on a peer-to-peer network on the Internet. Anyone can join the network as a user or provide computing capacity to process the transactions. In the network, the user's identity is hidden behind a cryptographic pseudonym, which can be changed as often as is wanted. Transactions are signed with this pseudonym and broadcast to the public network to verify their authenticity and attribute the Bitcoins to the new owner. In their new study, researchers at the Laboratory of Algorithmics, Cryptology and Security of the University of Luxembourg have shown that Bitcoin does not protect user's IP address and that it can be linked to the user's transactions in real-time. To find this out, a hacker would need only a few computers and about €1500 per month for server and traffic costs. Moreover, the popular anonymization network "Tor" can do little to guarantee Bitcoin user's anonymity, since it can be blocked easily."

Comments

Every single transaction is broadcast to the world

[Michael Woodhams]

And you can absolutely guarantee that the three letter agencies remember every one of them. They can look at who you've made transactions with and usually get a very good idea just from that who you are. I imagine they get more from fronts and hacked/infiltrated organizations. If they need more and you've ever transacted with a commercial entity within their jurisdiction, you are a National Security Letter or local equivalent away from being identified.

This IP address thing is like discovering that the back door is unlocked and open when the front door is secured by a piece of string.

Re:The article is wrong.

[TubeSteak]

The IP you can trace a transaction back to is only the IP of the person that told you about the transaction.

Try reading the paper.

The crucial idea is that each client can be uniquely identied by a set of nodes he connects to (entry nodes). We show that this set can be learned at the time of connection and then used to identify the origin of a transaction.

The crucial
idea of our attack is to identify each client by an octet of
outgoing connections it establishes. This octet of Bitcoin
peers (entry nodes) serves as a unique identier of a client
for the whole duration of a user session and will dierenti-
ate even those users who share the same NAT IP address.
We showed that most of these connections can be learned if
the attacker maintains connections to a majority of Bitcoin
servers. Then we show that the transaction propagation
rules imply that the entry nodes will be among the rst
that report the transaction to the attacker. As soon as the
attacker receives the transaction from just 2-3 entry nodes
he can with very high probability link the transaction to a
specic client. Moreover a sequence of successfully mapped
transactions can help the attacker to track dynamic changes
in the entry node set, to keep the client identier fresh. The
cost of the deanonymisation attack on the full Bitcoin net-
work is under 1500 EUR.

/all spelling mistakes are in the original text