Bitcoin Software to Utilize Tor Anonymity

Bitcoin isn't anonymous, but the idea of an anonymous digital currency has wide appeal. Core Bitcoin developer Mike Hearn says he's working on an interesting project to deal with remaining privacy holes. Essentially, a piece of Bitcoin and the Tor anonymity network will be "stitched together" in updates expected next month.

Bitcoin is pseudonymous, a step below anonymity. The public ledger, or the blockchain, lists the details—the who, when, what—of every transaction ever made. The Bitcoin ecosystem is a jumble of apps built on top of the original network protocol. Some of these are powered by bitcoinj, a Java implementation of the protocol that Hearn plans to tie to Tor. 

The Tor anonymity network is software that funnels data through relays and encrypted layers in order to preserve user privacy and anonymity. Once Hearn makes the promised updates, all transactions made with bitcoinj-powered wallets will be routed through the Tor anonymity network, making the original data and IP addresses much more difficult to trace.

Law enforcement will certainly denounce this project. Control-happy regulators and politicians claim that an anonymous currency will merely fuel drug purchases and nefarious criminal activities. Although, criminals who want to remain anonymous would probably have an easier time using cash.

There are plenty of legitimate uses for an anonymous network. Hearn expects that the NSA has already "de-anonymized" the block chain through IP tracking. Hearn told Forbes:

The fact I use Bitcoin isn't a secret, but I don't want all my transactions in an NSA database. When I use Bitcoin in a bar, I don't want someone on the local network to learn my balance. The way Bitcoin is used today, both those things are possible.

Giving friends and family access to a running list of completely legal purchases is obviously not appealing for many non-criminals. Plus, in order for a business account to operate on Bitcoin, it helps to shield competition from a list of every transaction the company has made.

Transaction anonymity is a pretty popular idea. Other projects have evolved to deal with Bitcoin's anonymity "flaw." ZeroCoin, to be released May 2014, is a stand alone currency with anonymous features built in. Dark Wallet, directed by the creator of printable guns, Cody Wilson, is also in the works.

Although integrating Tor is a step for Bitcoin privacy, and certainly is an impediment to eager snoops, imperfections remain. According to Coin Desk, Bloom Filters increase transaction efficiency but "bleed a lot of information." Hearn plans to address this in future updates, but added that there is no "silver bullet" to Bitcoin transaction anonymity.

Read more of the details here and here.

Comments

[Ted Levy]

"Although, criminals who want to remain anonymous would probably have an easier time using cash." Is this true, Alyssa? Cash if kept in banks can be easily tracked by government--anything but anonymous--and there are numerous laws regarding cash movement that are felonies. Or it can be held on one's person or hidden, making it risky, or dangerous, or inconvenient.

[anon]

Curiously missing are details about Tor's security loopholes; such as how many tor nodes just happen to be owned by the Federal Government.

[Pl?ya Manhattan.]

Just all of the on ramps and off ramps. NBD.

[Brett L]

Yeah, I got the impression that TOR was thoroughly compromised by the FedGov.

[Cytotoxic]

Pretty sure that's not true. I think there was a compromise of a previous TOR version but that got fixed.

[Brett L]

Okay. My recollection was that the FBI or somebody has put up a bunch of money to fund it and there were definite hints of back doors when the whole Silk Road thing went down. I have been assuming that, at best, it will hide my porn selection from my local ISP.

[SweatingGin]

Navy funded it. FBI or another law-enforcement compromised freedom hosting (hidden hosting service) to serve out malware that sent user's real IP to them.

[SweatingGin]

The compromise was in the firefox browser that the Tor project shipped (in it's JavaScript engine).

The feds may run a non-trivial number of nodes, but one key is that you only need one non-compromised (or compromised, but non-cooperating node) in the your chain to be safe (ish).

IIRC, the entry node isn't really vulnerable to snooping -- data going to it is encrypted with three different keys. Exit nodes are where the real weakness is (and if you're running Bitcoin on Tor, it probably doesn't even need to exit).

[Brett L]

Thanks for clarifying that.

[Overt]

Right. The Exit Host is the big problem.

When your signal goes into TOR, it is encrypted and so all the nodes in the TOR network do not know what it is.

The Exit Node decrypts re-integrates the signal into the internet. Essentially, the internet thinks the Exit Node is YOU.

So the big danger is the Exit node. It doesn't know your IP but it knows what YOU are sending/receiving and the identity of the destination website. It is the perfect place for a man in the middle attack. If the Exit Node were compromised it could:
- Serve you a fake HTTPS certificate (which your browser should detect, but people often ignore)
- Intercept non-https traffic between you and the destination host.
- insert malicious content into non-https traffic going back to the site.

[Overt]

(cont'd)
Note that the malicious content could be things like serving JS that your browser loads, which then sends identifying info from your computer back to them. It could also replace links in a page so that when you click them, you redirect through other data-gathering servers.

There are two things that catch people in Tor:
1) Allowing pluggins/JS to run in their tor browser.
2) puting identifying information on an external website.

To protect yourself, you should use a clean system like Tails that leaves no permanent trace of you and which does not have ANY pluggins (flash!!) or JS engine that runs while you are connected to the network.

Further you should assume that everything you post/type/save/send to a destination site was seen by the government. They either got it by snooping, compromising the Exit Node or compromising the destination site. So don't leave anything that might compromise your identity- including email addresses, personal info or even "Last week I stayed at the Maui Hilton..."

[Paul.]

Pretty sure that's not true. I think there was a compromise of a previous TOR version but that got fixed.

I need more than "pretty sure" before I start moving stuff I don't want the Feds to see.

[SweatingGin]

Reference client already has an option for:

-tor=ip:port Use proxy to reach tor hidden services (default: same as -proxy)

This one is a library used by other wallets/clients/etc. One big thing to realize is that Bitcoin doesn't use SSL for peer-to-peer traffic, so using Tor is an easy way to disguise the actual traffic from eavesdroppers (doesn't disguise it from network participants, obviously.)

[Paul.]

(doesn't disguise it from network participants, obviously.)

This is always your problem. When moving data to a community of users that you expect the 'community' to be able to read. How do you control your community?

[SweatingGin]

Well, you don't, but that's the price you pay for it being decentralized.

You just have to take care to not tie a particular address to you unless you want to (and we need better tools for that).

[Cytotoxic]

Back when it was just a BTC add-on and not its own currency, ZeroCoin was just a washing machine for BTC-you and your BTC go in, random BTC come out back to. Dark Wallet uses a different method in that it scrambles transactions not BTC-'trustless mixing'. And this Tor-wallet thing sounds like the transactions will be routed across nodes like Tor normally is.

Which one is best? Can they be used together? I summon The Nerds.

[anon]

Which one is best? Can they be used together? I summon The Nerds.

The problem is in devising a system that's both secure and anonymous. The more you increase anonymity, the less security you have. Right now bitcoin's already suffering a bit from perceived security threats, and I don't think there are enough people out there that want to increase their risk exposure even more for such marginal reward.

[Paul.]

My gut feeling is Darkwallet. But it's only a gut feeling.

[SweatingGin]

They serve different purposes. DarkWallet, if it is as legit as I hope, would be a good way to get financial privacy. Bitcoin-over-Tor is good if there were concerns about being seen running the software.

ZeroCoin is an amazing idea, and may go further. Right now, I'd think of it as a threat. "Go after Bitcoin, and we drop this patch into it and make it really anonymous."

There's a couple of other proposals in various states around that idea, too (essentially encrypt your transactions before sending, then only the recipient can decrypt them).

The "Bitcoin 2.0" protocols coming down the line (Etherium, Open Transactions, Master coin, a few others) will provide the ability of cross-blockchain exchanges (Trustless Bitcoin for ZeroCoin/LiteCoin/DogeCoin), and I'm pretty sure you could use those for a trustless mixer, as well.

[Paul.]

ZeroCoin is an amazing idea, and may go further. Right now, I'd think of it as a threat. "Go after Bitcoin, and we drop this patch into it and make it really anonymous."

I don't understand, what's the incentive to not do this now?

[Eitan]

The original zerocoin protocol would add rather large amounts of data to the blockchain but I've heard that they've made it better. More to the point, it's not quite so simple as just "adding it in". Changes to the bitcoin protocol have to be pretty uncontroversial since they have to be accepted by almost all miners to avoid a fork of the blockchain.

[Paul.]

Thank you for the clarification.

Changes to the bitcoin protocol have to be pretty uncontroversial since they have to be accepted by almost all miners to avoid a fork of the blockchain.

Yeah, I can definitely understand that concern in the bitcoin community.

[Eitan]

I'm not really familiar with dark wallet but your characterization of zerocoin is essentially correct. It's basically a mixing protocol that uses zero knowledge proofs to prove that you own a coin without knowing which coin you owned. The bitcoinj use of Tor does not go that far. It's still trivial to track the origin of transactions through the blockchain. All it does is break the link between transactions and IP addresses. This means the connection between your real identity and your public address is severed.

[Overt]

People should still be aware that even if the transaction record in the Block Chain has been anonymized, it doesn't mean that the TRANSACTION was anonymous. (I know you know this, but just clarifying).

When you made your transaction, anything that could identify you should be assumed "Known to the Government." Did you make the purchase while off the tor network? they have your IP. Even if using TOR for the online purchase, did you give delivery addresses? Did you have Flash turned on? etc etc.

[Paul.]

Money ain't got no owners, only spenders. -Omar Little

[John C. Randolph]

So, here's an idea that crossed my mind a couple of months ago: What if you used something like bitcoin to represent equity in a business? You could get anonymous ownership, very fine granularity, and be able to pay a dividend anonymously.

Thoughts?

-jcr

[Andrew S.]

Unless you were very, very careful, you'd run into Securities and Exchange Commission issues.

[John C. Randolph]

That's where the anonymity pays off.

-jcr

[SweatingGin]

It's coming.

Take it a step further. Make sure that ownership structure is decentralized as well (avoiding banning/law-enforcement. Make a corporation where the business rules and logic are enforced on a blockchain (or similar).

Give it the ability to hire people, pay vendors. Owners of the shares can vote on things. Dividends can be paid out to those owners. Shares can be traded on the same decentralized markets.

[Cytotoxic]

Between this and BitCloud/MaidSafe and pCell transforming the internet and transmission respectively and all the other decentralization techs, the statists are beat. They are too slow. We will leave them behind.

[SweatingGin]

Yup, and damn, I'm loving it.

[Paul.]

I definitely like what I'm seeing. Unfortunately there's some quote somewhere (which I think someone used here on H&R recently) about how much damage occurs when the state starts thrashing about in its death throes.

I sometimes wonder if the lack of police accountability and 'justified' shootings of unarmed people-- the general thuggishness of the police in general-- is a sign of that.

[Overt]

I'm not so certain.

People thrive community. And part of being in a community means not being anonymous. You still need a uniquely identifiable persona. Just like on Reason.

Even if Reason didn't have information (like email addresses, IP, real name, etc) that could personally identify us, it is not uncommon for people to leave enough identifiable information (Where do I live, what brew am I brewing, what movie did I see, where was I living) that a sufficient effort could link your "anonymous" account to you.

That said, increasing the effort to the point where it is essentially a manual effort is a huge, huge win for liberty.