Bitcoin anonymity: the technology exists already

Improving the bitcoin technology to allow truly anonymous payments is a bit controversial. It is a hot potato.

On the other hand, there is also quite a bit of pressure trying to fit bitcoin into the existing KYC/AML (Know Your Customer/Anti Money Laundering) frameworks. That will not happen either.

But then again, forging ahead and implementing anonymous payments, could rock the boat in the short run.

Much of the following has already been implemented in the cryptonote cryptocurrency.

In this case, users can pay exactly 5 bitcoins into addressAlice. If they pay less, their payment will be ignored. If they pay more than 5 BTC, it will be considered to be a 5 BTC payment.

addressAlice: accepting amounts of exactly 5 bitcoins. Participants:



At some point, Unknown sends an instruction to Alice to pay out 5 bitcoins to addressK. Alice also receives a ringSignatureK to validate the request, confirming that Unknown is one of the persons who has paid in earlier on.

payTo addressK ringSignatureK

It is impossible to know which one of the 110 participants has sent the payment instruction. The ring signature is still traceable in order to prevent double spending. Therefore, it is not possible to know who exactly made the payment, but Alice can perfectly well detect that this person has made a payment already.

The existing bitcoin protocol could be extended to support traceable ring signatures.

I doubt, however, that the bitcoin core team would accept a pull request at his point with such a feature. Furthermore, it is indeed a good idea to let the altcoins test drive this feature a bit more, before implementing it in bitcoin proper. Just with its existing features, bitcoin has got the 200+ governments on the globe pretty much panicking already.

Of course, if governments invest too much effort and money in tracking the blockchain in order to de-anonymize it, and to ask obnoxious questions to bitcoin users, the bitcoin protocol would still have to patched in order to deal with the problem.

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I mostly work on an alternative bitcoin marketplace -and exchange applications. I am sometimes available for new commercial projects but rather unlikely right now.

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