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CRYPTOCURRENCIES PROMISE TO revolutionize the
financial industry, forever changing the way we transfer
money. Instead of relying on a central authority (for
example, a government entity or a bank) to issue and
manage money, cryptocurrencies rely on the
mathematical design and security proofs of the underlying
cryptographic protocols. Using cryptography and
distributed algorithms, cryptocurrencies offer a fully
decentralized setting where no single entity can monitor
or block the transfer of funds. Cryptocurrencies have
grown from early prototypes to a global phenomenon with
millions of participating individuals and institutions. 17
Bitcoin28 was the first such currency launched in 2009
and in the years since has grown to a market capitalization
of over $15 billion (as of January 2017). This has led to the
emergence of many alternative cryptocurrencies with
additional services or different properties as well as to
a fruitful line of academic research.
Apart from its other benefits (decentralized
architecture, small transaction fees, among others),
Bitcoin’s design attempts to provide some level
of “pseudonymity” by not directly pub-
lishing the identities of the participat-
ing parities. Every user interacts with
the network by establishing a public
address that acts as a “pseudonymous
identity.” In practice, there is no bound
on the number of addresses a user
can create; therefore there exists no
single address a user can be related
with. However, this pseudonymity is
far from the desired unlinkability prop-
erty in centralized e-cash protocols, 11
where when Alice sends an amount to
Bob, the original source of these funds
cannot be deduced. The reason for this
problem is that in most decentralized
cryptocurrencies all transaction in-
formation (payer and payee address,
amount, among others) is publicly vis-
ible, stored in a distributed data struc-
ture called blockchain (for example, see
www.blockchain.info). Therefore, an
attacker can easily observe how money
flows. This can lead to quite devastat-
ing deanomyization attacks and there-
fore there is a need for cryptocurren-
cies with stronger privacy guarantees.
In this article, we review widely stud-
ied mechanisms for achieving privacy
in blockchain-based cryptocurrencies
such as Bitcoin. We focus on mixing ser-
vices that can be used as a privacy over-
lay on top of a cryptocurrency; and pri-
vacy-preserving alternative coins that,
Privacy in
Decentralized
Cryptocurrencies
DOI: 10.1145/3132696
When it comes to anonymizing cryptocurrencies,
one size most definitely does not fit all.
BY DANIEL GENKIN, DIMITRIOS PAPADOPOULOS,
AND CHARALAMPOS PAPAMANTHOU
key insights
˽ While blockchain-based cryptocurrencies
like Bitcoin do not directly reveal users'
identities, they are often prone to deanonymization attacks. By observing
the flow of transactions stored in the
public blockchain, third parties can make
accurate guesses about the identities of
involved individuals.
˽ Existing privacy-enhancing techniques
for cryptocurrencies mostly come in
two flavors: Mixing overlay protocols
that can be executed on top of an
existing cryptocurrency to hide the flow
of funds among a set of participants,
and alternative privacy-preserving
cryptocurrencies that use advanced
cryptographic techniques to achieve
strong user privacy by design.
˽ We review and compare solutions from
both techniques.
