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Bitcoin Coinjoin Not Anonymous v01

Bitcoin Coinjoin Not Anonymous v01

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Published by michaelus

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Published by: michaelus on May 31, 2014
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09/02/2014

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Version 0.1 (31 May 2014)by Michael_S (bitcointalk.org) OpenPGP KeyID=0xCC7E7C99
Why CoinJoin, as Used in DarkCoin,does NOT bring Full Anonymity 
 A Clarification
 Abstract
Unlike widely claimed, it is shown that CoinJoin is not fully anonymous. We prove this by a simpleexample.Hence, the claim “CoinJoin (or DarkCoin) provides full anonymity” is proven wrong.
Users of crypto-currencies must be educated to be aware that solely using CoinJoin (as usede.g. in DarkCoin) does not guarantee anonymity at all.
 Donations welcome:1MichaS16UMKFgNjanKrtfD51HpBkqPAwD[1 of 4]
 
Version 0.1 (31 May 2014)by Michael_S (bitcointalk.org) OpenPGP KeyID=0xCC7E7C99
1.The Counter-Example (to Prove that CoinJoin is not Fully  Anonymous)
Legend
: Meaning of symbols in the following diagrams:We assume that the following transactions are observable in the blockchain:
Transaction 1
:
Transaction 2
:
 Donations welcome:1MichaS16UMKFgNjanKrtfD51HpBkqPAwD[2 of 4]
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Version 0.1 (31 May 2014)by Michael_S (bitcointalk.org) OpenPGP KeyID=0xCC7E7C99
Transaction 3
:
2.Analysis of the Transactions
Let's assume that Address
 A1
 (compare Transaction 1) is known to be an address that has beenused for illegal activities.
Let's further assume that Address
 A21
 belongs to a merchant that bills 25 coins to a customer,and Transaction 3 shows this payment.
Question
: Can the merchant (or an institution that has access to the payment data of thismerchant) find out by blockchain analysis if the payer of this bill is involved in illegal activities?
 Answer
: Let's try to find out (in reality, this task would of course be performed by a powerfulcomputer, but we will do it “manually” here for the sake of illustration):
The payer of Transaction 3 used two inputs, Addresses A6 and A18.
Both A6 and A18 are outputs of a previous CoinJoin transaction (compare Transactions 1and 2), so at first glance one would think that it is not possible to track back the money flows. But we'll try anyway...:
We track back Address A18: From Transaction 2 (readable in the blockchain) we see that thefunds of A18 stem from EITHER A10 OR A13 OR A14 – we cannot say for sure, but we knowthat at least one of them is the earlier owner of the money of A18.
We track back Address A6: From Transaction 1 (readable in the blockchain) we see that thefunds of A6 stem from EITHER A1 OR A2 OR A3 – we cannot say for sure, but we know thatat least one of them is the earlier owner of the money of A6.
Looking further at Transaction 1, we see that A10 is a transaction output of input A1.
In other words: It is very likely that the owner of A10 is the same as the owner of A1.
This even more so, as the owner of A6 & A18 is provably the same person, and theseaddresses can be tracked back to A1 and A10 respectively.
Hence it is very likely that the owner of A6 and A18 (i.e. the payer of the merchant's bill) isalso the owner of A1 and A10.
Hence there is strong evidence that the payer of the merchant bill to A21 is involved inillegal activities in connection with Address A1.The evidence is not 100% of course, but very strong. It is theoretically possible, but highly unlikely,that the payer's wallet (A6 and A18) is connected to Address A1 in two different ways (first directly  via Transaction 1, and secondly via A10 and Transaction 2) by pure coincidence.Hence, there is sufficiently strong evidence and justification to trigger deeper real-worldinvestigations in the direction of the payer of merchant bill A21.
 Donations welcome:1MichaS16UMKFgNjanKrtfD51HpBkqPAwD[3 of 4]
  

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