Dandelion: Redesigning the Bitcoin Network for Anonymity

Abstract

Cryptocurrencies are digital currencies that provide cryptographic verification of transactions. In recent years, they have transitioned from an academic research topic to a multi-billion dollar industry. Bitcoin is the best-known example of a cryptocurrency. Cryptocurrencies exhibit two key properties: egalitarianism and transparency. In this context, egalitarianism means that no single party wields disproportionate power over the network's operation. This diffusion of power is achieved by asking other network nodes (e.g., other Bitcoin users) to validate transactions, instead of the traditional method of using a centralized authority for this purpose. Moreover, all transactions and communications are managed over a fully-distributed, peer-to-peer (P2P) network. Cryptocurrencies are transparent in the sense that all transactions are verified and recorded with cryptographic integrity guarantees; this prevents fraudulent activity like double-spending of money. Transparency is achieved through a combination of clever cryptographic protocols and the publication of transactions in a ledger known as a blockchain. This blockchain serves as a public record of every financial transaction in the network. A property that Bitcoin does not provide is anonymity. Each user is identified in the network by a public, cryptographic key. If one were to link such a key to its owner's human identity, the owner's financial history could be partially learned from the public blockchain. In practice, it is possible to link public keys to identities through a number of channels, including the networking protocols on which Bitcoin is built. This is a massive privacy violation, and can be dangerous for deanonymized users.