On the anonymity of banknotes

Abstract

In this paper we analyze the anonymity of banknote based payments. We show how to model intermediary-chains and present statistical methods that can be used by banks to extract information on the length of the chain from deposited banknotes. If the bank has discovered a chain of length zero, the anonymity of the payment is immediately revoked. To protect against such deanonymizations, customers have to be very careful when spending banknotes.