Researchers from North Carolina State University, Boston University, and George Mason University in the U.S. have created a new system that makes it harder to detect bitcoin transactions.
Called TumbleBit, it is a computer protocol that runs on top of Bitcoin and benefits from an existing notion known as a ‘mixing service,’ according to a report from the North Carolina State University.
According to the research, instead of Party A paying Party B, there are several Parties A that pay an intermediary ‘tumbler,’ which then pays Parties B. However, the more parties involved, the harder it is to determine which Party A paid which Party B.
Yet, Alessandra Scafuro, an assistant professor of computer science at NC State and co-author of a paper describing TumbleBit, said a security flaw still exists.
Namely, if an outside observer can compromise the tumbler, it could figure out who was paying whom.
To solve this problem, TumbleBit undertakes a three-phased approach.
During phase one, known as escrow, the Parties A inform the tumbler that they want to make a payment while Parties B notify the tumbler that they want to be paid, which is all done through the blockchain.
In phase two, researchers from the universities involved in the development placed cryptographic tools in place that permitted the tumbler to pay the correct parties what they were owed without knowing which parties were involved. The research states that the second phase does not appear on the blockchain.
During phase three, which is known as the cashout, all the transactions take place at the same time, which in turn makes it harder to determine which parties are involved in any transaction. Phase three, NC State, says also does not appear on the blockchain.
However, while this three-phase approach may solve one issue, it doesn’t solve them all. As Scafuro adds, TumbleBit works only with fixed denominations.
So paying amounts larger than that denomination require making multiple payments. That’s something we’re working on.
The use of public keys gave users with a sense of anonymity; however, all transactions are essentially visible on the blockchain, but more and more people are researching new ways to de-anonymize these public keys.
Now, with this latest research from the U.S. universities it provides a step further in hiding bitcoin transactions that so many are working toward with various research that is being undertaken.
Of course, while many may be glad to hear about this latest research regarding bitcoin’s anonymity, it will certainly peak the interests of darknet criminals who may be keen to hide who they are paying at any given time.
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