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How a 27-Year-Old Codebreaker Busted the Myth of Bitcoin’s Anonymity (www.wired.com)

submitted 10 months ago by [email protected] to c/[email protected]

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"This is the story of the revelation in late 2013 that Bitcoin was, in fact, the opposite of untraceable—that its blockchain would actually allow researchers, tech companies, and law enforcement to trace and identify users with even more transparency than the existing financial system."

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[–] [email protected] 12 points 10 months ago

Bitcoin was designed with the theory that the ledger would be public, but that various techniques would make it very hard to get anything useful out of that ledger other than the fact that a payment went through. These included change addresses so a single payment resulted in 2 transactions to 2 random-seeming addresses. This is described as a "key privacy feature of bitcoin". But, if you can identify which addresses are change addresses and which aren't, that privacy is compromised. That's one of the techniques she developed.

Bitcoin transactions having multiple inputs and multiple outputs was also supposed to be a privacy feature, but it had the drawback of making it easier to cluster addresses as being related.

Basically, the bitcoin devs / early bitcoin enthusiasts thought that despite having a public ledger, they could use security by obscurity as a privacy measure, but Sarah Meiklejohn figured out ways of unraveling that process so it was much easier to trace transactions and the owners of wallets.