By Jon Matonis
Tuesday, June 19, 2012
Intended to protect users’ personal freedom, privacy, and ability to conduct confidential business, Tor
(The onion router) is a system that improves online anonymity by
routing Internet traffic through a worldwide volunteer network of
layering and encrypting servers which impedes network surveillance or traffic analysis.
has just announced an online bitcoin wallet run as a TOR hidden service
(to access the service users must run the onion proxy software on their
computer). They do not log any information except the current account
balance and the bitcoins from many TORwallets can be mixed instantly to a
single address in a single transaction to make them extremely difficult
to trace. The same anonymity and untraceability of that crumpled paper
money in your pocket is now available in electronic form.
Obviously, the cashless society people do not want this because full transaction traceability is the unstated
motivation behind eliminating cash. Don’t fall into this complacent
attitude of a ‘cashless society represents the future’ because if we
lose the monetary privacy features that we already have, it is a grim
future indeed! Game over.
With Tor, the trade-off then becomes
near total anonymity versus the ability to have legal recourse in a
national jurisdiction. In relinquishing the option for legal recourse
and for identifying the site operators, users must be content with the
ongoing trustworthiness of the service. How do users become content and
satisfied? Is anonymous reputation even possible? Trust will always be
relative so is that enough?
eBay pioneered large-scale reputation
credentials with its buying and selling platform that rewarded excellent
service and punished repeat offenders. Long-standing positive
reputations became very valuable in the competitive online marketplace,
but users still had limited legal recourse against eBay and even though
they may not know the other party to a transaction at least eBay did.
The digital marketplace Silk Road currently operates a platform with a
participant reputation system. However, in a two-party online Tor wallet
service, you only have the earned trust of the non-jurisdictional site
operator and that is comprised mainly of longevity and customer service. Only time will tell.
the principle behind all mixing services is the ability to remove or
obscure any linkage to a real-world identity because the bitcoin
blockchain maintains a public transaction log of all transactions. Since
the method used to obtain or purchase bitcoin may have revealed certain
financial or personal links, it becomes necessary to render the
blockchain useless for traffic analysis. Properly mixing bitcoin with
other users’ bitcoin will cause a chain of custody to break down and
thereby provide plausible deniability for any transactions.
The privacy advantages of Tor-based mixing services are numerous. For instance, compared to proxy servers or VPNs,
there are usually no IP logs kept which would be vulnerable to a court
order or a server raid even if you paid for the VPN anonymously. A court
order can also force a VPN to commence logging at any time. According to TORwallet,
“Any service not on Tor probably keeps logs of your IP address and
could be coerced into giving up your information. Anyone wanting to
force us to talk would have to find us first.” They also claim that
moving clean coins around from several large disconnected pools
decreases the risk of matching inputs and outputs to trace client coins.
“being a Tor relay mixes your traffic in with other people’s traffic,
making it more difficult to do timing and correlation attacks.” And from
the user’s perspective, the use of multiple wallets and mixers
Another Tor-based mixing service is Bitcoin Fog which charges between 1%-3% (randomized for obscurity). Perhaps the earliest and original bitcoin mixing service is Bitcoin Laundry which acquired the BitLaundry service running on Google App Engine in 2011.
Disclaimer: bitcoin is not a recognized currency or monetary instrument in any jurisdiction.
For further reading:
“Review: TORwallet”, Vitalik Buterin, Bitcoin Magazine, June 19, 2012
“Tips for Running an Exit Node with Minimal Harassment”, Mike Perry, June 30, 2010
“Plaintext over Tor is still plaintext”, phobos, June 1, 2010
“Anonymity and the Tor Network”, Bruce Schneier, September 20, 2007
AT THE INTERSECTION OF FREE BANKING, CRYPTOGRAPHY, AND DIGITAL CURRENCY
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