Subject: [Bitcoin-development] CoinShuffle: decentralized CoinJoin without trusted third parties

From: Tim Ruffing <[email-masked]>
Date: Thu, 07 Aug 2014 00:22:31 +0200

Hey,

We (a group of researchers in Germany) propose a decentralized protocol for 
CoinJoin, a way to mix coins among users to improve anonymity. Our protocol is 
called CoinShuffle. We believe that CoinShuffle is a way to implement CoinJoin 
in the original spirit of Bitcoin, i.e., decentralized and without trusted 
third parties. (If you are not familiar with CoinJoin, the idea is explained 
here: https://bitcointalk.org/index.php?topic=279249.0 )

The protocol is essentially a clever way to create a CoinJoin transaction. 
Recall that the idea of CoinJoin is mixing with one SINGLE transaction that 
has multiple input addresses and multiple fresh output addresses (i.e., one 
pair of addresses per user). The advantage of CoinJoin over mixing with a 
server or trusted party is that nobody can steal coins. Each user can check if 
the single transaction sends enough coins to his fresh output address. If this 
is not the case, the user can just refuse to sign the transaction and nothing 
(bad) happens.

The difficulty in CoinJoin is to let the participants announce their fresh 
output addresses without breaking anonymity: Of course, if a participant of 
the protocol just announces "I have 1 BTC at address X now" and "I would like 
to have it back at address Y", then everybody can link X and Y and mixing is 
useless. A naive approach is to send these two messages via a secure channel 
to a server that organizes the whole mixing. While the server cannot steal 
coins, the server still has to be trusted for anonymity, because it knows 
which input addresses belong to which output addresses.

We present the list of CoinShuffle's features at the end of this e-mail. An 
overview over the technical details can be found on the project page:
http://crypsys.mmci.uni-saarland.de/projects/CoinShuffle/

Moreover, for the full details, have a look at the research paper on 
CoinShuffle that can be found here:
http://crypsys.mmci.uni-saarland.de/projects/CoinShuffle/coinshuffle.pdf

The paper has been accepted at a major European academic conference on 
security (ESORICS). We will present the idea there. 

Our Proof-of-concept Implementation
-----------------------------------
There is a proof-of-concept implementation (written in Python) available on 
our project page. It is really only a proof-of-concept and it implements only 
the announcement of the addresses, not the creation of the transaction. 
Moreover, the code is CERTAINLY INSECURE and not well-written; our only goal 
was to demonstrate feasibility and estimate the performance of our approach.

Our Future Plans
----------------
Now we are planning a full, open-source implementation of the protocol. Of 
course, we would like to build on top of an existing wide-spread client. Since 
we do not have much experience in the design of existing Bitcoin clients, we 
would appreciate any help in the process. In particular, we did not decide 
which of the existing clients we would like to extend. Any hints towards this 
decisions would very helpful. Help in design and coding would be great but we 
also would like to hear your comments, criticism, and improvements for the 
protocol itself.

CoinShuffle Features
--------------------
CoinShuffle has the following features:

 - Decentralization / no third party:
There is no (trusted or untrusted) third party in a run of the protocol. 
(Still, as in all mixing solutions, users need some way to gather together 
before they can run the protocol. This can be done via a P2P protocol if a 
decentralized solution is desired also for this step.)

 - Unlinkability of input and output addresses:
Nobody, in particular no server (there is none!), can link input and output 
addresses of a mixing transaction, as long as there are at least two honest 
participants in run of the protocol.
   
(This is not a weakness: If there is only one honest participant, meaningful 
mixing is just impossible, no matter how it is organized. If all the other 
participants collude, they know all their input and output addresses and can 
immediately determine the output address of the honest participant.)

 - Security against thefts:
As explained above, nobody can steal coins during the mixing because of the 
CoinJoin principle.  
Every participant can verify that his money will not be stolen. Otherwise, he 
refuses to sign the transaction and nothing will happen.

 - Robustness against denial-of-service:
In CoinJoin, a single malicious (or malfunctioning) client suffices to stop 
the whole protocol (e.g., by just refusing to sing the transaction without a 
proper reason.) This can easily lead to DoS attacks but these can be countered 
in CoinShuffle.
   
While in case of disruption, the current run of the protocol has to stop, 
CoinShuffle addresses this problem as follows:  In case of active disruption, 
i.e., some participant sends wrong messages, the protocol provides a proof of 
this misbehavior. Then the honest protocol parties can start a new run of the 
protocol without the misbehaving participant. Also in case of passive 
disruption, i.e., some participant does not respond (for whatever reason), the 
remaining participants can agree on starting a new run without this 
participant. This ensures that the protocol will finally succeed even in the 
presence of malicious participant (although this can take quite a while then).

 - Only public-key encryption and signatures:
The protocol requires only well-established cryptographic primitives. Besides 
signatures and hash functions (that are already used by Bitcoin), only 
standard public-key encryption is necessary.
  
 - Efficiency:
A run of the protocol with 30 participants takes less than 100 seconds (in a 
setting with reasonable bandwidth and delay). This is not much, given that 10 
min (on average) are required to confirm the mixing transaction anyway.
   
The costs are almost completely caused by communication. The computation 
overhead is minimal. (This is the main achievement actually. In theory, it is 
clear that a protocol with all the properties can be built. However, generic 
constructions cannot be used in practice yet, because the computation and 
communication costs are huge.)

- Compatibility:
As CoinShuffle works on top of Bitcoin, it is fully compatible with the 
current Bitcoin system. No changes to the Bitcoin protocol are required.

By the way: The NXT cryptocurrency picked up our idea and an implementation of 
CoinShuffle for a part of NXT is under way. ( 
https://twitter.com/comefrombeyond/status/485429369268350977 )

TL,DR:
Mixing is the way to improve anonymity in Bitcoin now, as it does not require 
changes to the Bitcoin protocol. We propose CoinShuffle, a decentralized 
protocol to perform mixing in a secure way without trusted third parties, see 
http://crypsys.mmci.uni-saarland.de/projects/CoinShuffle/ for a technical 
overview. Our next step is to implement the protocol. Help in design and 
coding would be great but we also would like to hear your comments, criticism, 
and improvements for the protocol itself. 

Best,
Tim Ruffing, Pedro Moreno-Sanchez, Aniket Kate