CoinJoin: Have more confidentiality on your bitcoin transactions

When it appeared in 2009, Bitcoin's principle of confidentiality aroused great enthusiasm among the first cryptonauts. According to the majority of the latter, completely anonymous transactions could be carried out with this innovation.  

However, it didn't take long before the whole world realized that Bitcoin does not offer anonymity. In reality, it is pseudo-anonymous and therefore, everything the history of its transactions can be made public. 

After this abrupt return to reality, the blockchain community put a lot of effort into developing innovative strategies to enhance privacy users. This is what gave birth to CoinJoin, a protocol that allows safer and more secure transactions. 

What is Coinjoin?

CoinJoin is a system that brings a new layer of privacy to Bitcoin transactions. The concept first appeared in 2013, when  Gregory Maxwell, a Bitcoin-savvy computer engineer, used the phrase on the Bitcointalk forum. Gregory Maxwell is part people who largely contributed to developing Bitcoin.

Using Coinjoin, users can transact batch transactions with other Bitcoin users. Today, this is the first generation of privacy-based protections for Bitcoin. To better explain the idea, let's take the example of a user who wants integrate CoinJoin into a Bitcoin transaction. To carry out the operation, he will have to find another user with whom he can combine his coins. 

Together, they will initiate the transaction from an entry which is the address from which a bitcoin is sent. So, all users will send their money to the entry address, and the output combines the different UTXOs such that the initial owner cannot be determined from the output.

Understanding how CoinJoin works

A CoinJoin is a large bitcoin transaction that accepts inputs from various users and produces many identically sized outputs. It takes time for an observer to identify which outputs belong to which participants.

By bypassing the heuristics used by blockchain analysis organizations, the service CoinJoin gives bitcoin owners anonymity additional. 

Through address obfuscation, CoinJoin transactions help hide ownership of bitcoin coins (UTXO or Unspent Transaction Output).

CoinJoins differs from other mixing services in that everything takes place On-Chain. Also, CoinJoin operators never take possession of the money. Therefore, users always retain ownership of their bitcoins. In summary, a CoinJoin transaction is created by people cooperating in a transaction, who then receive their identical amounts upon exit.

To better illustrate this concept, let's assume that five users each send 1, 2, 3, 4, and 5 BTC to a CoinJoin address. The five entries will thus total 15 BTC which will enter Coinjoin. Of the, 15 outputs of 1 BTC each will then be transferred to each user depending on his participation.

As a result, since everyone received the same amount of BTC in and out, it will be difficult to distinguish exactly which user has which output of 1 BTC.

How is CoinJoin essential in confidential bitcoin transactions?

Bitcoin is a decentralized and independent system which ensures a certain level of confidentiality of transactions. As it only uses addresses, which act as a kind of bank account where you can receive money without any risk. 

On the other hand, it does not ask for personal information like traditional systems do. However, bitcoin is also a transparent and verifiable system. So you can easily view the transactions made in this system since its birth in 2009 until today using a blockchain explorer, like here.

Therefore, even if the personal informations are kept confidential, any external entity can have access to them. That is, it can track specific addresses to see how money is transferred or managed there. In this way, an attacker can easily discover a user's transactional activities across the entire network.

The pseudo-anonymous principle of bitcoin

We tend to think that by making transactions on Bitcoin, we remain anonymous. This is partly true.

Although Bitcoin does not use a user's personal information, it can still be traced. Indeed, it is always possible to connect a address specific to a person or company. This is particularly the case if the owner of a specific address has made it known publicly that he owns it. 

Likewise, we can trace a transaction if the IP address from which it was carried out is monitored and controlled. It is for this reason that bitcoin is considered a “pseudo-anonymous system”. This means that it grants users a certain degree of anonymity, but does not fully protect them.

How to use Coinjoin?

There are wallets that allow you to use the Coinjoin feature in a simple way. This is particularly the case of the Wasabi Wallet, an open source wallet downloadable from Deskop, non-custodial and among the most reputable that exists in terms of security and confidentiality.

If you want to carry out the most anonymous operations possible, certainly Wasabi wallet is a premium portfolio.

If you prefer mobile wallets, the BlueWallet wallet also has this option and allows you to click on the “Coinjoin” function when making payments.

CoinJoin: The main advantages

The main advantage of CoinJoin is the reduction in costs for each user involved in the transaction. With this approach, users make a single transaction and therefore pay a single commission. However, if he had to carry out the transactions separately, the same commission would have been paid several times.

As for the second advantage, which is undoubtedly not trivial, it is the policy enhanced. In fact, when N users want to transmit the same amount to N recipients, they can do so through a CoinJoin transaction. This way, it will be very difficult to determine which user sent what to whom.

So you can easily make anonymous donations and participate in quadratic funding campaigns while concealing your identity.

The inconvenients

Transactions using CoinJoin can be compared to mixing sites. This is because the goal of both is to make it impossible to know who is connected to who. In general, mixing sites are sought after by criminals to hide their activities. However, generalizations should not be made. Anonymity is also sought by people who are not doing anything illegal.

In fact, CoinJoin has two significant weaknesses:

• Transaction amounts are only partially hidden : Although it is difficult to link the sender and the recipient, the amounts exchanged are always accessible to everyone;
• Lack of unique address compromises privacy : As no single address is used, anyone can view the transaction history of an address. Such a flaw does not guarantee users the highest level of confidentiality.

Additionally, despite its limitations, the CoinJoin method represents a significant advancement for Bitcoin. The idea has also been adopted and modified by other cryptos, like Dash (DASH), whose PrivateSend is a modified version of CoinJoin. Wasabi Wallet, Samurai Wallet et SharedCoins are just some of the other platforms and wallets that also use this solution.

Conclusion

Bitcoin users are increasingly turning to the CoinJoin system to improve the anonymity of their transactions. Using this technique, they can now increase their level of confidentiality while reducing the risk of hacking or theft. 

However, to avoid any risk of being scammed, it is essential that each user evaluates the situation independently. Everyone must inform themselves sufficiently and adapt their use of the CoinJoin method to their own requirements and habits.

See as well:

• The Wasabi Wallet, ideal for privacy

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