Last week we unveiled TumbleBit, a new anonymous payments scheme that addresses two major technical challenges faced by Bitcoin today: (1) scaling Bitcoin to meet increasing use, and (2) protecting the privacy of payments made via Bitcoin. Our proof-of-concept source code and a pre-print of the latest version of our paper were both posted online last week. In this post, I’ll walk through the motivation and the design of TumbleBit, and explain how it achieves the following three important features:
- TumbleBit works with today’s Bitcoin protocol. No changes to Bitcoin are required.
- TumbleBit payments are processed off of the Bitcoin blockchain, helping Bitcoin scale to higher transaction velocity and volume. Like Bitcoin’s on-blockchain transactions, the safety and security of payments sent via TumbleBit do not require trust in any third party. The TumbleBit payment hub can not steal a user’s Bitcoins.
- TumbleBit provides anonymity for its off-blockchain payments even against the TumbleBit service. The exact property we guarantee is unlinkability (as explained in detail below).
Bitcoin Anonymity Concerns
Bitcoin is the ultimate transparent currency. Each transaction reveals the value of bitcoin that was transferred, and the addresses (Bitcoin identities) of both the party transferring the payment and the party receiving the payment. Even