CBP Bitcoin Privacy and Anonymity Techniques 1 — Questions and Answers
Question 1: What is CoinJoin in Bitcoin?
- A technique that combines multiple users' transactions into one to obscure the transaction graph (Correct answer)
- A method of encrypting Bitcoin wallet seed phrases for added security
- A process of merging two separate blockchains into a single chain
- A protocol for generating new Bitcoin addresses automatically after each use
Correct answer: A technique that combines multiple users' transactions into one to obscure the transaction graph
CoinJoin combines multiple users' inputs and outputs into a single transaction, making it difficult to trace which input corresponds to which output.
Question 2: What is a stealth address in Bitcoin?
- A one-time address derived by the sender for each transaction, unlinkable to the recipient's public identity (Correct answer)
- A wallet address that is hidden from all blockchain explorers
- An address used exclusively on anonymous dark web markets
- A temporary address created during Lightning Network channel routing
Correct answer: A one-time address derived by the sender for each transaction, unlinkable to the recipient's public identity
Stealth addresses allow the sender to derive a unique one-time address for the recipient, so each payment goes to a fresh address that only the recipient can find using their private key.
Question 3: Why is Bitcoin address reuse harmful to privacy?
- It links multiple transactions to the same entity, enabling transaction graph analysis (Correct answer)
- It causes the Bitcoin network to reject duplicate outgoing transactions
- It increases transaction fees exponentially with each reuse
- It invalidates the digital signature of all subsequent transactions from that address
Correct answer: It links multiple transactions to the same entity, enabling transaction graph analysis
Reusing a Bitcoin address makes it easy for blockchain analysts to link all incoming and outgoing transactions to the same entity, significantly reducing privacy.
Question 4: What is the primary privacy implication of Bitcoin's UTXO model?
- Every unspent output is publicly traceable on the blockchain, enabling analysis of fund flows (Correct answer)
- UTXOs are encrypted and cannot be traced by third parties
- The UTXO model prevents double spending but has no privacy implications
- UTXOs are automatically mixed by the network each time they are spent
Correct answer: Every unspent output is publicly traceable on the blockchain, enabling analysis of fund flows
Since every UTXO and its history is permanently recorded on the public blockchain, sophisticated chain analysis can track ownership patterns and fund flows.
Question 5: What does BIP47 (Reusable Payment Codes) enable for Bitcoin users?
- A single static code from which unique one-time addresses are derived for each payment (Correct answer)
- A protocol enabling batch payments to multiple recipients in a single transaction
- A standard for scheduling recurring Bitcoin payments automatically
- A method for generating deterministic hierarchical wallet seeds
Correct answer: A single static code from which unique one-time addresses are derived for each payment
BIP47 allows a payee to publish a reusable payment code; payers derive a unique address for each transaction from it, preventing address linkage across payments.
Question 6: What is a Bitcoin mixing service (tumbler)?
- A service that pools Bitcoin from multiple users and returns equivalent amounts to different addresses, breaking the on-chain trail (Correct answer)
- A hardware device that generates new private keys from entropy sources
- A protocol for converting Bitcoin to other cryptocurrencies anonymously
- A software tool that merges multiple wallet files into a single keystore
Correct answer: A service that pools Bitcoin from multiple users and returns equivalent amounts to different addresses, breaking the on-chain trail
Tumblers accept Bitcoin from users and return equivalent amounts (minus fees) to new addresses, breaking the on-chain link between the source and destination funds.
Question 7: How does routing Bitcoin transactions over the Tor network improve privacy?
- It hides the user's IP address when broadcasting transactions, preventing network-level surveillance of transaction origin (Correct answer)
- It encrypts the Bitcoin blockchain data stored on the user's local node
- It prevents wallet addresses from being indexed by search engines
- It anonymizes the miner's identity when they claim a block reward
Correct answer: It hides the user's IP address when broadcasting transactions, preventing network-level surveillance of transaction origin
When transactions are broadcast over Tor, the user's real IP address is masked, making it harder for network observers to link broadcasted transactions to specific users.
CBP Bitcoin Privacy and Anonymity Techniques 1
What is CoinJoin in Bitcoin?