Tor At The Heart: Cryptocurrencies
During the month of December, we're highlighting other organizations and projects that rely on Tor, build on Tor, or are accomplishing their missions better because Tor exists. Check out our blog each day to learn about our fellow travelers. And please support the Tor Project! We're at the heart of Internet freedom. Donate today!
The topic for today is electronic money. The blockchain is pretty hot right now! Bitcoin, dogecoin, ethereum, zcash you name it... Cryptocurencies have grown from e-toys to globally recognized systems by facilitating free and borderless trade, no bank fees and improved privacy.
You are reading the Tor blog, so let's focus on the privacy and anonymity part. Could cryptocurrencies claim that they provide privacy if Tor was not around to give strong transport-layer anonymity?
To visualize this, let's go through just a few ways Tor is used around the cryptocurrency ecosystem. We will mainly focus on Bitcoin, but the same applies to most blockchain-based cryptocurrencies:
Tor provides privacy to cryptocurrency transactions!
Let's imagine that Alice wants to buy a ticket for Torconf, the best (fictional) conference on computer anonymity. She wants to buy the ticket with Bitcoin so that she does not reveal her interests to her bank or her identity to the conference organizers. To buy the ticket with Bitcoin, she needs to perform a Bitcoin transaction.
Bitcoin transactions work by Alice broadcasting her transaction to a few Bitcoin supernodes. Those nodes then propagate the transaction further to the rest of the Bitcoin network until it becomes recognized. If Alice did not use Tor to conduct her transaction, those initial supernodes trivially learn the IP address of Alice. Furthermore, since the Bitcoin blockchain is a public log of transactions, analysts could match her newest transaction with her previous transactions and just follow the money trail. These are just some of the many well known privacy risks of Bitcoin, and companies have been collecting and selling social graph analytics of the Bitcoin blockchain for years now...
Given the above threats, it should be no surprise that most Bitcoin clients give the option to their users to perform transactions over the Tor network. By routing traffic over Tor, no one learns the origin IP address of Alice when she buys her Torconf ticket.
Furthermore, even the hottest and newest cryptocurrencies (like Zcash) that provide transaction anonymity as a fundamental security property still benefit from Tor's transport-layer anonymity to actually anonymize the networking part of the Zcash transaction.
We feel that Tor has tremendously helped the cryptocurrency community to grow just by providing transport-layer anonymity to transactions! Also, please remember that maintaining anonymity is not an easy task, so always be up-to-date on the latest security news depending on your threat model.
Tor secures cryptocurrency networks!
Apart from users performing anonymous Bitcoin transactions, the Bitcoin network itself uses Tor to increase its defenses. Since last year, the Bitcoin core project has integrated Tor onion services to their core network daemon. If Tor is installed in the system, Bitcoin will automatically create an onion service and act as a Bitcoin node over Tor to avoid leaking the real IP address of the node. This provides greater network resilience and protection against targeted attacks to Bitcoin nodes. You can see that there are hundreds of Tor bitcoin nodes. Zcash and other cryptocurrencies have followed the same path.
Furthermore, many mining pools advertise onion service support for their miners. Bitcoin infrastructure has been a target of hackers for a while, and virgin blocks are more and more valuable, so having anonymity as a miner is a desirable security property.
Tor protects the wider cryptocurrency ecosystem!
If you take a look around the Bitcoin world, you will notice that Tor support is advertised by all sorts of websites and services! Most bitcoin-related websites have onion sites that people can visit over Tor: for example, blockchain.info has been running a popular Tor onion service for its users. Most Bitcoin tumbler services also work over Tor onion services. Same goes for websites and forums offering help with Bitcoin. This is obviously done because the Bitcoin community has a great appreciation and need for privacy.
Tor is proud to have helped the cryptocurrency community grow over the years. We believe that electronic currencies can be a powerful tool for social change, but also a great scientific research area with results that can benefit other areas, like secure electronic voting, consensus algorithms, append-only data structures and secure name systems.
Have a good day :)