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Bitcoin Developers Build Prototype for 'Dandelion' Privacy Tool

Developers hoping to bring a higher level of transaction anonymity to the bitcoin blockchain have built a prototype for their “Dandelion” privacy project.

The test, according to an email sent to the bitcoin development mailing list on Thursday, comes after the team behind the project added more theoretical analysis in a bid to address concerns that the initial Dandelion proposal may be exposed to a deanonymization attack.

A variety of projects have focused on this question within the bitcoin network, all of which seek to improve privacy for users of the public – and pseudonymous – blockchain. As previously reported by CoinDesk, the Dandelion Bitcoin Improvement Proposal (BIP) was first published in June of last year, backed by Zcash advisor and University of Illinois assistant professor Andrew Miller, and several other faculty members and students from the school.

The proposal initially aimed to introduce a two-phase route for bitcoin transactions: “stem,” which is the transaction itself, and “fluff,” which is an obfuscation phase that would eventually obscure the original IP address of a bitcoin sender.

However, following the proposal’s publication, Bitcoin Core developer Greg Maxwell pointed out that the tech may run into deanonymization over time, which means attackers will still be able to identify the origin by cross-checking transaction patterns.

Yet in the latest update, the team behind the Dandelion project have suggested a “per-inbound-edge,” which essentially aims to ensure Dandelion transactions sent from one node will be routed in different paths in the network in order to block the identification of traceable data.

Subsequently, the team has built a prototype and moved to test the project on its own small network, finding that so far Dandelion is compatible with existing versions of bitcoin, the team said.

“Dandelion does not conflict with existing versions of Bitcoin. A Bitcoin node that supports Dandelion appears no differently to Bitcoin nodes running older software versions. Bitcoin nodes that support Dandelion can identify feature support through a probe message,” the team wrote in an implementation document.

Dandelion image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bitcoin Dust: How to Tell If You Have It And Why You Should Get Rid of It

Imagine having a $100 bill in your pocket. Now, imagine $100 worth of pennies.

Notice the difference?

Bitcoin isn’t without its irritating kinks, and tiny bitcoin pieces called “dust” are among the lesser-known. As the analogy above shows, the bitcoin protocol sometimes needs to generate tiny output coins when users send bitcoin back and forth, coins so small in value they require more fees to spend than they’re actually worth.

But since blockchain room is limited and small value transactions, say $0.01, still can often take up just as much room as larger transactions, too many of these tinier coin pieces can lead to performance issues in the system as a whole.

In the past, dust wasn’t necessarily problem for bitcoin users. The story changed, however, as fees grew higher than ever late last year, making smaller value transactions much more expensive to send. In short, some developers argue the time is ripe to get rid of bitcoin dust now that fees are down again.

Decentralized applications developer Greg Slepak, like many others in the space, is thinking ahead to a time where bitcoin adoption and transaction rates increase – something that might or might not happen.

If that does happen, the argument goes, it’s more profitable to move these tiny data pieces while fees are relatively low, especially if a user has collected a lot of them.

Slepak, for one, isn’t about to take any chances.

He told CoinDesk:

“That time might not come again.”

Extinguishing dust

To get rid of this “dust,” users need to “consolidate” their all their dust “transaction outputs” into one. That just means sending one transaction that effectively lumps them together.

Going back to our original analogy, it’s similar to trading in a bunch of pennies, nickels and dimes for a fresh dollar bill. How (and whether) users can identify and get rid of dust, depends on their wallet, however.

Slepak recommends Electrum, a long-standing simplified payment verification (SPV) wallet, that validates transactions with less data, and is thus common to use on mobile devices.

A user can select a number of “change addresses” holding dust, then select the “send from” button to create one transaction consolidating all these little dust particles into a single transaction output.

Some wallets might not offer this granular level of control, especially if they’re custodial wallets like Coinbase, which essentially manage these sort of details themselves behind the scenes – choosing whether to keep or get rid of dust.

Bitcoin wallet Blockchain and offers a variation of this feature as well.

Bad for privacy?

One caveat, though, is extinguishing dust in this way can reveal more about your financial history than you might like.

Say you have dust collected in a number of different accounts. In cryptocurrencies, it’s best-practice for financial privacy not to reuse bitcoin addresses. (Though not everyone actually does this since it’s not very convenient.)

If this the case, consolidating dust from several accounts at once can compromise a user’s privacy. Since the blockchain is public, it’s easy to tell that all these transactions at least might have come from the same user. This is especially the case if a user has gone through a know-your-customer (KYC) filters at a bitcoin exchange, where users are required to confirm their identity, as a way to curb financial crime in the cryptocurrency world.

If one user’s address is tied to a real-world identity in this way, then all the other addresses storing dust in the consolidation transaction will suddenly be as well.

“It’s like saying, ‘Yes indeed, and these other addresses belong to me, too,'” Slepak remarked.

“This is why people should use Monero instead,” he added, pointing to a cryptocurrency that is more private by default and where this sort of privacy managing wouldn’t be an issue.

These privacy concerns really depend, though. If a user’s dust is already all tied to the same account, then the dust is already linked together anyway. So, mashing the dust together into one transaction, in this case, won’t harm a user’s privacy.

So, while Slepak thinks that this is the time people should move to stamp out their dust “if they don’t want to lose those funds,” he said, they should only do so if such “privacy implications” don’t bother them.

Bigger obstacles ahead

On the other hand, Blockchain data software engineer, Antoine Le Calvez, one of the blockchain’s most avid data trackers, argues that dust levels have already been decreasing by quite a bit.

That’s thanks to bigger bitcoin businesses. Because of the high fees earlier this year, larger bitcoin companies were driven to adopt more efficient transaction technologies – including getting rid of dust – to reduce fees.

“Coinbase cleaned their wallet. And they were quite a massive contributor,” Le Calvez told CoinDesk. “Since the end of the consolidation, there’s been less dust created.”

Users can consolidate transactions to potentially save money in the future – if they so desire. But bitcoin companies might have a larger-scale impact on overall dust levels – as they already have.

But, just like Slepak, Le Calvez is thinking about the future. Fees might get worse if bitcoin ever gains more attention on a larger scale. This could happen if and when the Lightning Network, trumpeted as the future of bitcoin payments, since they’re cheaper and gives bitcoin more scale, actually gains traction.

“I think that anything that results in more usage of the blockchain can lead to fees that are higher than the dust itself,” Slepak said.

Le Calvez added that “it’s easy” to clean up dust when payments aren’t coming in at such a high volume, like they are today. That might not be the case if and when the level of transaction “heats up” again.

He stated:

“The real test, though, will be the next run up.”

Gold dust image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Stuck With Fees? New Bitcoin Tech Could End Wallet Guessing Games

Two years ago, average bitcoin transaction fees were less than a penny. Today, they have surged to nearly $6 on average.

In short, the reason behind this rise lies in bitcoin’s limited transaction space. As demand has grown over the years, that space has started to fill up, so miners, in an effort to make the most money per block, are prioritizing transactions with larger fees.

But, it’s difficult to choose the right fee.

Sometimes users pay too little and their transactions get stuck, while others overpay based on lousy fee estimates. In a worst-case example, Coinbase lost thousands of dollars earlier this year when paying fees roughly 100 times what they needed to pay.

While many wallets didn’t originally let users choose fees, believing transactions would always be available at no or low cost (indeed this remains a contention driving the scaling debate), wallet providers have come a long way, allowing users more flexibility in choosing their fees.

Today, most wallets allow users to not only select their own fees, but add a dynamic fee estimation that helps them decide what fee to add to get their transaction through the fastest. As shown by rising transaction fees, there’s a growing need for them to consider such solutions.

Bitcoin Core contributor and Chaincode co-founder Alex Morcos, for one, has spent the past three years improving the estimation tools in Bitcoin Core, the network’s default software.

In Bitcoin Core’s upcoming software release, version 0.15.0, his upgraded algorithm is being made available for use. The advanced tool is the latest to demonstrates how wallets are giving users more control over their fees.

Automated preferences

Fee estimation algorithms need to take many factors into consideration.

For one, there are transaction “cycles” – the transaction load is heavier during the weekday, and lighter at night and on the weekends, not to mention, there are more random, unpredictable fluctuations in transaction load.

While there’s always been an option for the algorithm to look only at the most recent fees to determine what fee a user should add, the problem is that these cycles can change quickly and drastically.

Say it’s a weeknight, and the algorithm notices that transactions with lower fees are going through quickly, but, suddenly a bunch of transactions are broadcast at the same time, clogging up the network. If a user had taken the algorithm’s advice and added only a small transaction fee, they might now have their transaction bypassed for a while.

The possibility of a random change in conditions is specifically what Morcos has been tackling.

Users might have different preferences for the best way to deal with this. Some might want to risk their transaction getting stuck. Others might not.

With Morcos’s addition, the Bitcoin Core wallet tries to address this by offering two fee modes, “conservative” and “economical.”

The conservative option looks at transaction fees on a longer time scale, which is “less susceptible to rapid changes in fee conditions,” as the release notes explain. The advantage is that the fee might be more likely to go through, but on the other side, the fee might be a bit higher than it needs to be based on market conditions.

Meanwhile, the economical mode looks only at the most recent blocks. This might lead to lower fees, but the downside is, if those conditions don’t persist, the transaction might get stuck or take a longer time to confirm.

Ecosystem issues

Users might enjoy this improvement to Bitcoin Core, which some argue is the most secure and trustless way of making transactions with bitcoin. But using Bitcoin Core comes with a very big downside: as it’s well-over 100 GB, it takes up to weeks to download, something that only die-hard bitcoin supporters are likely to do.

In that way, it might come as a relief that other wallets are coming up with their own fee estimation tools.

One of the most popular wallets, Blockchain.info, offers a dynamic fee suggestion algorithm that suggests a fee. If users decide to choose their own custom fee, a warning pops up to tell users if they may be selecting a fee that the wallet believes is too high or too low.

In another example, hardware wallet Ledger now offers three tiers of fees, which depends on the number of blocks the user wants their transaction to go through in. “High fees” aim for transaction confirmation in the next block, “standard fees” aims for three blocks, and “low fees” aims for six blocks.

So, what to make of all these different fee algorithm choices?

“It’s hard to say which is the ‘best’ from a scientific standpoint without doing extensive backtesting,” BitGo engineer Jameson Lopp argued, adding that based on transaction fee graphs from bitcoin data site p2sh.info, Mycelium and BitPay still use “pretty bad” estimations, and Blockchain.info’s was bad up until just a month ago.

In Morcos’s opinion, it’s good that each wallet is coming up with its own mechanism for choosing their own fees based on their own business goals.

He argued Bitcoin Core’s need to appeal to almost every type of bitcoin user could make its estimation data less attractive for specific cases.

“We don’t know whether they are more price conscious and would rather pay half as much and take a small chance of a long delay or are more time conscious,” he said.

Beyond fee estimation

There’s still room for improvement, though. While Morcos has been tinkering away, creating a better fee estimation tool, he believes no one algorithm will ever be able to take all the factors involved in deciding fee prices, especially since fees depend on how many transactions there will be in the immediate future, something that’s obviously impossible to predict.

“Fee estimation will always be an inexact science,” he said.

And this is why Morcos thinks the “best approach” is to rely on tools that go beyond estimation, such as replace-by-fee (RBF) or child-pays-for-parent. Embedded in Bitcoin Core, RBF transactions are a certain type of transaction that can be replaced with a higher fee when they get stuck.

In that way, users don’t have to “get the fee perfect on the first pass,” Morcos said.

With these options now available, fee tools, it seems, are evolving rapidly in an attempt to give users more control.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Coinbase. 

Rubik’s cube image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at [email protected].