• The article explains why change outputs are often referred to as “toxic” for Bitcoin privacy.
• It discusses how outsiders can track payments made from change outputs.
• The article also looks at CoinJoins and how they can help provide additional privacy for Bitcoin users.
Privacy Concerns For Change Outputs
Much ink has been spilled on the privacy horrors of change outputs for Bitcoin. It is now widely understood that Bitcoin is a pseudonymous network, where all users are identified by the addresses they use. When making a bitcoin transaction, instead of only sending the exact amount that is needed — like in traditional, account-based payment systems — you send all the sats from the original address into new ones. This creates a change output, which is the amount you get back when making a payment. Such a change output is quite bad for privacy, as most users underestimate, or sometimes completely ignore, how easy it makes it for someone to track all related payments.
How Change Outputs Are Bad For Privacy
When making a payment using bitcoin, all of the funds from one address are moved into two other addresses: one that goes to the receiver and another that goes back to sender as “change”. Outsiders don’t necessarily know at this point which output was the payment and which one went back to the sender as change. Only the sender and receiver know without a doubt which one is which, but anyone can track these changes and see where payments come from eventually compromising privacy if care isn’t taken when using change outputs.
CoinJoins To The Rescue?
CoinJoin is a type of collaborative bitcoin transaction that enables users to group up their UTXOs with other people’s coins in order to gain more privacy without ever losing custody of them. Sometimes hundreds of participants join their coins together making it hard to track flows of funds including changes outputs in some cases too; CoinJoin includes multiple inputs and outputs from many different users creating high level obscurity for all participants though usually requiring minimum amounts in order to participate and still usually producing some kind of change output even if its an insignificant amount due to DoS threats against its implementation on certain wallets or applications .
The Threat Of Denial-Of-Service Attacks On CoinJoins
CoinJoin implementations also have minimum-amount requirements that must be met by participants in order for them to take part; this helps prevent DoS attacks against such wallets or applications by setting arbitrary minimum limits after which transactions could be considered valid while still providing security enhancements especially with regards to tackling issues like tracking payments through change outputs .
Change outputs may be seen as toxic because they make it easy for others outside a given transaction (like third parties)to track related payments; however solutions such as CoinJoins exist enabling groups of people’s UTXOs being grouped up together so as gain more privacy while still maintaining custody over their own funds; though these pose risks such as DoS attacks against its implementations on certain wallets or applications hence why there are usually minimum amounts required before taking part in any coinjoin .