Bitcoin developer Mike Hearn says that an upcoming version of bitcoinj will route all connections via the Tor anonymity network.
Bitcoinj is the software behind some of the most popular bitcoin apps and wallets, while Tor is the biggest and most popular anonymity network on the planet.
A pseudo-anonymous digital currency and an anonymous network which routes data through several servers sound like a match made in heaven, at least for some users.
Hearn claims transactions made using the new version of bitcoinj will be sent through Tor's system of three encrypted hops, bouncing encrypted communication through a network of relays around the world. The end result is clear – a completely anonymous transaction.
Security over anonymity
Hearn's plan is bound to get a lot of flak from bitcoin critics, as it could be used for all sorts of questionable practices. However, the idea behind routing bitcoinj through Tor has more to do with security than anonymity.
Hearn told Forbes that the integration will be ready for public use in roughly one month. He also revealed that he developed the prototype in January and is working alongside another famed, but anonymous bitcoin developer – devrandom. Hearn said:
“The fact I use Bitcoin isn’t a secret, but I don’t want all my transactions in an NSA database. When I use Bitcoin in a bar, I don’t want someone on the local network to learn my balance. The way Bitcoin is used today, both those things are possible.”
He also points out that bitcoin is not as anonymous as many people assume. The public ledger is out there for all to see, hence it is possible to trace transactions and even reveal the identities of those behind them.
By monitoring internet traffic it is possible to trace the transaction back to the IP address where it originated. Therefore, some organisations can learn the true identity of bitcoin users. Hearn says it is possible that the NSA and GCHQ have already 'de-anonymised' most of the block chain.
Could Tor fend off criminals?
Since Tor bounces traffic through a number of proxies around the world, this would not be easy to do with bitcoinj on the Tor network. At the moment, attackers can use untrusted WiFi networks to stage attacks by spoofing the bitcoin network and tricking the user into accepting bitcoins that don't even exist.
However, Hearn cautions that there is no silver bullet and that the Tor network is just part of the solution. Both Hearn and Mastercoin's Peter Todd point to Bloom Filters as another attack vector.
Bloom Filters were designed to make bitcoin wallets more efficient and seek out transactions relevant to the user, but in the process they also bleed a lot of information that could be used by attackers.
Hearn argues that Bloom Filters will be updated in future Bitcoin implementations to reveal less information. He maintains that the filters can be sorted out and views Tor as a more important step in protecting privacy.