CoinSwap, a promising Bitcoin privacy technology, was finally put to the test on Tuesday.Â
Bitcoin is not very private, despite the perceptions to the contrary. The full history of every transaction on the Bitcoin blockchain is public for anyone to browse. CoinSwaps are a type of transaction that boosts a userâs privacy by making that history much less straightforward.
âA big day for bitcoin privacy and fungibility,â tweeted Bitcoin privacy developer Chris Belcher when announcing the transaction. Belcher claims itâs the first of its kind sent on Bitcoinâs testnet.
CoinSwap transactions look like transactions going from one address to another, but theyâre actually being sent somewhere else. Further, CoinSwaps can be implemented in such a way that they look just like normal transactions, making them âinvisible,â unlike the most popular privacy tools currently.Â
Belcher announced he was refocusing his Bitcoin privacy efforts on CoinSwaps in May with the mission to âmassively improveâ Bitcoin privacy. Over the summer, he was awarded two grants from Square Crypto and the non-profit Human Rights Foundation to support his work.Â
Right now, itâs easy to track where a bitcoin transaction came from. If the Bitcoin blockchain says that 0.1 BTC went from address A to address B, then thatâs probably what happened.
Read more: How Do Bitcoin Transactions Work?
CoinSwaps use cryptography â math deployed for shielding digital information â to throw a wrench in these assumptions. They make it harder for blockchain viewers to know whatâs going on.
âFor anyone looking at the blockchain [Aliceâs] transaction appears completely normal with her coins seemingly going from address A to address B. But in reality her coins end up in address Z which is entirely unconnected to either A or B,â Belcher explained on Reddit.
A crucial piece of Belcherâs test CoinSwap is that it uses multiple transactions.Â
This helps to preserve privacy. Since all blockchain data is public, one way blockchain spectators can tell that transactions might be related in a CoinSwap is if two transactions with the same value are being sent at the same time. Multiple transactions get around that.
âAlice made a CoinSwap for 0.05 tBTC [testnet bitcoin] but nowhere on the blockchain is the actual value 0.05 tBTC found, instead any surveillance analyst spy would see the values 0.02919015, 0.01233641 and 0.00847344 for Alice and 0.01286471, 0.02457554 and 0.01245975 for Bob. Those numbers can be generated randomly using any algorithm, and the surveillance analyst spy would have a very hard time figuring out that the transactions are related at all,â Belcher said.
This test is a big step â especially considering how complicated CoinSwap is under the hood. But thereâs still a lot of work left before users will be able to use CoinSwaps.Â
For example, Belcherâs goal is to make the CoinSwap transactions indistinguishable from normal bitcoin transactions. The test Belcher provided Tuesday does not put this property into practice. Belcher test uses a 2-of-2 multisig address, which stands out from a normal transaction.
Eventually, this wonât be the case. Belcherâs goal is to make CoinSwaps and normal transactions look the same. His plan is to use the cryptographic protocol ECDSA-2P, to accomplish this.
âThis allows CoinSwaps to blend in with the rest of the bitcoin transactions out there,â Belcher writes. This would give all Bitcoin users more privacy â beyond those executing CoinSwaps.Â
He offers the example of Carol, who doesnât use privacy transactions: âBecause Carolâs transaction looks exactly the same as Aliceâs, anybody analyzing the blockchain must now deal with the possibility that Carolâs transaction actually sent her coins to a totally unconnected address. So Carolâs privacy is improved even though she didnât change her behaviour, and perhaps had never even heard of this software.â
This difference sets Coinswaps apart from CoinJoins, the most popular privacy-preserving transaction used on Bitcoin today. Though CoinJoins provide users with privacy, they stand out on the blockchain. CoinSwaps donât (at least if theyâre implemented the way Belcher plans to).
But is CoinSwap the future of Bitcoin privacy? The jury is out.Â
âI think Chrisâs work in this area is great. [â¦] This multi-transaction CoinSwap doesnât appear to be a panacea for privacy, but definitely moves us in the right direction, blending private Bitcoin transactions in with non-private ones,â Blockchain.com security and privacy engineer Kristov Atlas told CoinDesk.
But he seemed jaded by Bitcoinâs privacy levels.
 âI have low expectations for overall financial privacy in a world where only a small percent of Bitcoin users take advantage of privacy-protecting software. Thatâs based partly on what we see in the web space, where a small number of users (e.g. those of Tor Browser) get to enjoy some protection against tracking, but mostly people are heavily tracked and their information sold,â Atlas said.
That said, Belcher is optimistic for the future, especially with CoinSwap on the table. âThe future of bitcoin privacy and fungibility is bright. I continue to work on this project every day,â he wrote.