CBP Bitcoin Privacy and Anonymity Techniques 2 — Questions and Answers
Question 1: What is PayJoin (P2EP) in Bitcoin?
- A technique where the recipient also contributes an input, breaking the common input ownership heuristic (Correct answer)
- A payment protocol that splits a transaction into equal parts for privacy
- A Lightning Network feature for routing private channel payments
- A method of paying Bitcoin transaction fees via a completely separate transaction
Correct answer: A technique where the recipient also contributes an input, breaking the common input ownership heuristic
In PayJoin, the recipient adds their own UTXO as an input, which breaks the assumption that all inputs belong to a single sender, confusing blockchain analysts.
Question 2: What is the Dandelion protocol (BIP156) designed to do?
- Propagate transactions through a random path of nodes before broad broadcast, obscuring the originating node (Correct answer)
- Anonymously mine Bitcoin blocks without revealing the miner's IP address
- Hide wallet balances from other nodes on the network
- Generate untraceable Bitcoin addresses using zero-knowledge proofs
Correct answer: Propagate transactions through a random path of nodes before broad broadcast, obscuring the originating node
Dandelion propagates transactions in a 'stem' phase through a few nodes before 'fluff' (normal broadcast), making it significantly harder to identify the originating node.
Question 3: What is coin control in a Bitcoin wallet?
- The ability to manually select which UTXOs are used as inputs in a transaction (Correct answer)
- A feature that automatically consolidates all UTXOs into one output for simplicity
- A network-level protocol that limits the maximum number of coins per address
- A consensus rule that enforces the 21 million Bitcoin supply cap
Correct answer: The ability to manually select which UTXOs are used as inputs in a transaction
Coin control lets users choose specific UTXOs as inputs, avoiding automatic merging of UTXOs from different sources that could reveal wallet history to observers.
Question 4: How does Taproot (BIP341/342) improve Bitcoin privacy?
- It makes complex multi-signature and smart contract spending conditions look identical to simple single-key transactions on-chain (Correct answer)
- It encrypts all transaction amounts so they are hidden from the blockchain
- It completely hides the sender's address from the public blockchain record
- It prevents blockchain analysis tools from indexing Taproot-format transactions
Correct answer: It makes complex multi-signature and smart contract spending conditions look identical to simple single-key transactions on-chain
Taproot uses Schnorr signatures and MAST so that multisig and complex scripts appear as single-key spends when cooperatively satisfied, hiding internal contract details.
Question 5: Why is a change output a privacy concern in Bitcoin transactions?
- It creates a linkable output returned to the sender that reveals their wallet address for future analysis (Correct answer)
- A change output is a transaction fee that is paid back to the originating miner
- Change outputs are always rounded to exact amounts to prevent dust accumulation
- They are outputs automatically forwarded to a fixed exchange address for currency conversion
Correct answer: It creates a linkable output returned to the sender that reveals their wallet address for future analysis
A change output returns unspent funds to the sender's wallet, and blockchain analysts can often identify it, linking it to the sender and their future transactions.
Question 6: What is the 'common input ownership heuristic' used in blockchain analysis?
- The assumption that all inputs in a transaction are controlled by the same entity (Correct answer)
- A rule requiring that all Bitcoin transactions include at least two separate inputs
- A consensus mechanism used to validate UTXO ownership transfers
- A protocol for identifying which outputs in a transaction are coinbase rewards
Correct answer: The assumption that all inputs in a transaction are controlled by the same entity
Chain analysts assume all inputs in a transaction come from one wallet, allowing them to cluster addresses; CoinJoin and PayJoin directly break this heuristic.
Question 7: What is the privacy risk of UTXO consolidation?
- Merging multiple UTXOs links their separate histories together, revealing they all belong to the same wallet (Correct answer)
- Converting UTXOs from one address type to another to improve cross-wallet compatibility
- The automatic pruning process Bitcoin nodes use to remove old spent outputs
- A miner's technique for combining multiple transaction fees into a single coinbase reward
Correct answer: Merging multiple UTXOs links their separate histories together, revealing they all belong to the same wallet
When consolidating UTXOs, all input addresses become publicly linked on-chain, potentially exposing that UTXOs received from different sources belong to the same wallet.
CBP Bitcoin Privacy and Anonymity Techniques 2
What is PayJoin (P2EP) in Bitcoin?