Offchain privacy-How bitcoin plans on adding privacy/fungibility

 If you have not read my introduction post on how bitcoin plan on finally adding privacy,

Please read it now. https://steemit.com/bitcoin/@sames/how-bitcoin-plans-on-adding-privacy-fungibility

I broke down the post in 3 main parts.   

 On chain privacy, Off-Chain privacy using LN, bitcoin privacy using sidechains  

 Now here is my post on off chain privacy using the LN. 

The lightning network is a bitcoin upgrade that does not affect the main chain. With segwit activated, the main chain is unaffected. 

So how does the LN protect user privacy? 

Well step one involves the fact  that the bitcoin you send in the LN is not "tracked aka record" instead it a huge smart contract that once complete shut off and send the bitcoin through main net.  So you could say this protect user privacy my not tracking every moment bc it only track the first and last transfer but those two gaps still reveal alot of info aka look at Tor :( 

So speaking of Tor..

Hiding the ip of transaction is a key part to privacy.

The LN will be by default using  The Lightning-Onion Protocol 

 The Lightning Network uses onion routing to securely and privately send transactions. This means addresses and transaction paths (# of hops) will be hidden from all LN nodes while still being able to push transactions through. 

However won't be using Tor but something like it.

Sphinx:

 Sphinx shares similarities with the well-known anonymizing communication tool, Tor (the Onion Router). As with Tor, any data package sent with Sphinx - including the receiving IP address - is encrypted. This encrypted package is then itself encrypted a couple times over until it consists of several "layers" of encryption (hence the "onion" metaphor for Tor). 

 Using clever cryptographic tricks, all these layers of encryption are applied so that each intermediary along a route toward the final destination of the package can unwrap only one layer. This layer reveals to each intermediary where the package must be forwarded to, but nothing else. (Compared to Tor, Sphinx uses improved cryptographic algorithms and creates a constant-size data package to better obfuscate a node's position in the route.) 

So basically Sphinx is like a better Tor routing but for LN payments only. 

Read more about it here: Source 

According to Verge coin: When the IP addresses of the users are obfuscated and the transactions are completely untraceable.  That is not enough while yes Sphinx hides the ip the opening and closing still reveal some really small info and not mixing coins lead to more tracking...

So what have we got so far?

The opening and closing of LN is only trackable(most cases). Using Tor, the ip address of the users are hidden somewhat thus leaving only gaps in the opening and closing checkpoint in Tor ( unless the new Tor is as untraceable as promised but that whole new diff conversation...)

And unfortunately a solution for that issue is not found yet but hey Tor still couldn't solve it.

As always run a VPN for even better privacy. 

I recommend  Torguard   they allow LN payments :)

As I said before hiding the ip is not good enough mixing the funds from the start ensure even better privacy. 

Tumblebit: Decentralized bitcoin mixer on LN  

 TumbleBit is in theory a completely private and trustless mixing service — and even offers increased scalability as a bonus. 

There are similarities between TumbleBit and the Lightning Network. It is  an unidirectional payment hub, similar to how the Lightning Network operates, where opening payment channels allows trustlessness. 

How does Tumblebit works:

 TumbleBit is based on David Chaum’s blind signatures. Let’s look at how one person, Alice, donates 1 bitcoin to another, Bob, through TumbleBit by formalizing the actions of the actors as follows:

Tumbler: I want to play a game, I created a bunch of puzzles. I pay 1 btc for every solution and I also solve any puzzle for 1 btc. So the Tumbler solves any puzzle, not just ones it created.

Alice: I use this game to anonymously pay Greg. I choose a puzzle and blind it. Then I make the Tumbler solve this blinded puzzle for 1 bitcoin. Once the Tumbler solves the puzzle, I unblind the blinded solution. Finally, I give the solution and original puzzle to Greg.

Bob: I can redeem this solution for 1 bitcoin from the Tumbler. 

Alice blinds a puzzle, makes the Tumbler solve the blinded puzzle for 1 bitcoin, and unblinds the blinded solution. Alice then gives the original puzzle and the solution to Bob, and he redeems 1 bitcoin from the Tumbler with them. The key observation is as follows; when Bob and, say hundreds of other payees, come to redeem a bitcoin with their own solutions, the Tumbler cannot link together the blinded puzzles and blinded solutions, which it previously solved for Alice and the hundreds of other payers, with the real ones. This is the main idea behind TumbleBit’s anonymization technique. 

Source

These anonymous transaction  between all Alices, the intermediary, and all Bobs, never hit the blockchain. Rather, once everyone is done transacting, the end-state of all payment channels is recorded on the blockchain once, to let everyone take their funds out. TumbleBit is a scalable second-layer payment hub on top of a privacy-friendly solution. 

Tumblebit is another version of LN that focus on privacy. Could it be added to the mainstream version of LN? 

At current stage nope but it could do a channel swap.

However Tumblebit has a 3rd mode coming. 

 There also is a third mode, maturing in the head of the creators, that has not been fully published yet(aka proof), but it is probably possible to make the payer and the receiver make the same person. Therefore by joining the TumbleBit hub you can send and receive money anonymously, instantly for free. Isn’t that the marketing selling point of Bitcoin?
Note the amounts has to be fixed in this case, too....

Source: 

LN has some much potential and it all because of segwit :) 

One more post left before ending my bitcoin privacy series:

Bitcoin privacy using side chains coming next week :) 

 

My bitcoin lessons:

 How segwit is actually a big block increase= https://steemit.com/bitcoin/@sames/how-segwit-is-actually-a-big-block-increase
Why big blocks are not the answer= https://steemit.com/bitcoin/@sames/why-big-blocks-are-not-the-answer
LN nodes are NOT banks or like banks= https://steemit.com/bitcoin/@sames/ln-nodes-are-not-banks-or-like-banks
What is the lightning network= https://steemit.com/bitcoin/@sames/bitcoin-s-lightning-network-simply-explained
What is Schoor signatures= https://steemit.com/bitcoin/@tipu/the-next-big-thing-in-bitcoin-network-schnorr-signatures or https://medium.com/@SDWouters/why-schnorr-signatures-will-help-solve-2-of-bitcoins-biggest-problems-today-9b7718e7861c
Bitcoin’s ethereum killer-rsk.co= https://steemit.com/bitcoin/@sames/bitcoin-s-ethereum-killer-rsk-co
Bitcoin newest scaling method adding bech32 plus others= https://steemit.com/bitcoin/@sames/bitcoin-newest-scaling-method-adding-bech32-plus-others
Batching : https://steemit.com/bitcoin/@sames/how-bitcoin-fees-will-get-cheaper-with-out-a-block-increase
Adding privacy to bitcoin with softforks or compatible software: https://steemit.com/privacy/@sames/making-bitcoin-have-fungibility-privacy-again
Transaction speed count using the new tech coming to bitcoin=
https://steemit.com/bitcoin/@sames/segwit-bech32-batching-others-will-lead-to-bitcoin-reaching-passing-ethereum-on-chain-tps-level 

  

Please note I have gave credit to the material used. There are some thing i could not say better myself plus they allowed me to use it as long I gave the credit. :) Free use policy :)