Practically Realisable Anonymisation of Bitcoin Transactions with Improved Efficiency of the Zerocoin Protocol

Abstract

As transaction records are public and unencrypted, Bitcoin transactions are not anonymous and the privacy of users can be compromised. This paper has explored several methods of making Bitcoin transactions anonymous, and Zerocoin, a protocol that anonymises transactions based on Non-Interactive Zero-Knowledge proofs, is identified as a promising option. Although theoretically sound, the Zerocoin research has two shortcomings: (1) Zerocoin transactions are vastly inefficient compared to Bitcoin transactions in terms of verification time and size; and (2) despite this inefficiency, the protocol has not been tested in an actual Bitcoin network to validate its practicality. This paper addresses these two problems by first making performance improvements to the Accumulator Proof of Knowledge (AccPoK) and Serial Number Signature of Knowledge (SNSoK) in the Zerocoin protocol, and then integrating both the original and improved protocol into the Bitcoin client software to evaluate their performances in a Bitcoin network. Results show that the improved Zerocoin protocol reduces the verification time and size of the SNSoK by 80 and 60 times, respectively, and reduces the size of the AccPoK by 25%. These translate to a 3.41 to 6.45 times reduction in transaction latency and a 2.5 times reduction in block latency in the Bitcoin network. Thus, with the improved Zerocoin protocol, anonymising Bitcoin transactions has become more practical.