Bitcoin Transactions Aren’t Secure as User IP Addresses Identifiable, Says New Study

The new study revealed that bitcoin transaction are no longer anonymous as IP adresses of bitcoin users can be attacked by hackers.

Researchers from the University of Luxembourg have discovered how to reveal the identities of Bitcoin users from their IP addresses. Photo: Antana Coins/Flickr

Researchers from the University of Luxembourg have discovered how to reveal the identities of Bitcoin users from their IP addresses. Photo: Antana Coins/Flickr

According to the study worked out by the researchers from the University of Luxembourg, it is possible to identify the personality of bitcoin users through their IP addresses.

The researchers admit that people making online bitcoin payments  are not protected as their IP addresses can be defined even if they utilize different nicknames for each transaction.

The study says the identity of bitcoin users can be identified with the use of a number of computers and the overall process will not cost more than $1,871.

When the user connects to an entry node of the bitcoin server, his IP address is advertised and can be revealed by the hackers, who can reveal up to 60% of the IP addresses.

“The crucial idea of our attack is to identify each client by an octet of outgoing connections it establishes. This octet of Bitcoin peers [entry nodes] serves as a unique identifier of a client for the whole duration of a user session and will differentiate even those users who share the same NAT IP address,” say the authors of the study.

“As soon as the attacker receives the transaction from just two to three entry nodes he can with very high probability link the transaction to a specific client.”

The hackers can send the message from one of Tor’s exit nodes and pretend the message has been sent by a user on the bitcoin network.

Such malformed messages raise the penalty score of the users’ addresses and after the score surpassed 100 the IP is banned for 24 hours.

Once the hackers know all the bitcoin servers and the bitcoin users have been banned, they will then have to access the servers in the normal way.

“We demonstrate that the use of Tor does not rule out the attack as Tor connections can be prohibited for the entire network,” the paper reads.

“It shows that the level of network anonymity provided by Bitcoin is quite low. Several features of the Bitcoin protocol makes the attack possible. In particular, we emphasise that the stable set of only eight entry nodes is too small, as the majority of these nodes’ connections can be captured by an attacker.”

The researchers note that the lack of authentication within the bitcoin network increases risks of attacks as it becomes easy to trick nodes into blacklisting the IP addresses.

They added: “We figured out that very short messages may cause a day IP ban, which can be used to separate a given node or the entire network from anonymity services such as proxy servers or Tor. If the Bitcoin community wishes to use Tor, this part of the protocol must be reconsidered.”

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