CoinJoin – What is the CoinJoin Protocol and How Does It Work?

The CoinJoin protocol enables a trustless bundling of Bitcoin transactions. This technique aims to provide users with an extra layer of privacy. Notably, CoinJoin transactions are not impossible to decipher using current statistical analysis tools and correlation techniques, but they are far more expensive and difficult to track.

Many years ago, most Bitcoin users believed that the network provided anonymity. For example, you don’t register your name when you open a Bitcoin wallet, but there are still digital footprints that could be traced back to you, such as your computer’s IP address. Compounding this privacy risk is that Bitcoin transactions are immutable and remain on the blockchain indefinitely. 

Over the last five years, considerable effort has been put into blockchain forensics. But unfortunately, many of these programs and platforms have received funding from governments keen to audit unclaimed crypto earnings. CoinJoin is a cost-effective way to obfuscate your transactions further and ensure that only well-funded snoops have the resources to figure out your identity.

Benefits of CoinJoin

CoinJoin’s anonymization strategy brings a lot of benefits to the market. The added privacy one gain from bundling these transactions make it increasingly more difficult for outside viewers to identify where a payment originated from and where it was sent. Best of all, CoinJoin doesn’t require changes to the underlying Bitcoin protocol.

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Security

CoinJoin’s unique strategy ensures that your coins are never at risk of theft. This approach is in stark contrast to other coin-mixing protocols that require you to place trust in a third party. Third-party mixing platforms create another attack vector for those seeking to discover your Bitcoin’s past. 

Cost

Another considerable benefit of CoinJoin transactions is that they are cheaper than traditional Bitcoin transactions. Since these mixed transactions are only signed after the script is deemed valid, it defrays a transaction’s cost. Additionally, since CoinJoin combines multiple transactions into one singular action, you only pay one transaction fee.

Scalability

CoinJoin also helps alleviate some of the congestion issues facing Bitcoin’s network. CoinJoin transactions take up less space than two separate transactions. Consequently, it allows Bitcoin to support more transactions and network usage.

Fungibility

One of the most important roles of CoinJoin in the market is to help retain Bitcoin’s fungibility. Fungibility is the term used to describe the ability of a currency to be interchanged. For example, gold is fungible. Therefore, any two pieces of gold with the same grade and weight hold the same value. 

Sadly, increased forensics of Bitcoin transactions threatens to eliminate fungibility within the network. The entire network will suffer if governments can track and ban specific Bitcoin. When a user employs CoinJoin, tracking the IP addresses or blacklisting transactions is far more complicated. 

How Does CoinJoin Work?

CoinJoin utilizes a coin shuffling protocol. The system is built to combine transactions and create a multi-party Bitcoin transaction. The protocol will mix multiple input signatures and outputs before a transaction takes place to accomplish this task. This approach makes a new combined UTXO. 

In essence, CoinJoin takes the primary method of multisig transactions and introduces a bit more flexibility. The system will require that each transaction signature be completely independent of the other. Multiple digital signatures are needed for the transaction to be approved. 

CoinJoin transactions are not valid and will not be accepted by the network until all signatures for the multisig are provided. This system was designed to reach a consensus on inputs and outputs with a delayed merging of signatures. In this way, it ensures that no transaction will be identical.

History of CoinJoin

The CoinJoin concept has been around for a long time now. The original concept came to light back in 2013. At this time, Bitcoin Core developer, Gregory Maxwell, posted the idea to a BitcoinTalk thread focused on such actions. Since then, CoinJoin has found usage across a multitude of blockchain-based systems.

How To Get CoinJoin

It’s easy to find platforms that support CoinJoin nowadays. One of the easiest ways to employ this powerful anonymizing system is via the Wasabi wallet. This next-gen Bitcoin wallet provides users with a non-custodial, open-source desktop wallet to keep their identity safer. 

Wasabi differs from your everyday Bitcoin wallet because it mixes coins for all wallet users. Impressively, Wasabi furthers CoinJoin’s effectiveness through its trustless coin shuffling feature. Specifically, the wallet is anonymously operated with Tor and the Bitcoin P2P network.

Samurai

The Samurai wallet is another popular option in the market that offers direct CoinJoin integration. In addition, Samurai adds some other cool features like stealth mode to protect your digital assets. When a mode hides the wallet’s icon on your phone, this when-activated option is unique to the Samurai wallet and provides security if your phone is lost or stolen. 

CoinJoin – An Extra Layer of Protection that Continues to Be a Popular Option

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Even though CoinJoin is no longer completely anonymous, it’s still a great way to add more security to your crypto transactions. When you employ this protocol, you ensure that only those researchers with ample funding and resources can unravel your transactions. As such, it’s still a valuable and highly recommended way to secure your Bitcoin from prying eyes.