Understanding TumbleBit Part 1: Making The Case

I believe TumbleBit is the most exciting innovation in the Bitcoin space that does not rely on any protocol change, therefore it works with today’s Bitcoin. Bear with me, because it is just a matter of time until you will be able to use it.

If you think about the properties of a good money Bitcoin does a great job compared to other alternatives.

Durability, portability, divisibility, scarcity, acceptability and fungibility.

We can do better, much better. Acceptability is related to user adoption, that is constantly growing. Lightning Network is poised to solve the portability issue, since it will enable instant transactions and the mainstream might not even know if a confirmation is a sheep or a cow.

TumbleBit is aiming to make Bitcoin fungible again. Yes, there was a time when Bitcoin was more fungible, however, nowadays the Blockchain surveillance industry and AML/KYC regulations are threatening our magical internet money.

Who needs privacy? I have nothing to hide

Bitcoin gives you a choice to be your own bank. This way of using it requires a more privacy aware approach than using traditional institutes because they provide you privacy against your neighbors and your stalker ex-husband. If we do not improve Bitcoin’s fungibility you can start practicing to live a perfect life, where you not only comply with the rules of your government but with the expectations of every other human being as well you ever get contact with during your time on this world.

TumbleBit is not ready, what else can I use?

Change addresses

The Bitcoin Blockchain links every transaction you make to your Bitcoin address and the other person’s Bitcoin address. Fortunately, you can have infinite amount of addresses, thus if you make sure you generate a new address every time you want to receive bitcoins that is a good start.

Choose your Bitcoin wallet wisely

Using a Bitcoin bank, like CoinBase and Circle or a web wallet, like Blockchain.info would be ideal if they would care about your privacy, however they do not. Even if they do, you should not trust them.

By using an SPV wallet, like MultiBit, Electrum, Mycelium and BreadWallet you are less vulnerable towards the wallet providers themselves, although curious third parties are able to link your addresses together with surprising effectivity.

If you want to achieve the best privacy and you can afford to use a wallet that functions as a full node. This way there are much less things you need to worry about.

Use TOR

One, is to hide your IP address behind TOR.

Another is to obfuscate/ anonymize/ mix/ tumble your bitcoins:

Centralized Bitcoin mixers

The usage of centralized Bitcoin mixers is heavily discouraged on “mainstream” Bitcoin forums, because of their ability to steal your bitcoins and the frequent exit scams. Ironically on the deep web they are the most popular options, because if they happen not to be malicious they provide the strongest and easiest privacy achievable today. They are practical.

You send them some bitcoins and they send back completely unrelated ones.

The problem is that the mixer can easily steal your money or worse: deanonymize you.

CoinJoin/ JoinMarket

A Bitcoin transaction can have multiple inputs and multiple outputs.

The idea of CoinJoin (CJ) is that if multiple parties are joining their inputs and outputs together then nobody can tell which input belongs to which output.

CJ without fixed amounts does not provide privacy. Therefore, this scheme needs great liquidity. This is what JoinMarket solved by incentivizing the participation in a way that liquidity providers can charge fees. You can use JoinMarket today.

CoinShuffle/ ShufflePuff

You might have heard about CoinShuffle. It is fully decentralized CoinJoin and ShufflePuff is an almost production ready implementation of it from Mycelium. JoinMarket is a little less decentralized, because it uses a central server where its peers can communicate. Because the server can learn and steal absolutely nothing, the benefits of CoinShuffle over JoinMarket, if there are any, are not clear to me.

Example of a JoinMarket transaction in the Bitcoin testnet

Compared to traditional mixers, CoinJoin based techniques prevent stealing your coins and there are no mixers used, there is no central party to deanonymize you. This sounds great in theory, however it has its serious challenges in practice. Here is an excerpt from TumbleBit whitepaper for a more in-depth understanding on those challenges, however feel free to skip it if you are not interested in it. It is just some super boring cyber wizard stuff:

CoinShuffle and CoinJoin perform their mix in a single transaction, making them particularly vulnerable to DoS attacks where a user joins the mix and then aborts, disrupting the protocol for all other users. Decentralization also makes it easy for an attacker to create many Sybils and trick Alice A into mixing with them in order to deanonymize her payments. Moreover, Bitcoin’s maximum transaction size, 100KB, limits these systems to 538 users per mix.

How does TumbleBit fit in?

Centralized mixers are like Freeza, CoinJoin is like Goku in its base form.Goku cannot beat Freeza like this, however he is fighting in the right way at least: honestly. Goku, just like JoinMarket is not able to cheat.

1. Classic tumbler mode: Super Saiyan

You can think of TumbleBit as a bitcoin mixer that only handles fix amounts, although it does not have the ability to steal your coins and deanonymize you, on the other hand it is much more than that.Classic Tumbler is just the first mode that can work. This mode is the simplest one and it is planned to be implemented first.

If the technology of centralized mixers is like Freeza, then think of the first mode of TumbleBit as Super Saiyan Goku.

2. Uni-directional payment hub mode: Super Saiyan 3

From an end user perspective, the second mode could work somehow like this.

1. 
   

   
   

   You can join the TumbleBit payment hub as a payer or a receiver.By joining as a payer you might deposit 3 bitcoins.You do not need to be online to stay connected to the hub.

2. As a payer you can send bitcoins, let us say 0.1 denominations to any receiver, instantly.

3. 
   

   
   

   When you finished your business, you can close the connection.If you are a payer you do not need to spend all 3 bitcoins of yours.If you are a receiver you do not need to close the channel after every 0.1 bitcoins you receive.

The most important thing to note is that you are transacting anonymously and instantly. The only thing that makes it less practical is that you have to use fixed denominations.

3. Bi-directional payment hub mode: Super Saiyan God

There is a third mode as well, maturing in the head of the creators, that has not been published yet, although 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. Is that not the marketing selling point of Bitcoin?Note that the amounts have to be fixed in this case as well.

Can the fixed denominations constraint be eliminated in the future? Maybe we will come up with a way.

The third mode of TumbleBit is the Super Saiyan God mode. Its power levels are so high that we are not even able to understand its limitations at this point.

An interesting problem

Finally, I would like to talk about an interesting problem that applies to the Lightning Network as well. The problem with TumbleBit is not the lack of liquidity, rather too much of it. In order for TumbleBit to work the Tumbler Hub has to put many bitcoins into escrow. If it cannot, some people will not be able to use it. Therefore, the growing of TumbleBit is actually a direct Bitcoin buying pressure.

How will the creators handle this situation? Is TumbleBit poised to be the next big thing in Bitcoin? Am I going to write the second part of this article series? Find out in the next Dragon Ball Z episode…

If you have found this post useful and you would like to know more about TumbleBit, feel free to upvote, like, tweet, comment, share or provide any feedback. I need some motivation to create the next part.

Part 2: The Endgame — Instant, Anonymous, Scaleable Payment System on Top of Bitcoin