• Change outputs in Bitcoin transactions are bad for privacy because they reveal the sender and receiver of a payment.
• CoinJoins are collaborative bitcoin transactions that allow users to group their UTXOs with other people’s coins to gain privacy without losing custody.
• Despite this, most CoinJoin implementations still produce a change output which can be tracked by outsiders.
The Privacy Risks of Change Outputs
Much ink has been spilled on the privacy horrors of change outputs for Bitcoin. It is now widely understood that Bitcoin is a pseudonymous network, where all users are identified by the addresses they use. When making a bitcoin transaction, instead of only sending the exact amount that is needed — like in traditional, account-based payment systems — you send all the sats from the original address into new ones. This creates a change output, which is the amount you get back when making a payment. Such a change output is quite bad for privacy, as it makes it easy for someone to track all related payments.
CoinJoins To The Rescue?
CoinJoins are collaborative bitcoin transactions that enable users to group up their UTXOs with other people’s coins to gain privacy without ever losing custody of them. Sometimes hundreds of participants join their coins together making it hard to track flows of funds including change outputs in some cases. CoinJoin includes multiple inputs and outputs from many different users making it difficult for outsiders to know who owns what after completion of the CoinJoin transaction. It also creates multiple outputs of equal denominations which makes it hard to identify which one belongs to whom creating high level obscurity for all participants taking part in the process. Despite this, most CoinJoin implementations still produce a change output which can be tracked by outsiders posing some potential threats when using this method as well as minimum amount requirements that must be met prior joining such type of transactions..
One potential drawback associated with using CoinJoins is threat posed by denial-of-service (DoS) attacks; an attacker could create multiple small denomination outputs within each transaction thereby forcing participants into large minimum amounts or else risk non inclusion into the pool due to low payment fee costs associated with such small denominations or simply not having enough funds available at given time frame since most implementations have minimum amount requirements before allowing participation in such type of grouping activities..
Lack Of Adoption
Despite its effectiveness in providing anonymity and obscuring user identity, widespread adoption and use of coinjoins on daily basis has yet not been achieved due largely due lack awareness among general public and complexity involved while performing them as well as technical problems faced at times while executing them properly . These issues need addressed so that more people can become aware and make use if this powerful tool at disposal enabling them enjoy complete financial autonomy and freedom over their own funds without any third party interference or surveillance whatsoever .
In conclusion ,change outputs pose serious threats towards user financial privacy being easily traceable thus undoing years worth careful UTXO management but thankfully we have tools like coinjoins readily available at our disposal enabling us mitigate these risks significantly while enjoying full ownership over our own money via decentralized networks such as bitcoin helping bring true financial autonomy among general public .