Ready to take your crypto knowledge to the next level? Learn about Coin Mixing and CoinJoins ⤵️
by Bitcoin developer Gregory Maxwell in 2013. In his thread, he gives a brief overview of how these transactions are structured and how massive privacy gains can be achieved without any changes to the protocol.
If we look at a given transaction made up of four inputs and two outputs , there are a few different assumptions we can make. The first is that we’re watching a payment take place – the sender is sending one of the outputs to someone, and returning some change to themselves. Since they’ve used four inputs, the larger output is probably for the recipient. Note that we’re missing 0.01 BTC from the outputs, which is the fee given to the miner.
Another assumption we can make is based on the fact that each input is signed independently. This transaction could have up to four different parties signing the inputs. And therein lies the principle that makes CoinJoining effective.The idea is that multiple parties will coordinate to create a transaction, each providing inputs and desired outputs. As all of the inputs are combined, it becomes impossible to say with certainty which output belongs to which user.
The coordinator will take all of the information, craft it into a transaction, and have each participant sign before broadcasting it to the network. Once users have signed, the transaction can’t be modified without becoming invalid. Therefore, there is no risk of the coordinator running off with the funds.
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