A coinjoin is a privacy-enhancing technique that is used to improve the anonymity of Bitcoin transactions. It involves the combining of multiple transactions into a single transaction, in such a way that it is difficult to determine which inputs belong to which outputs. In this article, we will explain what a coinjoin is and how it is done.
What is a coinjoin?
A coinjoin is a method of combining multiple Bitcoin transactions into a single transaction in a way that makes it difficult to determine which inputs belong to which outputs. This is achieved by having multiple parties contribute their inputs (i.e., the Bitcoin they want to send) to a shared transaction, which is then broadcast to the Bitcoin network.
The goal of a coinjoin is to improve the privacy of Bitcoin transactions by making it more difficult for third parties to track the movements of individual coins on the network. This can be especially useful for users who want to keep their Bitcoin usage private, or for users who are concerned about the potential for their Bitcoin transactions to be censored or blocked by third parties.
How is a coinjoin done?
There are several different ways that a coinjoin can be implemented, but the basic process is as follows:
- Multiple parties agree to participate in a coinjoin by contributing their inputs to a shared transaction.
- The parties involved in the coinjoin use a privacy-enhancing tool, such as JoinMarket or Wasabi Wallet, to create a shared transaction.
- The parties sign the shared transaction with their private keys to indicate that they are participating in the coinjoin.
- The shared transaction is broadcast to the Bitcoin network, where it is included in a block and confirmed by miners.
- Once the transaction is confirmed, the inputs are combined and the outputs are distributed to the parties involved in the coinjoin according to their agreed-upon proportions.
It is important to note that a coinjoin is not a foolproof way to achieve complete anonymity on the Bitcoin network. While it can make it more difficult for third parties to track the movements of individual coins, it is still possible for skilled adversaries to deanonymize coinjoins using advanced techniques such as clustering analysis. However, for most users, a coinjoin is an effective way to improve the privacy of their Bitcoin transactions.