Guest Blog by: Andrew L. Rossow, Esq.

The common perception that Bitcoin’s growing hash power makes it prohibitively expensive to attack the network is well-founded, as the current rough estimate to launch such an attack is around $10.6 billion. However, 51 percent attacks and other activities by malicious parties, such as unmasking user identities, are largely restricted to the blockchain layer, and, in the case of a 51 percent attack, the mining ecosystem.

Weaknesses at Bitcoin’s network layer are understood by a subset of the network’s supporters, mostly Bitcoin Core contributors, security researchers, and similar professions. But for the large part, the convoluted nature of networking and the Internet’s connectivity makes addressing the potential weaknesses of Bitcoin’s network-layer weaknesses challenging.

The obscure methods for disrupting Bitcoin via network-layer assaults have been highlighted by several research papers, along with some proposed solutions for protecting users — specifically regarding anonymity. Similarly, the concept of blockchains and their distributed nature have produced several projects attempting to create a more robust Internet backbone, innovations that could help bolster Bitcoin’s security in the long-run.

So, what exactly are the weaknesses concerning Bitcoin at the network level?

Deanonymizing Users With Transaction Graphs and IP Address Mapping

Blockchains forensics firms like Chainalysis and CipherTrace deploy probability heuristics models for tracing the path of inputs and outputs of Bitcoin’s UTXO transaction model. Heuristics such as common-input-ownership are commonly used by these firms to extract data from large transaction clusters, but such heuristics are mainly confined to blockchain-layer analysis.

Tools like Wasabi Wallet Chaumian Coinjoins can be used to mitigate such tracing, essentially breaking the heuristic by mixing inputs and outputs. However, such techniques do not always mitigate network-layer traffic analysis, where malicious parties can glean insights from transaction graphs and discern the IP address of a specific transaction’s origin.

Research into mapping IP addresses via Bitcoin’s gossip protocol has revealed that it is possible to determine, with sufficiently high probability, the origin of a transaction broadcast. In response to such threats, Bitcoin developers and contributors have proposed Dandelion++, a network-layer privacy enhancement that makes the broadcast routing path more convoluted to trace.

Other methods, like running Tor and a VPN, while broadcasting transactions can help reduce the ability of third-party observers to extract definitive information on transaction broadcasts, but sophisticated methods targeting MAC addresses for devices and unique browser fingerprints can present additional problems to users of overlay networks like Tor.

Anonymity and privacy are constantly evolving, and Bitcoin’s community appears on pace to continually address these issues, although they are often overlooked by mainstream users.

Partitioning The Bitcoin Network and The Inefficiency of Overlay Networks

Overlay networks like Tor have been around for decades and are useful, but they have their own limitations. Improving the Internet’s core infrastructure is a more prudent approach to addressing some vulnerabilities in networking that leads to centralization of ostensibly decentralized technologies.

For example, the startup project NOIA Network, which is striving to create a more robust backbone for the Internet, highlights how simply layering more overlay network on top of outdated Internet routing protocols, such as BGP, is not an optimal or sustainable solution.

The Internet suffers from multiple BGP hijacks every day, which can cause privacy intrusions and service disruptions on major “highways” of Internet traffic. For instance, data packets can be routed through attackers to the level of nearly 25 percent of US Internet traffic going through Chinese telecoms providers for months, with only reactivity to the problem on the table as a solution.

In the context of Bitcoin, according to NOIA’s technical documentation:

“It turns out that by announcing bogus IP ownership from only 13 ISPs, the majority of the Bitcoin network could be compromised.”

Hijacking less than 100 prefixes in a BGP attack, attackers can effectively partition the Bitcoin network, resulting in delayed propagation of blocks.

The proposed solution? Combine the newest version of the IP protocol, IPv6, with segment routing to build a more robust, standardized routing protocol that is compatible with most current routing hardware. Coupled with a proprietary distributed ledger, they can enable private network features (i.e., scalability, performance, privacy) on public Internet infrastructure.

The acknowledgment by NOIA of the underlying network weaknesses facing Bitcoin is correlated to the 2017 paper “Hijacking Bitcoin: Routing Attacks on Cryptocurrencies,” which unmasked several problems facing cryptocurrency security. The field is highly esoteric, but it presents some intriguing insights into some of the centralized components of Bitcoin’s routing infrastructure.

For example, only a few ISPs see a majority of the Bitcoin network traffic, where 20 percent of the operational Bitcoin nodes are hosted by fewer than the previously mentioned 100 prefixes. As a result, isolating mining power on the network only requires a disproportionately small routing attack. Bitcoin’s BIP 151 helps to mitigate such attacks but is not an all-encompassing solution.

Other network attacks include “delay attacks,” and authoritarian ISP pressure, such as the case with China’s control over their regional ISPs and its potential to influence over miners in the country.

Such problems have not come without technological innovation in the form of resistance, however. Increasing emphasis on a multi-homing Bitcoin network with the likes of Blockstream Satellite and high-frequency radio broadcasts of transactions provide assurances against network partitioning. Other protocols that have resurfaced in popularity, such as mixnets, could also provide some potential reprieves against network-layer attacks on Bitcoin, particularly concerning deanonymization of users.

Additionally, as the Bitcoin network continues to expand, and the Internet’s topology decentralizes, the aggregation of network traffic under a few large ISPs, should diminish.

Bitcoin has proven its antifragility throughout the years with a nearly unblemished record of uptime and block propagation over the course of more than a decade. While you can remain anonymous using Bitcoin if you choose the right tools, there are still some underlying problems with the Internet’s core infrastructure that makes Bitcoin susceptible to various network-layer attacks.

However, Bitcoin’s ability to evolve and its conservative approach to change has demonstrated that security and robustness are the foremost concerns amongst its community, and should serve the legacy cryptocurrency well in addressing such vulnerabilities.