How to regain anonymity for bitcoins after their owners have been revealed

[53rv3r]

Hi all, I am aware that anonymity has been, and will continue to be, one of the most-discussed topics here. However, I couldn't find a good discussion about solutions to this problem:

Every time bitcoins are exchanged, clearly the two (or more) parties must know the addresses that are involved in the exchange. From that point on, these parties can track the flow of bitcoin using these addresses and will always know how much the others have and where their bitcoins go. Anonymity is lost forever for these particular bitcoins.

I understand that it's generally recommended to use many addresses, and the address specifications support a large number of addresses, so there is little concern of "running out." But if you make a large sale ( a house, or a car), you will eventually want to use these funds for yourself, and anonymity is not increased by spreading these funds around many addresses that you own. The other party will forever be able to know where these funds go.

Sure, not everyone cares about strong anonymity. However, if bitcoins gain widespread use, this non-anonymity can cause large problems for people, whether they care or not. Just the fact that others will know how much money I have is troubling; never mind that they can see where it goes.

Right now it's possible to use an exchange, convert to local currency, then purchase bitcoins to a new address again. But this method incurs fees, and is inconvenient, and, most importantly, is not feasible when/if bitcoins become the primary currency of the world (which I suspect they will). This method works well for small transactions, but is difficult for large sales.

Other than using mixing services, and the additional security risks that they present, are there other solutions to regaining anonymity for bitcoins after their owners have been revealed to each other? Is there any way to address this in the underlying protocols?

I know this must have been discussed before, and if someone can point to recent discussions, that would be useful, too.

[1714831845]

1714831845

[iamsomeoneelse]

moving the bitcoins to an exchange and then move them back out in a few txns should work. You don't have to convert to fiat and then back...

in analogy moving the bitcoins to an exchange is like throwing 4 quarters into a big bag of coins shaking it then pulling 4 out.  You are likely to get different quarters. 

This is doubly true with BTC since a bitcoin has no representation -- its not even as physical as an mp3 file.   Its just an entry in a ledger.

One caveat is to make sure the exchange does not keep everyone's btc in separate wallets.  But I don't know of any sites that do this.

[DeathAndTaxes]

I think you are confused.  How does knowing a single address let you know how many coins someone has?

For example say you were involved with someone who provided this (just one I grabbed randomly from blockchain.info) as his address.

http://blockchain.info/address/1BJQDc7c9k9GGiBfoqZmnigGvEuQZCsVGP

How many Bitcoins does this person have? 

[53rv3r]

I think you are confused.  How does knowing a single address let you know how many coins someone has?

For example say you were involved with someone who provided this (just one I grabbed randomly from blockchain.info) as his address.

http://blockchain.info/address/1BJQDc7c9k9GGiBfoqZmnigGvEuQZCsVGP

How many Bitcoins does this person have? 

My question is not really about the total bitcoin holdings of a particular user, but more about the balance of a particular address, and the flow of bitcoins in/out of this address. As I wrote earlier:

anonymity is lost forever for these particular bitcoins.

[DeathAndTaxes]

Then never use the address again.  Once the coins make three or four or five transactions how will the prior person know who has them.  Hell they could simply be you.  You can easily transfer coins from one address you own to another one you own just as easily as transfering it to another person. Now if you do something foolish (from an anonymity standpoint) like continually re-use the same address over and over well you are simply making a choice to give away information.

For example.  
Say you send me 10 BTC (to address A).  You know I control address A and you know right now I have 10 BTC.

You see in the blockchain a tx from A->B and later B->C and later C->D.  Who owns D?  From now till the end of time I will never use A again (I never use the same address twice, there is no need).
How many coins do I have?   Who is D?  What was the tx from B->C?  What is the relationship between the entity that controls C and the entity that controls D?  Are they controlled by the same entity?

B, C, and D could all be addresses I own and the 10 BTC is still mine.
On the other hand B, C, and D could all be different entities.
A third option is B, C, and D is all a third party.  If I deposited that 10 BTC (A->B) into MtGox the rest of the tx could simply be internal transfering by MtGox and then some future tx (D->E) is a completely unrelated customer making a withdraw from MtGox.

The blockchain alone is not sufficient to tell you anything.