Can Atomic Swap be used to act the same way as/even better than Coin Mixing?

[20kevin20]

First of all, I hope this is the right board to post in. If not, mods, please move it to the right one

I have never really done much about the anonymity of my coins. Because privacy is one of the main reasons I'm here, I'm willing to practice with some transactions in order to increase/maximize the privacy of my wallets.
Therefore, I've looked up and researched Coin Mixing a little bit. ChipMixer and Wasabi both present some interest for me, but while researching coinjoining, something came up in my mind: what about Atomic Swaps? Can they be used for an even larger anonymity of your funds?

I'll write down my scenario of increased/maximized anonymity using Atomic Swaps. It's something that can be done right now, but is pretty impractical because the app I'm using was not created for this purpose. My scenario has just two requirements:

• An Atomic Swap-capable, decentralized software/platform. I'll use Atomic DEX for the example as it already exists and my scenario can already be realized on it.
• 2 different Atomic Swap wallets + 1 unused Bitcoin wallet. For my scenario, I will have two separate phones with Atomic DEX installed on them and a PC with a new Electrum wallet on it.

Here's how this would work:
As I said above, we have two Atomic DEX wallets. We'll call the first one AA (Atomic A) and the second wallet AB (Atomic B). For the final transaction, we have prepared an Electrum wallet called B (Bitcoin). The following steps need to be taken:

• Using CoinMarketCap's conversion tool, the ideal amount of LTC to receive for 1 BTC would be, at the current rate, 129.5 LTC. We are going to send 1 BTC (which is the coin we want to anonymize) to the Bitcoin address on wallet AA. After the tx is confirmed, 1 BTC will be swapped to 129.5 LTC. Note: Bitcoin can be converted to any of the available cryptocurrencies. I gave LTC just as an example for this scenario.
• Our 1 BTC has been sent to the other peer we've swapped our coin with. Now, we have a balance of 129.5 LTC in wallet AA, but our intention is to have 1 BTC with an untraceable history. Hence, we will transfer our 129.5 LTC to the second Atomic DEX wallet, wallet AB.
• Wallet AA now has a final balance of 0. All our funds has been sent to a secondary, unused Atomic DEX wallet with no previous history. Next, we have to do a final swap of our 129.5 LTC back to 1 BTC.
• After the final swap, we have our 1 BTC in our wallet AB, which has absolutely no connection to wallet AA. Therefore, as a final step, we have to just transfer our untraceable 1 BTC to the Mycelium wallet B.

I also made a diagram (please don't mock me, it's my first diagram ever ) for easier understanding of the process:

               

As an advantage, your Bitcoin goes through 2 different wallets in the first part of the experiment and leaves your account completely, and then you own Litecoin. Litecoin goes through 2 different wallets and then leaves your account completely - you now own Bitcoin again. The final transaction is an untraceable Bitcoin that goes into the final wallet (Electrum).

For disadvantages, we have impracticability (you have to use so many wallets and so many devices..) unless someone develops an open-source Atomic Swap software just for this purpose and also the final balance you're going to have will most likely be different than the initial balance, depending on the ratio you will choose to go for between the coins you'll swap and also depending on price fluctuations.

You have to remember that Atomic DEX was not created for this purpose, so my experiment can be considered a workaround for those intending to maximize their anonymity. I had to use two different Atomic DEX wallets because it does not feature Coin Control, nor does it change your address to a new one after receiving funds. Therefore, as we're looking for unused addresses, we have to create new wallets.

My experiment can as well be a stupid one, any critique is welcome.

[1714768926]

1714768926

[1714768926]

1714768926

[logfiles]

I thought about it before but you would rather use a coinmixer because;
1. You will end up spending a lot in fees when doing an atomic swap. So carrying out 2 atomic swaps means losing more coins in fees not forgetting the exchange rates that are always set so that the DEXes can make some profit out of your trades.

2. Not convenient; Most atomic swaps have maximum limits for coins you want to exchange so imagine if someone wants to convert 20 BTC and the atomic swap has a limit of only 2 BTC per trade. Some even start asking for KYC (read changelly) 

Verdict: Coin mixers are a cheaper option, much more convenient to use

[20kevin20]

I thought about it before but you would rather use a coinmixer because;
1. You will end up spending a lot in fees when doing an atomic swap. So carrying out 2 atomic swaps means losing more coins in fees not forgetting the exchange rates that are always set so that the DEXes can make some profit out of your trades.

Yeah, I pointed that out in the disadvantages.. and this is why I mentioned the idea of creating an atomic swap decentralized platform for the purpose of maximizing anonymity. Not sure how achievable that is tho.

2. Not convenient; Most atomic swaps have maximum limits for coins you want to exchange so imagine if someone wants to convert 20 BTC and the atomic swap has a limit of only 2 BTC per trade. Some even start asking for KYC (read changelly) 

I used Atomic DEX in my scenario specifically for this purpose. It has no limits AFAIK, be it deposit, withdrawal or trade ones. There's also no KYC, so for now it's safe.
Is Changelly even doing atomic swaps? I think it's more centralized than not. It makes no sense to go for atomic swaps if there's a third party you need to trust.. I mean, isn't atomic swap meant to be the answer to coin swapping without trust?

[philipma1957]

I thought about it before but you would rather use a coinmixer because;
1. You will end up spending a lot in fees when doing an atomic swap. So carrying out 2 atomic swaps means losing more coins in fees not forgetting the exchange rates that are always set so that the DEXes can make some profit out of your trades.

2. Not convenient; Most atomic swaps have maximum limits for coins you want to exchange so imagine if someone wants to convert 20 BTC and the atomic swap has a limit of only 2 BTC per trade. Some even start asking for KYC (read changelly)  

Verdict: Coin mixers are a cheaper option, much more convenient to use

Coin mining works pretty well to stay anonymous.

In Fact you can turn  a profit  doing it.

BTW  being anonymous paints a target  on the anonymous address.

https://bitcoinist.com/bitcoin-addresses-732000-1-btc/


don't you think  this info above is looked into by governments

certainly the info below in the 10 btc and above category is listed

https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

Bitcoin Rich List
 Search
Share:         1
Bitcoin distribution
Balance, BTC   Addresses   % Addresses (Total)   Coins   $USD   % Coins (Total)
(0 - 0.001)   14109754   48.72% (100%)   2,894 BTC   28,479,632 USD   0.02% (100%)
[0.001 - 0.01)   7032245   24.28% (51.28%)   28,110 BTC   276,636,215 USD   0.15% (99.98%)
[0.01 - 0.1)   4978235   17.19% (26.99%)   160,258 BTC   1,577,131,784 USD   0.88% (99.83%)
[0.1 - 1)   2052612   7.09% (9.8%)   655,373 BTC   6,449,645,276 USD   3.6% (98.95%)
[1 - 10)   631693   2.18% (2.71%)   1,671,480 BTC   16,449,348,079 USD   9.18% (95.35%)
[10 - 100)   137934   0.48% (0.53%)   4,447,159 BTC   43,765,335,409 USD   24.43% (86.17%)
[100 - 1,000)   14091   0.05% (0.06%)   3,575,309 BTC   35,185,296,894 USD   19.64% (61.74%)
[1,000 - 10,000)   2056   0.01% (0.01%)   4,863,288 BTC   47,860,544,488 USD   26.72% (42.1%)
[10,000 - 100,000)   103   0% (0%)   2,249,811 BTC   22,140,820,546 USD   12.36% (15.38%)
[100,000 - 1,000,000)   3   0% (0%)   549,861 BTC   5,411,290,435 USD   3.02% (3.02%)


Addresses richer than
1 USD..............100 USD.......   1,000 USD..............10,000 USD..............100,000 USD...........1,000,000 USD........10,000,000 USD
21,248,660   7,237,023......   2,710,158...............673,101...................140,753..................13,916...................1,632

by dollar value there are 155,000 addresses over 100,000usd  about the same as over 10btc since a coin is now around 9800  don't you think that list is given to irs etc  especially if they find ones they don't know the owner to.

So the whole idea of anonymous is kind of dead here.  What do you want to do the op idea or  coinmixer  if they result in a newly minted unidentifiable  address most governments will say cost basis is zero and the day the new address is made  is your profit.

Ie a make a 10 coin address today with any method  USA will say it is worth 98000  and since it can't be identified as of today I should report it as 98000 profit for 2020 taxes.

If I don't and I hodl it to 2025 finally cashing it in  lets pretend it is worth 200,000

I will have tax penalties since I did not report the 98,000 in 2020.  So if I want to hide coins I need to have a country to live in that does not tax coins.

But if I have a country to live in that does not tax my coins  why hide them. Since they are not subject to tax  I can show them in an unhidden address.


So effectively you have hidden money with a target painted on it.

[o_e_l_e_o]

It's a good idea in theory, but there are a couple of weaknesses in your exact application.

First of all, you are using the same provider (Atomic DEX) to host both your wallets and perform both your Atomic Swaps. It will therefore be trivial for Atomic DEX to link your original bitcoin to your final bitcoin. Use different wallets and different atomic swap providers for your BTC -> altcoin swap and your altcoin -> BTC swap.

Secondly, your intermediate coin is Litecoin, which offers no additional privacy. Anyone can track the movement of Litecoin from your first wallet to your second wallet, particularly if you simply make one large single transaction. Monero would be a far better intermediate coin to use, and instead of moving all the XMR in a single transaction, split it up and send random amounts down a chain of intermediate addresses before reaching your second wallet.

Thirdly, you haven't considered other ways of de-anonymizing you, such as IP addresses or browser fingerprints being logged by the swap service.

You might also find this post from theymos of interest: [Guide] Decent mixing methods

[squatter]

As an advantage, your Bitcoin goes through 2 different wallets in the first part of the experiment and leaves your account completely, and then you own Litecoin. Litecoin goes through 2 different wallets and then leaves your account completely - you now own Bitcoin again. The final transaction is an untraceable Bitcoin that goes into the final wallet (Electrum).

Andrew Poelstra presented a similar idea at the L2 Summit in 2018. Once Schnorr signatures are implemented, atomic swap mixing transactions become practical.

The end result:

There's a public key on both sides, both belonging to me and Tadge, and then there's some signatures that are produced by us. It looks like one public key and one signature and no relationship from them. Someone could download those two signatures and imagine some value and show they are related... anyone could do that for any pair of signatures. Everything done here in public is independently uniformly randomly. Before I produced any signatures, I gave Tadge some partial adaptor signatures. The crux is just the ordering of the data that we exchanged. After the fact, neither of us can prove that we did any such protocol.

For disadvantages, we have impracticability (you have to use so many wallets and so many devices..) unless someone develops an open-source Atomic Swap software just for this purpose and also the final balance you're going to have will most likely be different than the initial balance, depending on the ratio you will choose to go for between the coins you'll swap and also depending on price fluctuations.

I think the pricing mechanism will be difficult to implement at scale. Without some kind of incentivized decentralized market making, I'm not sure how it would work.

If two parties simply agree on a price though, it's fairly simple to implement.

[20kevin20]

~snip

Why would a privacy-intended coin such as XMR be used as an intermediate coin? My funds are going through 5 different wallets and 2 different coins. How would my first Bitcoin be traced to the last one if I'm swapping coins through the process? If Atomic DEX can link my original Bitcoin to the final one then can't ChipMixer and Wasabi's CoinJoin feature do just the same?

I haven't particularly researched Atomic DEX, but as far as I know it's non-custodial and fully decentralized. A quote from the comparison between 8 decentralized exchanges:

Today, AtomicDEX uses a state-of-the-art networking layer known as Market maker 2.0. Market Maker 2.0 allows AtomicDEX to provide non-custodial, secure, and fully peer-to-peer trading of digital assets.

Do you mean the mechanism of Atomic DEX allows the users or the devs to check on the Atomic Swap tx and basically see the inputs and outputs of each coin swapped? I am not very familiar with the more advanced (technical) side of cryptocurrencies.

snip

I think the pricing mechanism will be difficult to implement at scale. Without some kind of incentivized decentralized market making, I'm not sure how it would work.

If two parties simply agree on a price though, it's fairly simple to implement.

I agree, and the atomic swaps need to happen quick enough for both of them to happen at the same time.

As I said, any critique is welcome. My main idea is that maybe coin mixing and atomic swaps can be combined to result in an even higher level of anonymity.

[philipma1957]

My critique is simple once you make you final btc address unless it is very small it will get listed in the blockchain. attracting attention to gov agencies that make lists of large amounts in an address.

If it is hard to trace due to what you did what good did you do for your self.

Actually hiding an addresses owner the way you do it show intent and deliberate action on your part.

It would be better to find and list all countries not taxing the coins and determine which one to move to then  trying to hide your coins via mixers and the like.

[blockforge]

I don’t understand why atomic swaps haven’t been adopted by popular wallets more than they have at this point. I’d much rather do atomic swaps over the conventional centralized exchange platforms available at the moment. And this is KYC set aside.

[figmentofmyass]

As I said, any critique is welcome. My main idea is that maybe coin mixing and atomic swaps can be combined to result in an even higher level of anonymity.

the main problem currently is that atomic swaps are recognizable by blockchain analysis heuristics. the underlying contracts are transparent, so it isn't an effective mixing method. we need schnorr/taproot first (eta end of year or early 2021?) so all the underlying scripts can be hidden on-chain.

if adversaries can only see a public key and signature, then atomic swaps become really interesting for privacy.

[20kevin20]

snip

snip

I see. Thank you for your answers. So basically by doing an analysis you can get to the atomic swap contract and find out who sent what to which address?

I honestly thought it's just something behind the coding of an app and the only thing Blockchain sees is "X sent LTC to Y" and "A sent BTC to B", nobody possibly making a link between them.

I'll take a look over Schnorr and taproot, haven't studied it yet.

[figmentofmyass]

snip

I see. Thank you for your answers. So basically by doing an analysis you can get to the atomic swap contract and find out who sent what to which address?

yes, an adversary can observe each step of the contract on both chains and view where the funds were sent.

the trick is to avoid publishing the scripts on chain. it just can't be done yet. pieter wuille has discussed the solution a fair bit.

Another advantage of Schnorr signatures, and it's one of the more exciting things in this space, are adaptor signatures, which are a way for implementing atomic swaps that look completely like ordinary payments and they can't be linked together. Roughly how they work is you produce two... you lock up your funds on both sides, say you have two assets on two different chains or on the same chain, you lock up both funds into a 2-of-2 multisig, and then you produce a damaged signature for both where you prove to the other party that the amount you damaged these signatures by is equal in both cases and then as soon as you take the money, you reveal the real signature in one, they compute the difference between the damaged and real one and then apply the same difference to the other side and take the money. Your taking money from one side is in fact what reveals and gives the ability for the other side for the ohter part. There's a recent paper that described how to use this to build a payment channel system with good privacy properties.

[o_e_l_e_o]

Why would a privacy-intended coin such as XMR be used as an intermediate coin?

Because as I said anyone can track the movement of Litecoin, especially if you make one single transaction of the whole amount. Add in what figmentofmyass has pointed out above regarding blockchain analytics, and an attacker will be able to link your initial BTC to your final BTC.

I haven't particularly researched Atomic DEX, but as far as I know it's non-custodial and fully decentralized.

I've never used it, so I can't comment on the specifics, but as pointed out above atomic swap transactions are viewable on their respective blockchains, so the fact that Atomic DEX is non-custodial and fully decentralized (although obviously good things) isn't really relevant to this scenario.

[ABCbits]

As a side note, some wallet or exchange claim they're using Atomic swap, but many of them actually are centralized exchange with fancy UI/UX where they require you to send the coins first and obviously they can freeze/hold your coin due to "legal" reason.

snip

I see. Thank you for your answers. So basically by doing an analysis you can get to the atomic swap contract and find out who sent what to which address?

yes, an adversary can observe each step of the contract on both chains and view where the funds were sent.

the trick is to avoid publishing the scripts on chain. it just can't be done yet. pieter wuille has discussed the solution a fair bit.

Another advantage of Schnorr signatures, and it's one of the more exciting things in this space, are adaptor signatures, which are a way for implementing atomic swaps that look completely like ordinary payments and they can't be linked together. Roughly how they work is you produce two... you lock up your funds on both sides, say you have two assets on two different chains or on the same chain, you lock up both funds into a 2-of-2 multisig, and then you produce a damaged signature for both where you prove to the other party that the amount you damaged these signatures by is equal in both cases and then as soon as you take the money, you reveal the real signature in one, they compute the difference between the damaged and real one and then apply the same difference to the other side and take the money. Your taking money from one side is in fact what reveals and gives the ability for the other side for the ohter part. There's a recent paper that described how to use this to build a payment channel system with good privacy properties.

Additionally, there's paper which aim to improve anonymity of atomic-swap, Anonymous Atomic Swaps Using Homomorphic Hashing. I'm not sure how useful it is when combined with Taproot though.

[pooya87]

i am not convinced about necessity of this step:

Now, we have a balance of 129.5 LTC in wallet AA, but our intention is to have 1 BTC with an untraceable history. Hence, we will transfer our 129.5 LTC to the second Atomic DEX wallet, wallet AB.

you have LTC and send it to another wallet, doesn't this transfer happen on LTC blockchain? in which case it is leaving behind a clear link between wallet AA and wallet AB making the transfer pointless.

[20kevin20]

Thank you for all the information, will merit everyone that has posted so far in a few minutes. Looks like there's always new things to learn with blockchain, even if you spend years - close to a decade - in the space.

snip

you have LTC and send it to another wallet, doesn't this transfer happen on LTC blockchain? in which case it is leaving behind a clear link between wallet AA and wallet AB making the transfer pointless.

Yes. But Komodo's Atomic DEX does not offer coin control, nor does it generate new addresses every time a new amount is received in the wallet. Hence, if I turn BTC to LTC and then turn LTC back into BTC, the same 2 addresses will be used.

By transferring from AA to AB, the LTC transaction would be clear but the swap back to BTC happens on a second address.

[pooya87]

By transferring from AA to AB, the LTC transaction would be clear but the swap back to BTC happens on a second address.

that makes sense but i still wouldn't consider this the best way for mixing coins since the connection between the starting bitcoins and the final ones could potentially be made. i'd say this method is best for those who want an increased privacy not the maximum level of anonymity.

[Stedsm]

--snip--
By transferring from AA to AB, the LTC transaction would be clear but the swap back to BTC happens on a second address.

Still, the link makes it clearly visible on the LTC block explorer. But it can only be traced if BTC address is the same, so some level of privacy is still there but not a lot. Can't you just maintain a bigger balance of BTC on a wallet for some time (I mean have your transactions all on a single address for some months or weeks, you choose) and then, just visit an exchange like Localbitcoins or some gambling websites like Sportsbet or nitrogensports, deposit all your coins there and withdraw from there for free while having all those coins on a fresh new address which cannot be traced without Sportsbet or nitrogensports' revealing - which may never happen?

[20kevin20]

Still, the link makes it clearly visible on the LTC block explorer. But it can only be traced if BTC address is the same, so some level of privacy is still there but not a lot. Can't you just maintain a bigger balance of BTC on a wallet for some time (I mean have your transactions all on a single address for some months or weeks, you choose) and then, just visit an exchange like Localbitcoins or some gambling websites like Sportsbet or nitrogensports, deposit all your coins there and withdraw from there for free while having all those coins on a fresh new address which cannot be traced without Sportsbet or nitrogensports' revealing - which may never happen?

Before knowing that atomic swaps can be traced, I thought they could be used as a way to anonymize your coins in a decentralized manner. Moving your funds to a platform and then withdrawing to an unused one makes, I believe, no sense. The point of my thread was to share my idea that could lead to the slightest chance of someone being able to find out what happened with your coins.

If authorities are having problems with someone's funds source/destination, they will address the issue to the platform which will answer them and make their job so much easier. Aside from that, you're going to risk your funds because the website could steal your money or just ask you for KYC - which, in the scenario of someone willing to anonymize their coins, is exactly the opposite of what I was trying to achieve.