Run the Numbers #20: Bitcoin and Tor

Bitcoin & Data Science

2021.01.16

Previous posts in this series have mentioned that Bitcoin often interacts with The Onion Routing project (Tor) as a layer of privacy, shielding the users data from potential internet surveillance. Earlier this week the Tor network went down as a consequence of a DDoS attack by an unknown attacker, so I thought this would be a good opportunity to take a deeper dive into how Bitcoin uses Tor and how the attack could affect Bitcoin.

What is TOR - The Onion Browser Explained - Anonymania
Source: torproject.org

“Tor is free and open-source software for enabling anonymous communication by directing Internet traffic through a free, worldwide, volunteer overlay network consisting of more than seven thousand relays in order to conceal a user’s location and usage from anyone conducting network surveillance or traffic analysis. Using Tor makes it more difficult to trace the Internet activity to the user” – Wikipedia

Without going too deep into how Tor works, lets just say that it is a distributed peer to peer system (like Bitcoin) for sending anonymous data over the internet. Due to its decentralized peer to peer nature, it is typically much slower than accessing the internet through a major Internet Service Provider. For this reason it is ideal for small amounts of data such as text – perfect for sending Bitcoin trasnactions.

What are the risks of using Tor browser? - Information ...
Source: security.stackexchange.com

Bitcoin Core offers the option to have all incoming and outgoing data routed through Tor, but it is not required to communicate with the Bitcoin network. The Lightning Network (a Layer 2 scaling solution built on top of Bitcoin), however, depends heavily on Tor. The nature of the Lightning Network is such that it could not function without an anonymous communications layer such as Tor.

The recent attacks on the Tor network are troublesome to Bitcoiners. While Bitcoin does not need Tor to function, the Lightning Network and many Bitcoin-adjacent services do. The open source Tor developers say they are working on ways to combat the DDoS attack, but there is no clear fix-all solution in sight. The more options we have to use Bitcoin, the more robust it is against attacks of all kind. It is important to keep working towards alternative means of using Bitcoin such as mesh networks, satellite transmissions, and other methods mentioned earlier in this series.