Blockstream Proposes “Pay to End Point” (P2EP) to Boost Bitcoin Transaction Privacy


Blockstream Proposes “Pay to End Point” (P2EP) to Boost Bitcoin Transaction Privacy

Bitcoin transactions are never private and they have never been private. However, a new proposal by Blockstream could significantly enhance transaction privacy on the bitcoin network.

That proposal is called Pay to End Point, or P2EP. If implemented, P2EP could prevent someone with a block explorer from seeing every transaction on the bitcoin network.

Bitcoin transactions are posted to the public ledger – the blockchain. Anyone with a block explorer – and there are multiple free ones available online – can scan the public ledger to discover a transaction. There’s an entire industry built around this: “bitcoin transaction analysis”. Companies scan the public ledger and then determine who is behind each individual transaction.

Obviously, the bitcoin network doesn’t attach names or other personal data to each transaction by default. With most transactions, you just see two anonymous wallets swapping bitcoin. Unless someone has connected themselves with that wallet – say, in a forum post online – we have no way to connect each transaction to each individual. Nevertheless, that wallet ID is always there, on the blockchain, for anyone to read.

Bitcoin was never meant to be private. That’s why there’s an entire industry of “privacy coins” like ZCash and Monero. These coins are blockchain-based like bitcoin but obfuscate details of the transaction to anyone but the two people completing the transaction.

How does Blockstream propose we add privacy to the bitcoin network? In Blockstream’s latest blog post, they introduce a new system for private transactions called Pay to End Point or P2EP.

How Does Pay to End Point (P2EP) Work?

Pay to End Point does not require any additional changes to the bitcoin protocol. It doesn’t even require a new layer to be added.

Instead, Pay to End Point enhances the privacy of the bitcoin network, making it difficult for anyone but the sender and receiver to see details of the transaction.

The core idea of P2EP is that both the sender and receiver should contribute to the transaction via multiple “fake” transactions in an endpoint provided by the receiver based on a BIP 21 URI.

Here’s the process broken down in step by step form:

  • The receiver generates a number based on the receiver’s wallet address based on BIP 21, creating a private receiving endpoint
  • The sender initiates the transaction with the receiver by confirming that the endpoint provided is available
  • The receiver sends a number of transactions to the sender for them to sign; only one of these transactions it he valid transaction
  • Once the receiver receives a valid transaction, that transaction is broadcasted to the bitcoin network

As pointed out by Blockmanity.com, it’s kind of like if there were two spies in a facility who needed to communicate with each other. All interactions are monitored and the spies need to communicate with each other in the open. The first spy approaches the second spy. The second spy acknowledges the first spy. The first spy conveys that he has a message to send. The second spy starts small talk in which he has secretly asked what the message is. The first spy replies in small talk with the message hidden behind the words.

That’s how P2EP is designed to work.

Pros and Cons of P2EP

P2EP has a number of pros and cons, including all of the following:

Pros

  • The privacy transaction shares the same appearance as a regular transaction, and there’s no way to tell that the sender or receiver used P2EP to obfuscate the transaction
  • Sending wallets can be lightweight wallets
  • Senders and receivers get greater privacy during the transaction

Cons

  • Both the receiver and sender must be online for the payment to be processed as a P2EP transaction
  • Because interaction is required for a P2EP broadcast, there will be a slight delay to the transaction
  • The receiver needs to have a hot wallet in order to sign the transaction
  • The fees for a single transaction will be greater because there’s a larger transaction size
  • Wallet processing is higher when compared to traditional transactions
  • The receiver needs to have access to a full node

Obviously, Pay to End Point is still in the early stages of development. The protocol is expected to go through significant community development. Nevertheless, P2EP feels like a step in the right direction for those who want a more privacy-focused bitcoin – or at least the option to make a private transaction with bitcoin.

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