Topic: Are Off-Chain Transactions Private? (Read 249 times)

When you host a bitcoin node, all you are doing is hosting a ledger of other people transactions,
if that is all you do, you do not need to worry about KYC.
 
If you however operate an exchange using that same bitcoin node, and ACCEPT or SENT bitcoins on behalf of other people besides yourself, then KYC would apply to you.

LN hubs act like a bank, you deposit btc with them, they then timelock that bitcoin and let you exchange LN notes that hopefully later can be redeemed for bitcoins.
Banks used to hold your gold or silver , and let you use their Bank notes which could later be redeemed for gold or silver, as late as the 1970s for silver in the US.
LN Hubs perform that exact functions of a Bank, 3rd parties offering a service for a fee, so they will all be required to adhere to KYC in the future.


FYI:
Don't get me wrong , I personally believe KYC regulations are unconstitutional , but how many people are willing to dispute the government to stop it. Sadly not enough, just as people comply with tax laws that steal a portion of their incomes, they also comply with laws that are not in the interest of a Free People.

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Actually, since they seize computers and bitcoins used in criminal activity, they could run stings for basically free.
Remember they can seize your property and resale it ,
it is how much of the law enforcement funds a % of their departments.
https://www.npr.org/templates/story/story.php?storyId=91490480
https://thenextweb.com/hardfork/2019/04/24/police-bust-potential-bitcoin-money-laundering-scheme-in-brazil/

The real issue would be the government's ability to track payees with IP addresses available on the LN. I believe that it's much easier for them to track down individuals using this method than a public key itself (like it's the case with the main Bitcoin blockchain). Something like Zero-Knowledge Proofs or a built-in mixer would be best in order to protect users IPs within the Lightning Network. I know that Bitcoin's Layer-2 solution is still experimental, but privacy is a must these days. Of course, the main Bitcoin blockchain is not private yet. Which makes me wonder if devs would want to make the LN fully private in the first place?

Nonetheless, the LN seems to be working fine for micropayments. It may still have some issues but I believe that it'll become improved over time as developers continue to work on the protocol. Without mainstream adoption, "off-chain" payments would be more of a niche than anything else.



Good to know. If that's the case, then it would be almost impossible to track down every single payment performed on the Lightning Network. Considering that there's no explorer available that would track down LN payments, governments and third parties would only be able to link a specific IP to a user. That would only tell that the person is running a LN node, or has opened a channel. But payments cannot be revealed as far as I know. While nothing is 100% anonymous, there's still room for improvement. The LN is still in its infancy, so issues will be discovered and remediated over time. In case it fails altogether, the BTC main chain will be safe from harm.



That's what I've thought. It's no wonder why it's only possible to look for LN nodes or channels. No other information is provided. This is a good thing since governments or third parties will be unable to disclose transaction information performed by users on the LN. The only issue would be the discovery of IP addresses, since the LN relies on them after all. That would establish a link to the individual using/supporting the LN. So far, only on-chain payments made when opening/closing a channel are seen on the network.

Nonetheless, I don't think privacy within the LN is much of a concern nowadays. As long as it scales BTC efficiently, there's nothing to worry about. Privacy can be easily obtained by other means (such as VPN, Tor, privacy coins, etc). In the end, the LN will continue to improve over time as it adopts new features like submarine swaps, watchtowers, and more.

OP, tracking payment channels would obviously be harder. Plus snoopers would need to set up their own Lightning nodes, and open channels/stake Bitcoin.

1. exactly like why exchanges suddenly became compelled to do KYC to continue operating. so will hubs.
its not about having to b an exchange that is running a hub. just any hub could b compelled to register as a KYC required service custodian.
2.it is possible to enforce. have you not seen how the 'NewYork bitcoin licence' changed things years ago. all it had to do was get a new york residing person to do something with any service around the world. and suddenly the service is stung.
many people on local bitcoin got hit like this whereby they were suddenly informed they were operating as a money transmitter business offering a service to new york without a NY bitcoin licence

imagine it like prohibiting alcohol. cops going around to all social clubs and dance rooms, and asking th staff if they can buy a beer, if the staff gives them a beer with a wink wink nudge nudge. suddenly the handcuffs come out

LN uses IP info. oh and before you spout out how people can proxyIP thier way to privacy
a. proxy'ing may hide your IP. but then your not in full control in things that particular IP is upto as others are using it too. this opens a hacker attempt to then also use same proxy to become your IP to mess with your channel partner in some way.


b. people doing localbitcoin swaps dont reveal IP when communicating with their customer yet still get stung for operating as a MSB. for people trying to run a legitimate service like selling alpaca socks for LN whereby they offer a returns service and refunds. then expect many ways to be found. (such as you including your returns postal address for the goods if customer wants a refund)

trying to assume things like NY bitcoin licence is unenforceable 'cos bitcoin pseaudonomous' ud be wrong. many people have been slapped and stung
just saying 'coz bitcoin' or 'coz proxy' or 'coz crypto' just remember
trendon shavers, dred pirate roberts and mtgox got in legal trouble

It's purely theoretical, but since exchanges are required to comply with KYC regulations, it's possible that extends to hubs they run. I'm not sure if it's practical or even possible to enforce (I would love it if someone could set the record straight), but I often see it being brought up. All I was basically saying is that even if this were the case, I'm sure there will always be non-KYC hubs.


That isn't really in question, at least not in this thread.

government adversaries are presumably already running nodes, electrum servers, etc to monitor node/IP address information at the bitcoin protocol network level. so it would be no surprise if they ran LN nodes as well.

at least operating an LN hub adds a financial cost to this kind of surveillance.

You do not have to adhere to KYC requirements when you host a Bitcoin node or if you want to make a transaction on the Blockchain, so why would this become a requirement for running a Lightning Network hub?

People are very negative about the Lightning Network, but I think side chains have a place in the Bitcoin development and on-chain scaling will never match it's performance. Let's prevent a situation where we want to throw out the baby with the bath water.  

Funnily enough, government agents allegedly do the same thing with Tor exit nodes. It's still considered better privacy-wise than basic browsing though, so I'd think of LN vs. on-chain transactions in the same vein. LN by itself might not be good enough, but it should be if combined with proper precautions.


I don't deny the possibility, but I do hope there will be enough options that using these won't be necessary. I'm sure people won't support them if there are non-KYC options.

not quite true
i would explain in waffly form but here ill give you a link of a random node and show you exactly what amounts it has
https://1ml.com/node/021b56ff970675aa576ba3be3c7fe1e8faf0df70a5a03fcbaffcaad17f3dd05711/channels
it becomes easy to 'follow the money' hop to hop by watching for the changes
(hint how can a node find a route unless it knows all the balances of all possible routes to then choose a route)

The way Lightning routing works is much like Tor. It uses what is known as "source routing" and "onion routing". Source routing means you as the sender pick the route your transaction takes, and onion routing means you encrypt said route in layers. Each node you "hop" through can only see the last node the transaction came from, and where to route it to next. It knows nothing about the rest of the transaction, where it originated, or where it will end up. Each node doesn't know if the node before it was the sender or just an intermediary, and also doesn't know if the node it is sending to is the final destination or just an intermediary.

There is no such thing. The only transactions which are broadcast are when channels are opened or closed. Everything else remains off chain and therefore can't be "explored" like on chain transaction can.

depends on private
the LN network map is very revealing you can see how much balance each node and their channels have so when you take a snapshot and then take another snapshot you can see where changes are made and know where millisats moved to and from
if
a-[1:3]-o-[8:0]-s-[8:0]-c-[1:3]-x
b-[3:1]/                        \-[1:3]-z
becomes
a-[1:3]-o-[7:1]-s-[7:1]-c-[0:4]-x
b-[2:2]/                        \-[1:3]-z
its easy to see b paid x 1 by using o s c
 
what blockchain based networks still do not do is identify the product/service involved in a trade/transaction nor does it reveal details of the person(s) transacting birth certificate details

however LN is IP locator based so more risk of finding out personal details of those involved.
LN requires finding out if payments can succeed by knowing values available over a route. so things can be done to make it increasing easy to know which IP paid which IP even with multiple route hops in the middle

I think the best way currently to transact privately on the Bitcoin blockchain is to use the haircomb token.

It is relatively easy to turn Bitcoin into haircombs, the user needs to keep repeatedly claiming comb using their Bitcoin until the required amount is claimed. All comb transactions are private by default. This means when you pay to someone you will never learn where the comb went from that point on.

The difficulty lies in finding merchants who would accept haircombs.

Upon interacting with LN channels a couple of times, I've been starting to wonder about the privacy of LN transactions. Sending Bitcoin off-chain seems to be a great way to encourage micropayments, but it's up to debate whenever transactions are truly private from the channel's end. If a LN channel keeps a record of transactions performed off-chain, then they could serve as targets for worldwide governments. I suppose that it'll be much easier for governments to track down LN payments than on-chain BTC payments.

So far, I haven't seen a LN explorer where it's possible to search transactions made on the network. What I can only see are nodes and channels on the same. Still, I'm curious to know the level of privacy of Off-chain transactions relative to On-chain transactions performed on the main Bitcoin blockchain.

Do you think that Off-chain transactions are truly private after all? What are your thoughts?