Also covering Tor and I2P

Anonymity networks are systems that allow network communication without senders or receivers needing to reveal their IP addresses to each other. The best known of these are Tor and I2P.

The use of anonymity networks can go a long way to improving the privacy of Bitcoin software. It’s particularly beneficial when sending your own transactions. This is especially true for lightweight clients that don’t relay transactions for other peers, so any transaction sent from their IP address can easily be associated with their network identity.

But using an anonymity network can also be a liability in some cases; for example:

  • Following the best block chain is a major challenge for full nodes and lightweight clients on anonymity networks. Because anonymity networks allow the creation of a large number of false identities, systems that solely use them are vulnerable to sybil attacks that can become eclipse attacks which feed a different block chain to clients and nodes than what the rest of the network is using, possibly resulting in loss of funds.

  • Latency can be an issue for routed contract protocol systems designed to be fast, such as LN. Still, for many end users, it’s fine to trade off slightly slower speed for much improved privacy.

Anonymity networks that are separate from Bitcoin, such as Tor and I2P, can also be combined with privacy-improving techniques in Bitcoin, such as dandelion.

Note: Tor onion services should not be confused with the onion encryption used in LN. Although both derive from the same ideas about preserving privacy, they are two different systems.

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