{"id":224975,"date":"2022-03-15T12:30:30","date_gmt":"2022-03-15T12:30:30","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=224975"},"modified":"2022-03-15T11:43:44","modified_gmt":"2022-03-15T11:43:44","slug":"are-you-exposed-how-chainalysis-cracked-the-wasabi-bitcoin-privacy-wallet","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/are-you-exposed-how-chainalysis-cracked-the-wasabi-bitcoin-privacy-wallet\/","title":{"rendered":"Are you exposed? How Chainalysis cracked the Wasabi Bitcoin privacy wallet"},"content":{"rendered":"

Although the Bitcoin network is a permanent open record of transactions, many third parties have built privacy functionality on top of it. One such service is Wasabi Wallet<\/a>, which uses a mixer protocol, Tor integration, and is free to use and open source.<\/p>\n

Mixers work by “mixing” transaction inputs and outputs together so that the relationship between senders and receivers isn't clear. Thus a degree of anonymity is provided by making it difficult to trace the flow of funds.<\/p>\n

In her recently released book Cryptopians, which details the early days of Ethereum, journalist Laura Shin<\/a> claims Wasabi Wallet was the weak link, resulting in blockchain data analysis firm Chainalysis tracing stolen funds from The DAO hack of 2016.<\/p>\n

How did hackers exploit The DAO?<\/h2>\n

Decentralized Autonomous Organizations (DAOs) refer to a decentralized fund in which token holders govern how it is run through proposals and voting. There is no hierarchical structure, only holders making decisions upheld by smart contracts.<\/p>\n

The first DAO created was called The DAO<\/a> and set up by Slock.it<\/a>, which Blockchains LLC acquired in June 2019<\/a>.<\/p>\n

It launched in 2015 to raise funds for Web3.0 projects and startups. As the first of its kind, it became a smash hit, attracting 12 million ETH of investment ($150 million at time, but $30.2 billion today).<\/p>\n

However, attackers managed to exploit a recursive calling vulnerability<\/a>, meaning they could withdraw funds without the withdrawal being reflected in the account balance. This enabled hackers to set off a loop of withdrawals indefinitely, resulting in the loss of 3.6 million ETH ($50 million at the time, but $9 billion today).<\/p>\n

Some of the stolen funds were sent to a Wasabi Wallet for washing. But a flaw in the protocol setup meant Chainalysis could deanonymize the mixer functionality using open source methods.<\/p>\n

How did Chainalysis “break” the Bitcoin privacy Wasabi Wallet?<\/h2>\n

Shin claims this was possible because Wasabi Wallet failed to fully implement the ZeroLink protocol.<\/p>\n

ZeroLink<\/a> claims to fully anonymize Bitcoin transactions using a defined pre-mix and post-mix mixing technique. Pre-mix functionality is said to be easily implemented “without much overhead.” However, adding post-mix functionality to a wallet was an altogether more complex affair.<\/p>\n

“Post-mix wallets on the other hand have strong privacy requirements, regarding coin selection, private transaction and balance retrieval, transaction input and output indexing and broadcast.”<\/p><\/blockquote>\n

Instead, it's claimed<\/a> that Wasabi Wallet opted for a “peel chain” method that offers fewer protections, resulting in Chainalysis being able to trace transactions from the DAO hack.<\/p>\n

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Fun fact. Wasabi \ud83c\udf4c never implemented ZeroLink. They didn't even come close to doing so. Nopara dropped the ball early on and went for the easy out: a peel chain. Chainalysis runs rings around Wasabi \ud83c\udf4c. pic.twitter.com\/bLmyDt7qip<\/a><\/p>\n

— TDevD [No KYC, no T&C, no \ud83c\udf4c] (@SamouraiDev) February 23, 2022<\/a><\/p><\/blockquote>\n