Exploring Covert Channels in Bitcoin Transactions

Abstract

We explore the existence of covert communication channels in the Bitcoin system. Our attention is paid to the channels whose usage is hard or impossible to detect. Seven covert channels are considered. Some of them have already been known: there are two low-rate channels obtained by manipulation with parameters of cryptographic primitives used to construct a transaction, a channel created by the use of unspendable outputs, and digital signature algorithm (DSA) channel that hides a message in the cofactor used in the signature creation. The new channels that, to the best of our knowledge, have not been considered in the literature, are based on permutations of transaction inputs and outputs, and on distribution of payments. We describe the construction of all channels and characterize their capacity to transmit hidden data. Almost all channels can be used simultaneously and independently and provide wide opportunities for undetectable covert communications over the Bitcoin blockchain.