Cross-Layer Deanonymization Methods in the Lightning Protocol.

Bitcoin (BTC) pseudonyms (layer 1) can effectively be deanonymized using heuristic clustering techniques. However, while performing transactions off-chain (layer 2) in the Lightning Network (LN) seems to enhance privacy, a systematic analysis of the anonymity and privacy leakages due to the interaction between the two layers is missing. We present (Please, find the full version of this paper with appendix at https://arxiv.org/abs/2007.00764.) clustering heuristics that group BTC addresses, based on their interaction with the LN, as well as LN nodes, based on shared naming and hosting information. We also present linking heuristics that link \(45.97\)% of all LN nodes to \(29.61\)% BTC addresses interacting with the LN. These links allow us to attribute information (e.g., aliases, IP addresses) to \(21.19\)% of the BTC addresses contributing to their deanonymization. Further, these deanonymization results suggest that the security and privacy of LN payments are weaker than commonly believed, with LN users being at the mercy of as few as five actors that control 36 nodes and over \(33\%\) of the total capacity. Overall, this is the first paper to present a method for linking LN nodes with BTC addresses across layers and to discuss privacy and security implications.