When one is first introduced to Bitcoin, a bank account number is often used as an analogy for a Bitcoin address. Then you hear that it is bad to use the same Bitcoin address for all your transactions. I was asked by three different people something along the lines of
If I give the same bank account number to different people who want to pay me, why do I need to give out different Bitcoin addresses to different people?
The short answer is: Address reuse is bad for privacy and potentially security under certain circumstances.
Scenario: My salary is paid in Bitcoin (reality). I use a single Bitcoin address for everything (fictional). You and I are friends (fictional, obviously).
The story: Say we have a good time hanging out in a bar. Your significant other calls – it’s time to head home. I cover the bill because you don’t have any cash. Later you want to pay me back. I give you my one and only Bitcoin address to receive payment. You send some coins to it. You want to check if the transaction is confirmed. You look it up on blockchain.info. While you are at it, you click on the address, noticing that every month on the first day I receive the same amount of bitcoins. And the amount isn’t trivial. Bam! It doesn’t take a genius to deduce that it’s my salary.
Explanation: It comes down to the fact that all Bitcoin transactions are public. Given an address, anyone can look up transactions ever sent to and from this address. This is where the bank account number analogy breaks down, because the transaction history of a bank account is private by default.
By giving out a fresh address every time, the payer isn’t able to learn about your past transaction history by looking up the address he/she has in hand.
^^ Your random number generator
The story: Because of your weakass random number generator, your two transactions dated four days apart are signed with the same “random” number. Bam! Some smartpants figures out your private key by staring at your two transactions for long enough. You lost all your bitcoins.
Explanation: Every time you send some coins, a transaction is created and signed with your private key that corresponds to your Bitcoin address. A random number generator is involved to add some randomness to your signature because that makes it secure according to mathematics. By having a single Bitcoin address, all transactions you ever make are signed with the same private key. More than one transaction made with the same key + same “random” number in signature = vulnerability.
By using different addresses as the source of funds for every transaction, you avoid signing more than one transaction with the same private key. So even with a bad random number generator, the vulnerability described above no longer applies.
There you have it, why reusing Bitcoin addresses is bad. Until next time,
Vires in Numeris