What is a dust attack? A Beginner's Guide

What is a dust attack? A Beginner's Guide

What is Dusting Attack

This scam owes its name to the actions of criminals. They send their potential victims tiny amounts of coins to their wallets and these "pennies" are the dust. Usually this penny seems to be the remainder of another amount that has already been transferred. The amounts are so small that wallet owners often ignore them, but after a while it turns out that all the assets have disappeared from the wallet. But how can intruders find out the owner's identity and wallet details with a simple transfer?


How Dusting Attack undermines anonymity

To answer this question, we need to look a little deeper into how a bitcoin transaction works. Bitcoin is an open and decentralized network in which anyone can participate by creating an address. There is no need to provide personal information to establish an address where the owner can receive and send coins. Although transactions can be viewed by everyone, it is impossible to determine the identity of participants. And this is quite true if the currency holder creates a new address each time for a new transaction and does not use it anywhere else. But most users link their blockchain addresses to their exchange accounts in one way or another - and that gives attackers a loophole to trace the owner's identity. If this happens, you can expect a targeted phishing attack or demands to pay to remain anonymous.

For this reason, there are wallets on the Bitcoin network as an additional privacy feature.


Bitcoin wallets and what you need to know about them

Bitcoin wallets can generate different addresses by the hundreds and manage them simultaneously. A wallet generates multiple private keys and addresses using a seed phrase, a sequence of several different words, usually 12 or 24. With these words, deterministic wallets can get a large number of private keys. That is, each time the wallet is used, a new address is generated to receive the transaction, and then that address is received by UTXO.


UTXO is one of the key concepts of bitcoin

UTXO, short for "Unspent Transaction Output," is one of the key concepts of Bitcoin. However, very few people are familiar with this term. So let's understand it in more detail.

UTXO can be thought of as a bill or a coin. When you make transactions, you accumulate coins (UTXOs) of different denominations in your wallet. This is, in fact, ordinary change, only digital. Since the wallet has an infinite number of addresses, they all store this "change". Each address has a different UTXO, and it's almost impossible to understand that these addresses are somehow connected. But the purpose of Dusting Attack is to find out exactly that.

The attacker is trying to create a directory of all the addresses your wallet manages. If he succeeds, he can easily track your actions on the blockchain. The privacy feature through the wallet will no longer work.

But how exactly does an attacker manage to create such a directory using a dust attack?


How Dusting Attack Works

To undermine the protection provided by the wallet, an attacker sends a UTXO to one of the addresses. As explained above, these are usually very small amounts, which is why they are also called dust and are often ignored by the recipient.

This is where the fun part comes in. Often, to pay for transactions, the system uses UTXOs as an asset. Since the amount at one address is too small - the wallet combines different UTXOs with each other to increase the amount. It also uses different addresses where the corresponding UTXOs are stored. Thus, the wallet creates a transaction through multiple inputs from different addresses.

The few coins the scammer sent earlier will also be used as UTXO, which means he just has to wait for the wallet user to pay for the transaction with "change" from different addresses. From that point on, all the addresses used are tracked, which will eventually lead to the disclosure of an entire address network. And the declassification of the owner's identity is just a matter of time. Registering for a cryptocurrency exchange requires a lot of personal information. That's why when transactions of funds between addresses in blockchain and wallet on exchange start, an intruder can establish a direct link between them.


Wrapping up the review

So, today we found out what a dust attack is and how it works. It is impossible to completely protect yourself from these malicious actions, although developments are being made every day to prevent such situations. Until they are implemented, it is recommended to keep track of sudden small amounts that appear from unknown sources and keep the bulk of your assets in hardware wallets. Read more about Crypto with Finance Guider