Unfortunately Bitcoin is not as private as many think or thought it would be. Bitcoin transactions can be traced throughout each and every transaction that is ever made due to its public ledger system or “blockchain“. Any Bitcoin which had been used in illicit purposes can be traced unless the users of those coins go to great efforts to “mix” the coins in a way to obfuscate their identities and ownership. Even then anonymity of Bitcoin is trivial to compromise for a determined adversary. The ability to track nearly everyone’s bitcoin transactions has lead to the effort in bringing anonymity to digital currency to protect consumers, businesses and transactions from passive and even targeted surveillance.
Your plastic credit card is another form of centralized digital money and it tells everything about the purchases you make, where you made them, to whom you made them with, it also tells a lot about who you are. Everything is tracked, traced and stored away and you have no control over it. This is a coveted trove of your personal meta-data to be bought, sold, traded and stolen. It is designed to target you for what ever reason by who ever possesses it. Perhaps you and your purchase patterns will be subject to the current societal norms and social tolerances? They already are being scrutinized for “terrorist” related activity, what is next? In any case, your meta-data is out of your control explicitly and you have no control to mitigate your personal attack surface when using centralized banking digital fiat cash. But then if we look at paper currency, in most cases it cannot be traced and can be anonymous and private. It allows individuals to make person to person transactions without anyone else knowing about it if needed. This level of privacy is the norm and mostly taken for granted. Can this be replicated with the current digital currencies? That is the goal.
Today media and powers within governments try to vilify paper currency when it is convenient to fill a narrative. This could be the call for more centralized government controls and what usually follows is the same narrative that: currency is the the obvious preferred payment mechanism for illicit activity. Therefore the provided answer is for government to place more controls on it. Many even call for lower denominations under the guise to make it harder for criminals to make illegal transactions. This slippery slope of creeping capital controls and thought will in the end only lead to an eventual cashless society where only government sanctioned and monitored transactions are the only legal means to engage in commerce. This will further lead to only government approved businesses able to legally operate and everyone of them subject to the current winds of societal norms and social tolerances. At the same time, government wants to know about every dollar changing hands to assure they can levy taxes on anyone for anything at anytime. Perhaps this is why some governments want to create their own form of fiat cryptocurrency only they control, and eventually making all others illegal and labeling them counterfeit.
There is a need for decentralized peer to peer currency which cannot be controlled by centralized powers. Since the world left the behind the last vestiges of the gold standard in 1971, the global economy has been set adrift. The technocrats try to assure us that they can manage the economy much more efficiently than the “obsolete” gold standard, and yet a continual series of crises suggest otherwise. All you have to do is look at global economic collapse and hyperinflation scenarios which are playing out in countries like Venezuela and Greece. Cryptocurrency values are rising against government issued fiat and even worth more than gold in some cases.
So can we achieve anonymity with cryptocurrency? It depends on who is trying to look.
If someone needs an absolute protection against the state, few of today’s cryptocurrencies may only buy you some time. Once you research the latest leaked facts of the already compromised hard disks, BIOS chips, SIM cards and other basic hardware components this would seem to make anonymity a moot point. All systems formed on this basis should be considered vulnerable and thus insecure from power on. With quantum computers now becoming a reality for government code breakers and the tech giants, the encryption standards of today will be in need of a replacement with quantum resistant encryption. Perhaps now we should start implementing encryption which currently is considered hardened against quantum attack like NTRU. When current encryption standards are broken or weakened enough everyone who had previously relied on an anonymous currency may be exposed along with all previous transactions retroactively unmasked. This may be something to consider before betting on complete anonymity while using a digital currency.
Here is a list of a short list of digital currencies which offers various levels of anonymity and privacy not seen with most in the cryptocurrency market today:
Monero is a well known competitor in in the realm of cryptocurrencies. It was derived from Bytecoin, which was an early altcoin. Monero claims levels of anonymity by using a method called CryptoNote which utilizes ring signatures for untraceable payments. The method uses stealth addresses mixed with one-time ring signatures, this works to cloak transactions. This method is similar to group signatures, but there is no way to reveal the identity of a single user within the group of users. Monero says that it has improved upon the CryptoNote feature and the currency offers an opaque Blockchain that is analysis resistant. You can read the white paper on Monero’s confidential transactions.
- Ring signatures hide the sending address.
- RingCT hides the amount of the transaction (currently enabled by default and mandatory by the end of the 2017).
- stealth addresses hide the receiving address of the transaction. A planned fourth way conceals the origin node for transactions in I2P, and the Kovri router that would allow for this and is currently in development. Fancy way of saying the blockchain itself is encrypted.
Dash “Digital Cash” (formerly known as XCoin and Darkcoin) is an open source peer-to-peer cryptocurrency that offers instant transactions (InstantSend), private transactions (PrivateSend) and token fungibility. It was rebranded from “Darkcoin” to “Dash” on March 25, 2015. Dash operates a decentralized governance and budgeting system, making it the first decentralized autonomous organization. Dash uses a chained hashing algorithm called X11 for the proof-of-work. Instead of using the SHA-256 (from well-known Secure Hash Algorithm family) or scrypt it uses 11 rounds of different hashing functions.
Zcash uses zero-knowledge proofs to provide anonymity for its users. A zero-knowledge proof serves to allow for both the verification and the privacy of data at the same time. In the case of Zcash, this technology is used to encrypt the sender and recipient addresses, as well as transaction amounts. At the same time, all network transactions are validated by the blockchain, just like Bitcoin. To get a bit more technical, Zcash uses zk-SNARKS to achieve this goal. Every transaction can contain a string of data provided by the sender – the zero-knowledge proof – as well as encrypted transaction data. This implementation also means senders can’t generate a specific string unless they own the spending key for that address. Moreover, the input values of both input and output need to be equal.
It is important to keep in mind this feature does not provide utter anonymity while using Zcash. It is still possible for blockchain analysis to correlate information through the public transactions. Moreover, IP addresses of users are not obfuscated unless they use a routing service themselves. Personal identifiers linked to public data are not hidden by this protocol.
Source: The Merkl
PIVX (Private Instant Verified Transaction), is an open source cryptocurrency based on a clean fork of DASH v0.12.0.x core. The PIVX ecosystem works similar to Dash, as users can run a masternode to support the network. Running a PIVX masternode requires users to lock 10,000 coins into a wallet, compared to Dash’s 1,000 coin threshold. This also means a large part of the available PIVX supply is currently locked up in masternodes.
PIVX does not require any resource intensive hardware for mining like Proof of Work cryptocurrencies. Instead, you can simply earn PIVX by holding some PIV and keeping the wallet online due to it utilizing the more efficient Proof of Stake algorithm. This means that any hardware that can run a wallet will allow the user to start earning PIVX by staking and also keep the network secure.
Source: The Merkl
Other privacy enhanced cryptocurrencies worth mentioning: