Privacy of Cryptocurrencies – Pros and Cons

Privacy of Cryptocurrencies – Pros and Cons




The privacy factor in case of blockchain platforms is a little tricky as most of the public blockchains have been designed to support transactions that are transparent and there is the requirement of public (user) verification. So when privacy is considered the developed mechanism has to see that both the elements are retained without any conflict. The decentralized concept of blockchain technology highlights transparency and visibility and ensures security through encryption. If privacy or anonymity is introduced, then it would contradict with the open-source nature of the blockchain.

Tumblers and CoinJoin

The developers had first tried to achieve privacy in the blockchain space through the cryptocurrency tumblers. The process involved a group of people accumulating coins by contributing the same amount and then withdrawing a particular amount that is equal for everyone. As it would be a little difficult to show who contributed which coin exactly, a sense of privacy would be created. But, the main drawback is that you cannot expect the tumbler to not steal the coins or respect anonymity. CoinJoin was used in the Dash platform and is a step ahead of the implementation of the tumblers. The Dash blockchain incorporates CoinJoin mixing, which involves only 3 participants but, here the user’s wallet can be identified if they are not careful with browser cookies when performing transactions. This is mainly because the mixing process only hides the transaction links between the addresses instead of breaking them completely.

CryptoNote and Ring Signatures

Monero and AEON are other cryptocurrencies that focus on privacy and anonymity of the users. Here, the mixing is done automatically and the process can also hide the transaction amounts. It is also said that the anonymity feature increases with time when the outputs are seen as new inputs of new mixes. Scalability issues developed as the transactions volume increased with time as well as the risk of the blockchain becoming losing anonymity feature. Moreover, you will have to run a full node or make a connection to one of them.

CryptoNote currencies like Monero also incorporate ring signatures where outputs of similar transactions are used to form a ring structure such as to hide the real transaction. In this case, you do not need to trust any mixer. Monero had also used RingCT (Ring Confidential Transactions) system that hides the transaction amounts.

Noir and Zerocoin Protocol

The Zerocoin Protocol firstly eliminates the need of a mixer and offers very high anonymity. Other than Noir, Zcoin also incorporates the Zerocoin Protocol. This mechanism is becoming popular as it completely breaks the transaction links by using the zero-knowledge proofs. The previous methodologies simply obscured the real transactions with other transactions. It is quite an ineffective way as one can break through the coverage and see the real transaction data. But, when using a zero-knowledge proof this risk decreases significantly. Implementing a zero-knowledge proof will prevent leakage of any information other than what you want to reveal.

The Zerocoin Protocol functions by allowing you to burn crypto coins that you can later redeem. You will receive brand new coins (Zerocoin spend) when you redeem. No one can access transaction history as there is no transaction history and these coins are similar to the newly mined ones.

Cryptocurrency Noir and its developers

The cryptocurrency, Noir is also focused on making your transactions secure and private without compromising on the core nature of the blockchain. Noir is also focused on the failure of Bitcoin; lack of privacy. The objective is to develop a platform that will allow transaction of cryptocurrencies for your business or to a relative or friend without letting any competitor or enemy knowing about it. The team members of the project include the original Zerocoin project members, and cryptographers at The Technion, MIT and Tel Aviv University. With such an efficient collaboration Noir aims to be the medium for daily transactions. This decentralized digital cryptocurrency is governed by the community and anyone who wants to be in a project of the future can take part.

Noir – a community project

Noir is a community-governed project as it was taken up by the community only once the original developers had left. Now, the team mostly consists of volunteers and developers with an interest in its platform. So, in one sense Noir has been able to do what Bitcoin could not– owned by the community only and privacy. There are also talks of developing a wallet that will enable people to make a purchase in a secure and untraceable way.

Privacy as fear

The issue of privacy in blockchain-based platforms is not just about the difficulty in the process of development. Several cases have been reported where the privacy and anonymity features in the cryptocurrencies have been used for unsavory works like dealing in drugs. It also creates extra work for the regulators and such issues are also not helping them. It can even be said that anonymity introduces fear in the regulators.