Anonymous Crypto-currency Arms Race

Hidden For All to See

Bitcoin allowed less friction in deep web commerce, but most importantly, it was run by computer code and not people. Government sanction (regulated) currencies and commerce provided a stiff barrier to the online black market, even people pro black markets provide a risk. Pre-Bitcoin digital currencies like Liberty Reserve, and E-Gold, did not mind people using their currencies to trade drugs and other illicit goods. The government, on the other hand, would not allow this Laissez Faire attitude. The government forced both businesses to either shut down or comply with the state’s law. With Bitcoin, there is no one for the state to point guns at. Bitcoin’s run free without the burden of gatekeepers of any kind.

Bitcoin was an amazing improvement, but it had its issues. Early, and until quite recently, Bitcoin was synonymous with financial anonymity. In some ways, it is more anonymous. The decentralized nature of it allows use of the currency without having to put your name, address and other private info in some database. On the other hand, the public blockchain leaves a trace of all transactions that can be tracked to the very beginning. Some have tried make shift solutions, like mixers, Tor, and schemes and technology. Some of practices and technology provide a decent level of anonymity but they are time consuming and complicated. Technically knowledgeable people can use Bitcoin anonymous but for the average person, it is well above their heads. For deep web, that is growing and getting more normal people using it, a simple but effective anonymous crypto-currency is must for the deep web’s further growth and maturity as a market. A simple but effective anonymous crypto-currency could have the same effect Bitcoin had the deep web.

The other issue, is a lot of interest and res reach. A lot of these practices and technologies have not been tested thoroughly. When, these technologies are analyzed, they have tendency to fail. This was seen, when, security researcher, Kristov Atlas proved he could de-anonymized transactions “mixed” by the very popular Coinjoin. The one thing that is true for all technologies and schemes to make Bitcoin anonymous, is that they are after thoughts. Sadly, Bitcoin wasn’t designed with anonymity in mind and thus all potential solutions are awkward fits.

This has left a hole to be filled. As Bitcoin becomes closer and closer to being regulated and controlled, some Bitcoin users have disdained themselves from the currency. They are looking for a more subversive currency. Political dissents, black market businessmen, and privacy minded individuals are looking for a currency better than Bitcoin. One that meets their needs of anonymity, ease of use, and regular transactions.

Beyond Bitcoin

As Bitcoin’s lack of anonymity have become more and more well know, a urgency has emerged.   At first, technologies surfaced which would work with the existing Bitcoin system, but these, such as ZeroCash and Coinjoin have faced issues. Then Altcoins, such as Darkcoin emerged, declaring a new currency must be made to achieve financial anonymity. While, Darkcoin pioneered the idea that a currency from scratch was needed, but Darkcoin itself, didn’t provide anything new. Since Darkcoin many anonymity focused Altcoins have popped up that are trying to new ways to anonymize crypto-currency transactions. This has resulted in an anonymous crypto-currency arms race. Communities have sprung up around each coin and ultimately the idea itself. Competition between the various currencies has caused innovation at a rate never seen before. No single currency has become the first truly anonymous currency but many currencies are fighting to emerge as the victor.

A truly anonymous crypto-currency would be a world of difference. Bitcoin’s lack of a central controller already allows for a more subversive currency but is still vulnerable to attacks from various states. An untraceable digital currency would allow online black market commerce to roam freely and at a rate of popularity we have not seen before. Though, the deep web is huge, it is just a tiny section of the black market at large. With each story about Silk Road, people convert from the physical drug trade, to the digital drug trade. They see more variety of drugs, and higher quality. They see more barriers to their personal protection from their dealers or police. What remains iffy, is the finical anonymity of Bitcoin. With a digital currency that is proven and built for anonymity, the floodgates of new users will open.

While developers scramble to get coins equipped with secure and anonymous features to present to the market at large, and raise above fellow anonymous crypto-currencies – all these coins come from a handful of technologies – CryptoNote, ZeroCoin/Cash, and decentralized mixing of various sorts. The differences between the technologies are huge, and could be mean life or death for these coins in the highly competitive world of crypto-currencies.

CryptoNote

CryptoNote is a open source protocol, that has been used to build numerous crypto-currencies off of. The protocol was initially launched in July of 2012, about 3 years after Bitcoin was first lunch. CryptoNote wanted to improve upon Bitcoin, with simpler and more efficient protocol, but most importantly, greater anonymity. Bitcoin’s transparency of bitcoin’s blockchain bothered them. They felt for a crypto-currency to be successful it needed greater privacy. As a result, CryptoNote’s anonymity came be narrowed down to two things – ring signatures, and sleath addresses

Ring Signatures

Ring signatures go beyond simply sharing coins, and obstructing the coins involved in the transaction. Ring signatures actually share each other’s identities, making it much harder to know who is involved in the transaction. In a normal transaction there is two people or keys involved – the receiver, public key, and the sender, private key. In ring signatures there is six keys involved. As with any crypto-currency scheme, every participant has a private and public key. What ring signatures does is complicates the transaction by adding “senders” and “receivers” to the transaction. As in the example below, instead of the transaction being between Bob and Romulus, the addition of Alice, Carol, Dave, and Remus muddles the transaction. You don’t know if Bob sent funds to Romulus, or Remus. Alice could have sent funds to Romulus, and Bob sent funds to Remus. Or Bob could of not been involved at all and it Dave and Carol are the people who sent the funds. The private and public keys of random people are used in each transaction. Private keys, still working in a one way function fashion, are unseeable to the public, and don’t restrict the person sending the funds. It is just a simple requirement to obscure the transaction.

Unlinkable Transactions

CrypotNote anonymity is amazing for this very reason. If someone is looking at the blockchain, they wouldn’t be able to tell you who, is who. That in itself is major improvement over bitcoin, but CryptoNote doesn’t even let someone look at it. CryptoNote uses stealth addresses, stopping anyone from seeing your balance or what your public address actually is.

With sleath addresses you create one public address, from that public address many onetime public addresses are created. Anyone watching the blockchain would only be able to see the one time public address, but that is worthless for any investigator. That one time address will never be used again. In a crypto-currency without sleath addresses, if someone is trying to keep their anonymity, they will have to make a new address for each transaction, to avoid linking various addresses. Users start to lose their anonymity when they send funds from one of their addresses, to another address. That creates a link between them, but with sleath addresses that doesn’t happen, and you don’t have to go through the tiresome process of creating a new transaction each time. It does it automatically.

ZeroCash/Coin

ZeroCash, originally ZeroCoin, is a very complex beast. With its developers hailing from the halls of academia, it is one of the most well-funded crypto-currency developments out there. It has been around for many years, and has not made stable, usable version yet. That hasn’t stop more hungry coin developers, like Anoncoin, to implement ZeroCoin’s open source technology.

ZeroCoin was originally a plan to create a decentralized mixer over the bitcoin blockchain. ZeroCoins were simply, what the developers referred to as basecoins, and bitcoins were the actual currency involved. This plan was scrapped after the ZeroCoin developers talked with the Bitcoin developers, and discovered there would be technical problems. ZeroCoin was burned to the ground, and ZeroCash rose out its ashes. ZeroCash was created in order to create a currency built around the ZeroCoin’s decentralized mixer. Currently, there are also problems with that project, as in its current form it would require a third trusted party to start the network.

While the semantics of ZeroCoin and ZeroCash are different, the underlying transaction anonymity is the same, and boils down to zero knowledge.

ZeroKnowledge Transactions

ZeroCoin/Cash transactions work on the cryptographic concept, zero-knowledge. Zero Knowledge allows people to transact without letting the person they are interacting know their public address, or any other information. The information that is needed for the transaction, such as the public address, is encrypted and hidden from both parties. Only the protocol itself, can decrypt and look at the information needed. That information lives in a world that only the protocol itself can reach.

Other Coin’s Anonymity Schemes

These two protocols are used by several coins, but beyond these two protocols there are numerous anonymity schemes made up by individual coin developers and used solely by that coin. In part 2, I will be looking at the leading anonymity focused crypto-currencies. While describing each coin, if the coin has unique anonymity scheme, not based on these, then I will explain it. Stay tune for part 3 and see the actual coins competing to win the arms race.

It takes much more than a solid protocol to become a successful anonymous crypto-currency. Many of these schemes require large adoption of the coin, in order to work. Plus, merchant adoption, good press, and a solid developers are key elements. Here are the current top players in the space.

Darkcoin

  • Price Per Coin: $ 2.94 (At the time of writing this article)
  • Market Capitalization: $ 13,817,985
  • Volume: $ 99,134
  • Available Supply: 4,696,337 DRK
  • Mining: Proof of Work

Darkcoin in the past was a coin of a great suspect. It rocketed in adoption and market capitalization, but failed to really bring any anonymity to the coin. Worse of all, it was closed sourced, and smelled strongly of scam. Besides that, it abandoned its plans to implement ring signatures and instead focused on a mixing scheme. Mixing technology has proven to be insufficient in past. It is a coin that a lot of people use, and has the highest market capitalizations out of the all anonymity focused crypto-currencies.

Recently, it has open sourced its code, updated its mixing technology, and has been reviewed by respected security researchers. This has cleared any suspicions and cemented its lead in the anonymous crypto-currency space. It is one of the most widely used anonymity crypto-currencies, and is the most liquid as well. Though, its development has been slow, and has experiences many bumps in the road – it is the most solid and widely used anonymity focused coin out there.

BitcoinDark

  • Price Per Coin: $ 4.40 (At the time of writing this article)
  • Market Capitalization: $ 5,222,490
  • Volume: $ 14,171
  • Available Supply: 1,185,798 BTCD
  • Mining: PoW/PoS

Out of all four, BitcoinDark has the most to prove. BitcoinDark markets itself, as you can plainly see, as the Darkcoin of Bitcoin. In the whitepaper, that they call Darkpaper, it describes faults with all current anonymous crypto-currency schemes. Saying Darkcoin’s mixing is insufficient, and CryptoNote’s ring signatures are too much of a burden on the blockchain. BitcoinDark’s solution is something that is still being tested, but is called,”Teleport”. Teleporting is a unique approach to crypto-currency anonymity. According to their “Darkpaper” is the act of sending funds off the blockchain through telepods. Telepods are packets of information containing everything needed to make a transaction. Allows the person who receives the telepod to be able to send funds from that address, but the funds stay in wallet of the person who sent the telepod. That way it there is no linkage between the two people.

Telepods are sent off the blockchain by massaging the telepod to the person you want to send the funds to. The whitepaper suggests you to immediately send the BitcoinDark if you do not trust the person who sent the telepod. Apparently there is no safeguard against the very possible reality that person who is sends the BitcoinDark removes the funds from there that account and send the funds to other another address. It gets really confusing, as the Darkpaper goes on to say, these telepods can be sent to person after person. Making it very hard to know who has it originally, and thus impossible to know whether that person is trustable or not. Also, the whitepaper says that with a VPN or Tor the first two people, the person who creates it and person who sends it, won’t know anything about each other, making it very unclear to me how you are suppose to know that the funds that you can send are really there. It is also unclear if the person who has the telepod has the private key, and move other funds in the wallet.

I have a lot of suspicion of BitcoinDark. The coin promises a lot, including anonymous debit cards, dividend ends for holders of BitcoinDark in BItcoin, but it hasn’t produce that much yet. It is also has a very high market capitalization, among altcoins. BitcoinDark might not be a scam, but it deserves a lot of suspicion until it proves otherwise.

Monero

  • Price Per Coin: $ 1.22 (At the time of writing this article)
  • Market Capitalization: $ 4,566,209
  • Volume: $ 76,320
  • Available Supply: 3,748,663 XMR
  • Mining: POW

Monero works off the very strong anonymity of CryptoNote. If you are not familiar with the anonymity features of CryptoNote, it comes down two things – ring signatures, and sleath addresses. To learn more about these things, read part two of this series. Monero is a very strong in the department of anonymity, but ring signatures put a lot more stress on the blockchain, as they are about twice the size of a regular transaction. They also take longer than a regular transaction which hurts it ability to be used in daily commerce.

In terms of actual anonymity, it is one of the few coins out there with a stable and proven anonymity scheme, despite some limitations. It is working on I2P integration, which would help add to the anonymty of the coin. Monero, like a lot of anonymous focused altcoins, does not have very good website, or marketing. That is likely one of the reasons why Monero isn’t being adopted by more people. BitcoinDark might end up beating Monero in terms of anonymity, if Teleport is successful. Currently it does not have any anonymity features in place, but is far ahead of Monero by market cap. The reason being, they have much better marketing.

AnonCoin

  • Price Per Coin: $ 0.792956 (At the time of writing this article)
  • Market Capitalization: $ 1,016,240
  • Volume: $ 26,573
  • Available Supply: 1,281,584 ANC
  • Mining: POW

Anoncoin is the current underground favorite. It has a team of anonymous programmers, and economists. It is openly for the darknet markets, the elephant in the room for most anonyous coins. It has a small, but faithful fanbase. Tis currently last, among the 4 coins in market capitalization, but its volume is almost double of BitcoinDark’s. A very interesting and powerful sign that people are actually using this coin. There is good reasons why they are. The coin is highly developed. The devs get what they promise done, and that has lead to a rather robust coin. You can run Anoncoin through Tor or I2P, which masks your IP. Anoncoin is currently implementing their version of the ZeroCoin protocol. That is the now defunct decentralized mixer project that I described in greater detail in part two. Zerocoin has one of the highest levels of anonymity out there, but it fails to provide true anonymity because it needs a trusted third party to start the currency. That is a point of failure that is disastrous for software, but Anoncoin’s developers have found a work around and soon they are going to release their version of ZeroCoin, that doesn’t require a third party to set up.

The coins lacking market cap probably has very little to do with the technology behind the coin. It has a really good dev team who has a track history getting things done. Marketing for this coin is at poor, at best. It really is non-existent. Anoncoin has gotten very little press, and their blog is not regularly updated. Important, and basic info about the coin is harder to find, than it should be. Despite that, its devs are pretty active on reddit, and IRC, mustering a strong community. While it has a core group of users who truly believe in the coin, it is not too friendly to the mildly interested new user. A greater focusing on marketing can take this coin from position 30 on coinmarketcap.com’s list, to 20 or 15 easily because the technology and dev team is very solid.

The Arms Race

Who will win these arms race? That is left up to the market to decide, but what we seeing from this is a real market emerge for anonymous crypto-currency. This competition has resulted in many innovations in crypto-currency anonymity, and is bringing these ideas to life. These currencies are making a future of financial freedom, and privacy possible.

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About chainsoff.

Middle East MEDIA SCOPE, LTD Middle East MEDIA POST, LLC MEMBER@ ADVISORY BOARD, DEFENCE UNLIMITED.COM (CANADA) ASSOCIATE@TheIntelligenceCommunity https://www.revolvermaps.com/?target=enlarge&i=0settggap27&dm=4
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