The past few months saw the development of some new, exciting privacy technologies for both Bitcoin and Ethereum; Confidential Transactions, Reusable Payment Codes, zk-SNARKs and Ring Signatures. This revives the hope that cryptocurrency will give humanity financial privacy.
In case you didn’t know, privacy and cryptocurrencies are in most cases a tragedy. If you look at Bitcoin and Ethereum, nothing is private at all. That is not an accident, but part of the basic concept of blockchain currencies.
The whole idea of Bitcoin and other blockchain money is that every peer in the network checks the validity of every transaction and every block. To do so, everybody must be able to know who sends how many coins to whom. Everything needs to be fully transparent. Obviously, this is the radical opposite of anonymity and privacy.
Whenever you do business with blockchain money, you should be aware that not only your business partner, your bank, and your government knows what you do; everybody knows. And, worse, thanks to blockchain analysis technologies, everybody does not just know your last transaction, but potentially your whole financial affairs. It’s not so hard to combine blockchain data to merge addresses and inputs to the whole story of your wallet.
There are some cryptocurrencies with advanced privacy, most notable Monero and Zcash. However, there are also some technologies in development to increase privacy on major blockchains like Bitcoin and Ethereum. In this article, we will take a look at these developments.
In short; a new algorithm called “Bulletproof” significantly reduces the size of Confidential Transactions, and Stash releases a mobile wallet for Bitcoin and Bitcoin Cash, which deploys Reusable Payment Codes. Meanwhile, after the Metropolis hard fork, Ethereum is able to hide the content of a contract with the zk-SNARK zero-knowledge proof and to deploy Ring Signatures to break the transaction chain in a contract.
All of these are extremely promising technologies with the potential to provide full anonymity in cryptocurrency transactions…