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How will privacy change the ETH ecosystem?

Secure cryptocurrencies, commonly known as “private coins,” allow users to completely secure their transactions and addresses.

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When Bitcoin brought cryptocurrencies to the world, privacy is an indispensable, basic and important attribute. Of course, we know that it is now easy to associate IP addresses and usernames with Bitcoin and ETH addresses thanks to metadata. In addition, because all transactions are public, users also lose some security features.

There are three main aspects of privacy in the cryptocurrency space:

  • The identity of users performing an operation using cryptocurrencies,
  • Transactional data specific to the activity the user is performing,
  • The blockchain status is formed by combining the information of all transactions.

To thoroughly understand the above issues, the following questions need to be answered:

a) Do I know the identity of the user?

b) Can I view the details of the transaction sent by other users?

c) Can I view all blockchain transaction data and determine which address has money?

If you can answer these questions, you can determine which cryptocurrencies are confidential and private.

Private coin

Shortly after Bitcoin was developed and released, a number of secure cryptocurrencies emerged with the sole goal of allowing users to trade freely, privately, and completely securely. The 5 main cryptocurrencies currently used are Monero, Zcash, Dash, Verge and Grin. Here is a brief analysis of the above cryptocurrencies:

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* Bitcoin is for comparison only. It is not a private coin, but there are many technologies that allow certain levels of privacy

Security technology

It would be helpful to take privacy approaches in cryptocurrencies using the techniques they use. There are many security technologies in cryptocurrencies with completely different goals and working mechanisms. The main security technologies used by private coins are as follows:

  1. Layer 2 protocols such as the Lightning Network, status channels, or Plasma allow small groups of users to trade “off-chains” with each other. This means that all intermediary states will be stored between those users and only periodic summaries of state changes will be written to the main blockchain. Therefore, intermediate states are invisible to external observers because they never appear on the main blockchain. Of course, the Layer 2 protocol itself can have different levels of privacy for off-chain states among participants, so this idea is a comprehensive security technique.
  2. Ring Signatures receive the inputs and outputs of different transactions and combine them into a single large transaction to mask links between sender's and recipient's addresses. Monero is one of the coins that uses Ring Signatures to tamper with transaction information.
  3. TOR uses multi-layer Onion routing as a mechanism to hide user IP addresses. This technology is used by private coins like Grin and Verge.
  4. CoinJoins is a mechanism that allows the aggregation of transactions from multiple senders into a single transaction, similar to Ring Signatures.
  5. Zero Knowledge Proofs refers to data that represents knowledge about a piece of information without disclosing it. When used correctly, this encryption technique can ensure both the privacy of transactions and the health of blockchain. The cryptocurrency that uses this technique is Zcash.
  6. Mimblewimble has security transactions that allow public verification of transactions without revealing any important details such as amount or address. The technology also uses CoinJoins and Dandelion, an improved rumor network that contains increased security mechanisms. It uses hops between nodes before publishing transactions to neighboring nodes. Mimblewimble is the underlying technology of private coins like Grin and Beam.

Thuy Ngan

Bitcoin Magazine | Toshitimes

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