Blockchains are one of, if not the most, exciting emergent technologies in the world. By tokenizing assets and placing them on an immutable digital ledger, blockchain technology will increase reliability, trust, and efficiency for everyone.
That said, the blockchain is not a cure-all. At least not in its current state. With a lot of projects, protecting ones privacy is still a massive issue. Even the biggest currencies, like Bitcoin, aren’t entirely anonymous if anonymous at all. Transactions on the Bitcoin blockchain are all public and can be traced to their point of origin.
Of course, this transparency is part of the appeal, as the entire point of the Bitcoin blockchain is to be a trustless ledger. It is hard to be trustless without showcasing information. That said, both people and companies who value their privacy are hesitant to utilize Bitcoin. These non-users don’t want others to have access to their financial information.
What can be done about this? Is there a way for these users to take advantage of the blockchain technology without putting their information up on a public ledger? Sort of. There are some projects in the works right now that provide the same functions as standard blockchains but with a focus on privacy. Let’s take a look.
Named after the curse in Harry Potter, MimbleWimble is similar to Bitcoin in that it provides a space for digital transactions to be made on a ledger. However, MimbleWimble utilizes something called confidential transactions. In a confidential transaction system, values are encrypted with random strings of numbers, also known as “blinding elements.” (“Mimblewimble: Private, Massively-Prunable Blockchains.”)
To ensure that transactions are real, the Bitcoin blockchain uses miners that solve complex algorithms to verify that coins aren’t double-spent or that the input and output values are correct. MimbleWimble is similar, but only has two criteria:
- No new money can be created.
- The party who is sending money must prove their key ownership.
This is where the blinding elements come in. MimbleWimble verifies that the sum of the inputs minus the output equals zero. The blinding element ensures that this math is done privately by multiplying and adding in secret numbers.
On top of this privacy, the technology behind MimbleWimble provides the following benefits:
The other main problem with traditional blockchains is scalability. As the number of transactions increases, validation speeds slow down, and the network slows to a halt. Slowdown occurs because there are more transactions than can fit in a block, so the network is essentially overwhelmed.
MimbleWimble streamlines this process by removing non-essential data from the transaction, allowing the network to fit more into blocks.
Because of the blinding elements from earlier, users are given their right to privacy. Participants can choose which information to reveal, with the default state providing almost nothing.
It is almost too late for anyone to enter the mining scene, especially when it comes to Bitcoin. Currently, those with the most expensive computer rigs are on top of the industry, with crypto specific computer parts (ASICs) pushing those users even higher.
MimbleWimble prevents users from using ASIC designed parts. This resistance creates an equal playing field for all miners and allows anyone with a graphics card to participate.
Kovri is a protocol that branches off of the Monero vision. Monero is similar to Bitcoin in that it stores value, but this project focuses on information obscurity.
Like most blockchain based projects, Kovri is open-source. While the team initially focused on it as an addition to Monero, Kovri can now be utilized on nearly any blockchain. The Kovri protocol uses two technologies for privacy: Garlic encryption and garlic routing. (“Github Kovri FAQ”)
A play on onion routing, garlic routing creates an anonymous cover over the traditional network. This cover is made up of a messaging system for peers to communicate to one another outside of the main blockchain. Essentially, garlic routing allows users to hider their location and IP address from the public while still allowing them to participate in blockchain transactions. (getkovri.org)
Garlic encryption is the system within the garlic routing overlay that keeps messages private. This method encrypts the messages and sends them through different proxies so they cannot be traced.
To put it simply, Kovri is a layer that latches on to a network so users can hide their IP addresses and location while making transactions.
Currently, there is alpha test being developed. Once ready, the final version of Kovri will be integrated into Monero.
The Zcash project is a permissionless system that protects the data of users by utilizing zero-knowledge proofs. In cryptocurrency, zero-knowledge technology allows a blockchain to record a transaction while also hiding the sender, receiver, and even the amount of the transaction. It does so by providing a "proof" at the end of the transaction that states validity but doesn't show exactly how. You're supposed to trust that the system is telling the truth. This process is called zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) on the Zcash network.
For zk-SNARKS to work, these operations require a one-time setup or "trusted set-up." A trusted set-up is necessary as the network needs a trusted source that will destroy keys after they are used. Keys are used in each transaction as proof of a valid, private transaction. When two keys are generated, they are linked together by hidden technology so they can only be used together in one transaction. While this works in practice, the Zcash network must still rely on a third-party to get rid of keys. ("Zcash Technology.")
This is where zk-STARKS comes in. The process is similar, but it removes the need for a trusted set-up entirely. With zk-STARKS, the T means transparency. This service doesn’t rely on a master key at all, and it gets rid of a lot of the space-filling technology that zk-SNARKS needs. zk-STARKS is much faster as well, with the process moving nearly 28x faster than a typical zk-SNARKS calculation. (“Scalable, transparent, and post-quantum secure computational integrity.”)
Overall, these privacy systems are a natural progression for blockchain and cryptocurrency security solutions as a whole. Each one serves a different purpose, and all of them are focusing on improving the standard technology the cryptocurrency technology relies on today. As time goes on, these protocols will only improve and may even be implemented permanently into already existing projects.
Remember, privacy/fungibility is a necessity for a currency to function correctly. Don’t be that guy complaining about Facebook controlling their data but utilizing a transparent blockchain for purchases they don’t want people to know about.
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Ben-Sasson, Eli, Bentov, Iddo, Horesh, Yinon, Riabzev, Michael. “Scalable, transparent, and post-quantum secure computational integrity.” Eprint, https://eprint.iacr.org/2018/046.pdf
Buterin, Vitalik. “STARKs, Part I: Proofs with Polynomials.” vitalik.ca, https://vitalik.ca/general/2017/11/09/starks_part_1.html.
“Github Kovri FAQ” Github, https://github.com/monero-project/kovri-docs/blob/master/i18n/en/faq.md.
“Kovri Documentation.” Get Kovri, https://getkovri.org/docs.html.
Poelstra, Andrew. “Mimblewimble: Private, Massively-Prunable Blockchains.” Stanford University, https://cyber.stanford.edu/sites/default/files/andrewpoelstra.pdf
“Zcash Technology.” z.cash, https://z.cash/technology/zksnarks.html.