The Race Towards Truly Anonymous Cryptocurrency Is On

The Race Towards Truly Anonymous Cryptocurrency Is On


Anonymous cryptocurrency is in demand, and there are concerted efforts on multiple fronts to make it a reality.

For instance, the privacy-centric alternative cryptocurrency, Monero, has enjoyed monumental price gains as understanding about Bitcoin blockchain transparency has become better understood. The digital currency uses an amended version of Bitcoin’s proof-of-work consensus algorithm called ‘proof-of-work-anonymous.’ Notably, Monero gained popularity as several darknet marketplaces experimented with the digital currency.

Zcash seeks to privatize transactions via Zero Knowledge Proofs. “Zcash is a project to create a new currency for the Internet, inspired by Bitcoin,” founder Zooko Wilcox told the public. “The improvement that we are adding is privacy. We have made scientific advances in the underlying mathematics, and built a working, privacy-preserving variant of the Bitcoin software.” Then, there’s Tumblebit.

“Tumblebit serves to scale the volume and velocity of bitcoin-backed payments,” explains the Tumblebit white paper. “Today, on-blockchain bitcoin transactions suffer a latency of ten minutes. Meanwhile, Tumblebit payments are sent off-blockchain, via the Tumbler, and complete in seconds.” Segwit, a proposed soft fork for the Bitcoin protocol, could also lend itself to increased Bitcoin privacy, as well, if it is activated by the network.

Also Read: Some Blockchain Tokens are Securities, Researchers Find

Even academia is on the case of anonymity in Bitcoin. Recent papers have demonstrated that the P2P network running Bitcoin is also prone to de-anonymization attacks. In particular, when users broadcast their transactions over the network, their public keys can often be linked to their IP addresses.

This effect is not entirely obvious, since the broadcast is randomized. “Doing something in a random manner does not mean you can’t be detected as the source of a transaction,” says University of Illinois professor Pramod Viswanath. “The reasoning is subtle, but patterns arise out of randomness that is symmetrical.”

The Race Towards Truly Anonymous Cryptocurrency Is On

For example, the picture on the right illustrates how the Bitcoin network currently spreads transactions over the P2P network; the black dot represents the true source. By collecting metadata, the adversary can guess that the true source was the black dot, which lies in the middle of a “ball” of nodes that have seen the transaction.

A team of University of Illinois researchers, including Ph.D. student Shaileshh Bojja Venkatakrishnan, postdoctoral researcher Giulia Fanti, and professor and Zcash advisor Andrew Miller, recently released a proposal paper addressing this problem, called ‘Dandelion: Redesigning the Bitcoin Network for Anonymity.’ The paper introduces a new networking policy for Bitcoin that makes network-based deanonymization attacks more difficult.

Towards a New Bitcoin Network Structure

The Race Towards Truly Anonymous Cryptocurrency Is On

“We propose for Bitcoin to enforce a certain structure among the nodes in the P2P network, so they will forward connections in a structured fashion that breaks the previous symmetry,” explains Dr. Viswanath, for whom anonymity has been an area of research since 2013. “Bitcoin can impose an additional transaction structure to its peer-to-peer network and change whom is connected to whom.”

The central theme behind Dandelion is asymmetry. Instead of sending transactions to all of one’s neighbors on the network, each transaction is first relayed a few hops, and then broadcast by a node that is not the true source. The spreading pattern looks like a dandelion: the stem represents the initial relays, and the seed head represents the eventual symmetric broadcast. Surprisingly, this simple solution provides strong theoretical anonymity guarantees against certain adversaries.

The researchers’ work aims to understand Bitcoin’s networking stack, which has received less scrutiny than the blockchain. Nonetheless, the networking stack is an important source of vulnerabilities. Dr. Viswanath emphasizes Dandelion is not an ‘end-all-be-all’ solution, but rather a step towards rethinking the Bitcoin P2P network.

“We feel this is needed to make the network more robust against network-level anonymization attacks,” Dr. Viswanath states. “We feel the proposal is simple, and a lightweight change to Bitcoin’s code. This could provide a strong defense against a subset of possible attacks.”

So, while Bitcoin users might not enjoy the anonymity many once believed they did, some of the space’s brightest minds are working on solutions to make it so.

What do you think about the Dandelion network proposal? Let us know in the comments below.

Images Courtesy of Shutterstock, University of Illinois

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  • Tabula rasa

    Very good article. Zcash and Zclassic are indeed the next generation of anonymous coins that should become popular.

  • Patrick Miller

    I would only differentiate the term “payment” from “transaction”. I view these as two similar but separate things when we talk about blockchains. Payments for example, can occur off-chain through a variety of both centralized (exchanges) and soon decentralized networks (lightning-like or other L2 networks).

    There’s a number of problems with zerocash blockchains that became more apparent after their launch, which is how much computational power and memory were required to perform these types of transactions, this was especially the case with Zcash but not so much with Zcoin. It appears Dash is popular because “it just works” even though it’s probably the most un-ideal way to do “anonymous” and instant tx. If Monero had better GUI and mobile wallets it would be clear who the winner is, but it’s clear that JAXX’s recent problems are mostly an issue of the fact that more privacy also makes blockchains much more difficult to build applications for. That’s what happened with Monero’s recent update, it improved privacy and thus made its’ un-trusted privacy centric network harder to build with because of the values needed to check balances and verify transactions couldn’t be accurately determined.

    So, there’s really two additional challenges you didn’t mention: 1) scalability 2) building apps for privacy oriented chains