What Cryptocurrencies Bring to Privacy in Haven
By: Haven App
Tags: Banking, Blockchain, Technology, Bitcoin, Cryptocurrency

Payments within the Haven app are made using cryptocurrencies. The coins Bitcoin, Bitcoin Cash, Litecoin and Zcash will be available at launch and Ether will be added shortly after. Haven has an internal wallet that stores the keys to control your cryptocurrencies directly on your mobile device.

Why are cryptocurrencies used for payments?

Cryptocurrencies are functionally payment systems that don’t require you to use your real-world identity like credit cards do. They also allow you to control your own funds directly so you don’t have to trust an intermediary with them, like a bank. This separation allows users to enjoy more privacy as a result of their payments not being automatically and necessarily tied to their full identities.

These features are great and can provide more privacy than other payment systems, but most cryptocurrencies aren’t built to guarantee a user’s privacy.

Though a user isn’t forced to disclose their identity, transactions themselves are publicly viewable. If a user originally bought their coins at an exchange (or cashes them out there), which does require identity, then they can be identified by those who have access to that information (e.g. exchanges and law enforcement).

Each individual currency has differing levels of privacy based on their currency implementation. Here is a brief overview of the privacy features of each of the cryptocurrencies supported in Haven.

Bitcoin, Bitcoin Cash and Litecoin

Bitcoin is the original cryptocurrency, and still the most secure, but it isn’t built with privacy in mind.

Transactions aren’t explicitly tied to your identity, but they are tied to a public key, which is effectively a pseudonym.

Every transaction can be seen on the blockchain and if someone is able to link your identity to a specific transaction they can then attempt to link them to other transactions you’ve made.

This process is called chain analysis and it has gotten stronger over time. It is now difficult to use Bitcoin and be confident your transactions can’t be tied back to you by organizations with access to these tools.

You can do a few things to reduce the effectiveness of chain analysis, such as practicing good “hygiene” — or not re-using addresses — not purchasing or selling at exchanges which are tied to your identity, and by using tools designed to frustrate attempts at chain analysis.

These methods are better than nothing, but they don’t guarantee privacy, since Bitcoin’s design is fundamentally not private.

Bitcoin Cash and Litecoin are effectively identical to Bitcoin in terms of privacy. The Bitcoin community has developed some better tools to frustrate chain analysis than Bitcoin Cash or Litecoin have thus far, but since the underlying design of the coins is the same, they’re not designed to give users very much privacy.

Zcash

Zcash initially looks a little different from the other coins mentioned. It is built to give users much stronger privacy assurances. In fact, when Zcash transactions are done a certain way, the information about them isn’t something which everyone can see, so it results in true privacy.

This method is using shielded Zcash transactions, and the OpenBazaar protocol used in Haven only supports transparent addresses at the moment, which are essentially the same as regular Bitcoin transactions. This means that — right now — Zcash is no more private than the other coins mentioned above. We want to support shielded Zcash transactions in the future to have at least one option for truly private payments.

Ethereum

This lack of cryptocurrency privacy is especially true of Ethereum.

Bitcoin, Bitcoin Cash, Litecoin and Zcash are all UTXO-based coins. These coins require some effort to do chain analysis, and there are techniques which can obfuscate information against these attempts and make them less accurate (though the vast majority of people using these coins don’t employ those techniques).

Ethereum is not UTXO-based but instead account-based. It’s simpler to do chain analysis on Ethereum, and more difficult to obfuscate information against those attempts.

Because a smart contract is needed for moderated payments with Ethereum, everyone is able to see payments into and out of the contract and know they are associated with a Haven transaction. All payments with Ethereum or ERC20 tokens are associated to a single Ethereum address, so if that address is ever connected to your real-world identity, all the payments and transactions you’ve done with Ethereum would be tied to your identity. This is also true of Ethereum-based tokens.

We suggest that users investigate the privacy trade-offs of account-based versus UTXO-based currencies for themselves when deciding which coins to use within Haven.