​The Top 4 Solutions for Anonymous Cryptocurrencies
By: Cryptominer Lab
Tags: Grin, Bitcoin, Zcash, Dash, Monero

As a public ledger, blockchain can help build trust among multiple parties. However, being a public ledger also raises a question for blockchain: how can you protect privacy? Such issue has raised a number of debates among researchers and many have joined in to find a solution.

A lot of people might ask why can’t bitcoin transactions be entirely anonymous, since Bitcoin transactions does not record any identity information in the ledger. But because every transaction is broadcasted publicly, and can be searched in the open ledger by anybody, this means that all transaction information can be tracked and located. Therefore if an individual’s identity is linked to the bitcoin address he uses in anyway, he/she will no longer achieve any anonymity. As a result, any centralized institutions such as crypto exchanges that require KYC will cause users to link their bitcoin address to their identity information, thereby entirely eliminating your anonymity.

On the other hand, just like Bitcoin, most privacy coins use open ledger to record transactions. A complete privacy coin transaction will usually include parties such as sender, receiver, and transaction amount, all of which can be found in the open ledger.

Why should we use privacy coins?

Why do we need privacy coins? Let’s think of a scenario: as bitcoin continues to get widely used, funds will flow to and stay in various wallet addresses. As a result, the cost of switching wallets will be increasingly high, and such wallets will be more and more connected to the real identities within this world. As a result, should such information be used by parties with un-pure intentions, it will bring significant threat to the privacy of all these bitcoin holders. Therefore as bitcoin continues to get widely used, it will require us to adopt a better solution to protect user privacy, especially for certain scenarios.

With such issues in mind, how are current projects in the crypto market seeking to resolve this problem? This article will discuss four popular privacy coin solutions, and provide analysis on each project’s cryptocurrency, including how they seek to protect user privacy.

Monero

Monero aims to become a private, untraceable crypto currency. The core characteristic for Monero is its use of the ring signatures technology to provide privacy for the transacting addresses. Within Monero’s blockchain network, the network first mix the signee’s public key with other public keys, then use the mixture to sign the transaction. Ring signature allows the sender in a transaction to join a group of transactions which is processed as a unit rather than a single private key signature. The examiner can prove the validity of the transaction group. In the result of the examination, we can prove that one party in the group is the true signee, but will not be able to pin point the exact party, therefore protecting the true identiy of the sender.

Monero has a strong privacy trait and can guarantee the anonymity of the sender, receiver, the transaction amount, and does not allow any form of exposed transactions. However, Monero’s operating procedure also includes some insufficiencies. The core shortcoming for Monero is that the ring signature methodology has limited amount of parties for each transaction and the cost of transaction increases as the “ring” increases. As a result, users are more likely to use smaller rings, thereby increasing the probability of the real party in the ring being recognized. Additionally, within a group of ring signatures, one possibility is that a specific Monero can be removed before an actual transaction. Therefore by analyzing the time order of the transactions, it’s very likely to discover the identity of the real transaction, thus making it hard to find a balance between anonymity and transaction cost.

Dash

Dash employees uses Conjoin mixing to scramble transactions and make privacy possible on its blockchain. To achieve Coinjoin mixing, Dash build its network by altering the original bitcoin code. Compared to the single network made up by the miners in the bitcoin network, Dash built a double layer network that comprises of masternodes and miners. In the first layer of the Dash network, miners use PoW mining methodology to record transactions and ensure network safety; the Coinjoin mixing functions are mainly realized in the second layer of the Dash network. Dash’s Coinjoin mixing function are called PrivateSend. Within the PrivateSend service, the masternodes mix together transactions from multiple users, combines them, and then sends the combined transaction out, thereby making it impossible to trace the transaction history.

The main problem with Dash’s privacy protection mechanism is that the Coinjoin mixing methodology can only hide the transaction addresses but not the transaction amounts, thereby only achieving partial anonymity.

ZCash

ZCash is the world’s most well-known blockchain project to use the zero-knowledge cryptography. Similar to Monero, Zcash transactions can hide both transaction addresses and amounts. In Monero’s case, although the use of ring signature can ensure that transaction data can stay anonymous, once the “ring” is cracked, all anonymity will be lost and the transaction data will be exposed. The zero-knowledge proof used by Zcash can better protect the private transaction among the transaction history.

Zero-konwledge proof was developed by S. Goldwasser, S. Micali and C. Rackoff in the 1980s. The core idea of Zero-knowledge proof is a method by which one party (the prover) can prove to another party (the verifier) that they know a value x , without conveying any information apart from the fact that they know the value x. Zcash uses a novel version of the Zero-knowledge proof called zk-SNARKs which refers to a proof construction where one can prove possession of certain information, e.g. a secret key, without revealing that information, and without any interaction between the prover and verifier. Zk-SNARKs protects privacy of various parties in a transaction which includes senders, receivers and transaction amounts. Only private key holder can see the content of the transaction, and examiners can only prove the validity of the transaction but cannot know the amount nor the addresses.

Among all privacy coin methodologies, zero-knowledge proof have been considered to be extremely powerful, but it also has its shortcomings: in a Zcash transaction two addresses are generated — a transparent address and a shielded address. As a result, there will be 4 kinds of transactions. In the two generated addresses, only transactions between two shielded addresses are entirely anonymous. However, when executing an anonymous transaction on Zcash network, the generation of zk-SNARKs are both time and energy consuming, thereby affecting the motivation for users to use such measures. This is why currently in the Zcash network, anonymous transactions only counts for a small amount of its total transactions.

GRIN

GRIN is the realization of the MimbleWimble protocol. The project is developed by part-time community developers, based on a 55,000 USD of funds raised from the community. GRIN is a scalable cryptocurrency that has no addresses and no amounts, therefore occupying fewer storage places than other cryptocurrencies.

MimbleWimble (MW) is a blockchain system that uses a more creative way to store and exchange data. It’s a variation of the PoW system, and can provide better privacy and network expansion. It changed the transaction model of traditional blockchain systems, thereby offering a blockchain system with higher compression ratio, making it easier to download, synchronize, and validate historical ledgers from the network. In a MW blockchain, there is no recognizable or reusable address, meaning that transactions will appear as random data in other people’s eyes. The actual transaction data can only be viewed by parties involved in the transaction.

For example, Alice receives 5 MW coins from her mom, an 5 MW coins from her father. Alice then transfers the 10 MW coins she received to Bob, the transaction is subsequently validated, but the details will all be hidden away. Bob only knows that Alice had sent him 10 coins, but not of where Alice received the coins from.

If a user wants to transfer coins on the MimbleWimble network, both the sender and the receiver have to validate information. Therefore we still need Alice and Bob to keep contact with each other. However, neither Alice nor Bob needs to be online at the same time when the transaction takes place. Additionally, MimbleWimble can also you to “cut-through” a transaction for it can delete redundant transaction data and decrease the data stored on the block. The block will only record a transaction from Alice to Bob instead of every transaction involved with the coins (from Alice parents to Alice, then from Alice to Bob).

The cost of use MimbleWimble is a lot lower than ZCash and Monero, while at the same time achieving higher efficiency. As a result, MimbleWimble received a lot of praise and attention when it came on to the market.

Conclusion

Monero, Grin, Dash and Zcash are all powerful privacy coins based on various privacy methodologies. In some experts’ opinions, both Monero and Zcash suffers from the problem of highly intensive calculation due to them employeeing the ring signature and zk-SNAKRs methods, which makes them slower and more costly than GRIN.

Monero and Zcash are all wonderful privacy crypto currency projects, however neither is perfect. MimbleWimble can improve the problems that both Monero and Zcash are experiencing in areas such as large scale transactions, lack of scalability and non-local privacy. Compared to previous blockchain technologies, MimbleWimble has both higher scalability and operating efficiency. MimbleWimble’s block supports data compression so as to decrease block size, leading to lower network entry barrier and cost of running nodes, thus making the ecosystem a better place. In terms of anonymity, MimbleWimble has removed bitcoin’s script and realized blurred transaction details, thereby increasing the effect of secretive transactions. Additionally, cryptocurrencies based on the MimbleWimble protocol are seen to be replaceable, which makes them adaptable to exchange with other kinds of cryptocurrencies.

CryptoMiner Lab is a leading research and incubation institution in the blockchain mining industry. We focuses on developing the ecosystem of the blockchain mining industry, and has established long term collaboration with various project communities, mining pools, investment institutions, wallets, exchanges and media channels. CryptoMiner Lab frequently publishes research and analysis on mining colin projects with high potential. We look forward to working with high potential projects in the mining coin industry.

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