The future of cryptocurrencies from from the perspective of privacy and anonymity

cryptozoic
Aug 25 · 6 min read

Cryptocurrency, also known as digital currency and virtual currency, is a kind of monetary system represented by BTC, which is based on public account technology. *

According to coinmarketcap, there are 2,473 cryptocurrencies and more than 400 exchanges in the world. The global market value is about $260 billion.

In 2019, the cryptocurrency field showed its strong vitality. It has been more than 11 years since Satoshi Nakamoto published the whitepaper of bitcoin in 2008, and the blockchain technology has derived tokenize, STO (Security Token Offering), IOT (Internet of things), product traceability, financial derivatives (share option, future goods, prompt goods) and other industrial applications from the initial peer-to-peer electronic cash.

This paper focuses on the anonymity of cryptocurrency, so it divides cryptocurrency into ‘non-anonymous cryptocurrency’ and ‘anonymous cryptocurrency’ to discuss and research.

The merits and demerits of non-anonymous cryptocurrency

First of all, we have to admit that the non-anonymous currency does not mean the real name and all the non-anonymous currencies have a certain degree of anonymity, which is embodied with its address (it can be regarded as the bank card number) that consists of dozens of letters and numbers. The blockchain browser allows us to track the past transaction records and the amount of coin held in each address.

[The bitcoin blockchain browser data, from blockchaininfo]

The above is the partial transaction packaged by bitcoin block height #591204 on 7: 49, 22 August, 2019, New York time. We can clearly see the both parties’ addresses, transaction amount and gas fee. If you click any address, you can check any past transactions of this address.

Open and transparent account has its scientific basis, which has the following advantages: reducing the cost of trust; collective maintenance to reduce the centralized risk; reliable database and its source is always available and traceable.

But behind value shaping is the price that must be paid.

We can assume that if an address sends a transaction for illegal purposes, and the address is put on the watchlist of the law enforcement, does it mean that all transactions passing through this addresses will be affected? If I receive these bitcoins through normal transactions without knowing it, does it mean that I, as an ordinary person, will be forced to get involved?

Secondly, every time we send a transaction, my balance is known to others. If I hold a large amount of bitcoin and both parties know each other’s identity, who will guarantee my personal safety? Some people have proposed the decentralized management of bitcoin. Have you ever thought about the cost of secure storage of decentralized management? And with the technology development, in the future, the big data technology will not be difficult to crack the holders by behavior analysis and address transaction trajectory analysis.

Anonymous cryptocurrency is coming

In April 2014, monero(XMR)* was officially launched, focusing on privacy, decentralization and scalability. Unlike many cryptocurrencies derived from bitcoin, Monero is based on the CryptoNote protocol and has significant algorithm differences in block chain fuzzification.

On 10 January, 2017, by using the Ring Confidential Transactions algorithm of Gregory Maxwell, a Bitcoin Core developer, the privacy of monero transactions was further enhanced from #1220516 block. The ring signature algorithm does not reveal the amount involved in a transaction to people who are not directly involved in the transaction, thus increasing the confidentiality.

The above is monero memorabilia on privacy protection. There are three aspects of its privacy: privacy

ring signature — sender, untraceable

aliasing address — receiver, unlinkable

ring confidentiality — hiding transaction amount

Monroe is at the top of improving privacy and anonymity. It perfectly solves the privacy problem of the bitcoin network. We can understand that each transaction you receive or send can be effectively confirmed by only you and your counterparty.

[The monero blockchain browser, from moneroblocksinfo]

So menlo became a hotbed of illicit trade and the target of public criticism —

On 18 March, 2018, Coincheck said it would remove three anonymous cryptocurrencies: XMR, DASH and ZEC. Many other exchanges in Korea and Japan also removed such cryptocurrencies with untraceable and anonymous transmission and transaction ability such as XMR, ZEC, DASH and so on, which is speculated to be related to the requirements of government regulators.

To find a balance between anonymity and non-anonymity

In July 2019, cryptozoic(VCC)* was born. Its original ‘aliasing anonymous mechanism’ and ability compatible with ‘semi-anonymous digital currency’of ETH (Ethereum) have been making waves in the digital currency industry.

According to the Cryptozoic(VCC) whitepaper, cryptozoic is a DApp operating environment compatible with ethereum. In addition, it has distributed anonymous computing systems beyond BTC and ETH. The anonymous blockchain system adopts UTXO model +DAG and virtual machine program to write and execute smart contract.

Anonymity + Public Verifiability

[The VCC blockchain browser, from vccscancom]

As can be seen from the figure above, in the blockchain transaction of VCC network, the sender’s address is hidden and the receiver’s address is displayed. We can still check the balance data by clicking the receiver’s address. But for the transaction record, outsiders cannot access accurate data except for the owner of the address. In this way, VCC has a place between absolute anonymity and absolute transparency: public verification + law enforcement review. At this point, VCC has taken a unique step forward.

High Concurrency + High Scalability

Pure POW mining coins like bitcoin, are limited by the block time and block size, so their TPS are very limited, which can handle only seven transactions per second on average. In 2017, CryptoKitties, a popular blockchain game based on ethereum, was jammed for hours due to the huge number of participants. VCC, combined with the mining advantages of DPOS+POW, maintains the transaction rate with DPOS super node on the premise of ensuring the fairness of POW, which theoretically can reach 80,000 transactions per second and perfectly solves the problem of transaction congestion.

VCC adopts directed acyclic graph (DAG) *, which is a promising new approach to scalability problems and is considered considered as the solution of machine-to-machine economy(M2M).

[DAG diagram]

DAG allows multiple blockchains to coexist and to connect to each other without an edge with the parent node. Nodes can exist in parallel as long as information is directed in the same way. It opens a whole new set of possible confirmation options to eliminate the need for block time and reduce the amount of work wasted on abandoned [isolated chain]. The final result is that: there is huge potential for highly scalability and fast information flows on the completely decentralized network.

Conclusion: the absolute transparency may hurt the innocent, while the absolute anonymous protection becomes the hotbed of illegal industry. Perhaps the future of cryptocurrencies can be found in VCC (Crypotozoic), which is a fabulous non-absolute anonymous and highly scalable digital currency.

Bibliographies:

*Bitcoin Whitepaper

*Monero Whitepaper

*Cryptozoic Whitepaper

*Introduction to Algorithms

Reference Tool:

Coinmarketcap

Bitcoin explorer

Monero explorer

VCC(Cryptozoic) explorer