What's the current state?
Financial transactions of cypto-currencies are fully accessible on the public blockchain. But these transactions itself are only related to sending and receiving addresses that doesn't contain any personal information about the owner of the addresses. Referring to the closed blockchain system crypto-currencies are often claimed to be anonymous. However this is not necessary true, since the nodes of each blockchain are also public. Nodes, in general, are the connection points in the network that validate and archive the transactions on the blockchain.
These nodes can be examined by everyone and can be tracked down to its location. In the case of bitcoin the full nodes are mostly big mining rigs from companies that have a proper security. The map above shows the node locations of the bitcoin nodes than can be crawled from the source code easily. These contain all types of nodes: from the private wallet user to the big miners.
The problem
More advanced blockchains use other algorithms than bitcoin or mix algorithms for validating transactions. An example for that is the Proof-of-Stake-algorithm that chooses the creator of the next block by wealth or age instead of cryptographic puzzles used in Bitcoins Proof-of-Work-algorithm.
This way also privat users act as important nodes for the network. Furthermore the holding of big amounts of coins benefits the staking of new coins while doing the job as full node.
This leads to a big security risk, where big holders locations can be tracked down easily while working as node. In times where crypto-currencies gained a lot of attraction also criminals search for new ways of taking advantage in this new business. Thus the nodes of blockchain networks could be an easy target for hacking attacks or even physical burglaries to get access to the crypto-currencies holdings of the victim.
The solution
The best solution to prevent this is to anonymize the own ip address, when attending the networks as node. A popular and secure why is using the TOR network, that leads you through different layers of the tor-network before accessing the target website. The ip address changes within each layer and makes it impossible to trace back the actual ip address of the sending computer.
Often used by Bitcoin users, it is still not standard feature of the software itself which leads to a high risk for unaware users. In the future the security and in particular the privacy of the crypto-currencies will become a important discussion point, when not only exchanges will be a target of criminals but also privat users itself are not longer privatized behind the blockchain network.
Some projects are already working on this problem searching for the best solutions in anonymization the blockchain and its users for a greater security. DeepOnion implemented the tor-network as a standard feature which makes it possible to access the network without having the risk of getting tracked down by anybody. With the upcoming DeepSend also the transactions itself will become untraceable that will give the privacy back to the user.
Haven't joined DeepOnion yet? Do it now!
Join Airdrop