Cryptocurrency's LITERACY #3: Privacy technologies on the blockchai...

The main reason to do this Cryptocurrency’s Literacy Series is to explain and simplify the Cryptocurrency’s Science to people, I try always to not go deep into technical explanation and stay at the fundamental layer. So, let’s get Started!

After explaining some interesting words about Bitcoin transactions in my previous blog of Cryptocurrency’s LITERACY, in this post I will talk about the multiple protocols used by some cryptocurrencies to provide privacy on blockchain.

We all know that Bitcoin transactions are saved on the blockchain, they deliver a big clearness to Bitcoin users and they are transparent to anyone who needs to verify that a transaction happened, maybe it could be good for some people, but in the other hand, it could be a violation of privacy right for other people who don’t like the public to see them where and how they spend their money.

In this case, Bitcoin fails to offer the privacy provided by traditional payment systems, but there exist four type of cryptocurrencies that tackles with privacy: Monero , ZCash, Dash and VergeCurrency.

If all of them can offer a privacy for the sender, the receiver and the amount of coins, then what make actually the difference between them?

Elliptic Curve

It is a method of cryptography that allows to generate a public key that nobody can duplicate it or linked back to either the sender or receiver addresses.

It is used to create random one-time addresses for every transaction, those addresses are named Stealth Adresses, they provide privacy and make it unfeasible to see the payments done by a user.

Stealth Adresses are used by Monero and VergeCurrency.

VergeCurrency provides also a total anonymity for their users with its Wraith Protocol that combine the Stealth Adresses + an additional layer of IP through TOR Network to provide a total user’s anonymity.

Ring Signature

It is a type a digital signature Used by Monero to prove that a member of a group signed a transaction but it is not clear who performed that signature. While the key used to produce the signature is mixed with the keys of other members of the group then a public observer cannot determine who owns which key.

Zero-knowledge proofs

It is an advanced encryption technique used by ZCash (ZeroCash) to prove the validity of transactions without revealing any sensitive information about the sender, the recipient or the amount of coins.

The principle of Zero-Knowledge is to confirm that someone knows the solution of a problem without revealing the solution.

For example, imagine that you met someone in a street who claims that he knows your family, to verify if that person really says the truth or not, you can interrogate him and ask him some questions he should only be able to answer if he is indeed close to the family.

In this example, the protocol that you use to verify the truth is called Zero-knowledge (or to be more specified: it is called Interactive Zero-Knowledge Proof), you are, in fact, the “Verifier” and the stranger that you asked him is called the “Prover”.

zk-SNAKs

However, Zcash uses a type of Zero-knowledge that is called zk-SNAKs: Zero-knowledge Succinct Non-interactive Arguments of Knowledge which is a method of Zero-knowledge Proof to prove that someone has some knowledge without disclosing that knowledge and without the need of interrogation from the verifier (Non-Interactive). So not only the verifier can confirm that the proof shared by the prover is correct but also other verifiers which makes the verification more efficient.

Coinjoin

It is an anonymization technique Used by Dash (available also for Bitcoin) to hide the identity of their users included in the transactions by allowing multiple users to combine their transactions into just one.

This can be compared to a group of people who throw their cash together and go shopping. While everyone could make sure no one spends more than they should, the shoppers wouldn't necessarily spend the exact bills they originally put into the shared wallet themselves.

Reference Link

The Coinjoin makes it difficult for an observer to determine which input is tied to which outputs.

More resources to go further: