PRIVACY

COINS

WOLVERINE CRYPTO TRADING

NAMAN GUPTA & BEN OOSTENDORP

Agenda

1. Current Bitcoin Protocol
2. Bitcoin Privacy Weaknesses
3. Ben → Importance of Privacy
4. Popular Privacy Coins
1. DASH PrivateSend
2. Monero
3. ZCash

Review: Bitcoin Protocol

“Privacy is not defined as an inherent property in Bitcoin initial design, but it is strongly associated with the system.”

A Survey on Security and Privacy Issues of Bitcoin, Dec. 2017

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Review: Bitcoin Protocol

Emphasizes privacy on a per-transaction level

• Separation real identity and payment address (through cryptography)
• Two parties can transact without knowing each other’s identity
• Individual transactions cannot be traced to either party’s real identity

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Loss of some privacy when considering entire transaction history

• Transaction history easily traceable on distributed public ledger
• Flow of funds & purchasing behavior signals attributes of a transactor
• Multiple addresses belonging to a single transactor can be clustered by using graphs & heuristics

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Clustering User’s Multiple Addresses

Acyclic Transaction Graph

Acyclic Address (Pub. Key) Graph

Address Clustering w/ Heuristics

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Bitcoin Privacy Weaknesses

Privacy in Bitcoin comes exclusively from public keys or their hashes

• Keys can be easily compromised, both digitally and physically
• Ex: Third-party cookies when shopping with BTC
• Ex: Theft of wallet, or breach of personally-held data

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Revealing the owner of even a single key has consequences

• Illuminate user’s other transactions
• Depict behavior (or even identities) of fellow transactors

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Authorities can subpoena centralized services (Coinbase & ISP’s)

• Services must collect user data for due diligence requirements
• Helps triangulate real identity

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Third-Party Cookies: Identifying Users

Third-Party Cookies are used by advertisers to track an individual’s online browsing and purchasing behavior, to improve ad targeting and efficacy

Embedded as scripts in a page’s HTML source, when you load a page, the script executes and “sets” a cookie in your browser, which then keeps track of the pages you visit and can access personally-identifiable information (name & email, for example) that you wouldn’t want associated with your BTC purchase

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Takeaway: Bitcoin Privacy

Pseudonymous Privacy

You can preserve your privacy as long as the pseudonym (BTC address, public key) is not linked to you

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Fantastic for data integrity

Iffy for data privacy

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"Arguing that you don't care about the right to privacy because you have nothing to hide, is no different than saying you don't care about free speech because you have nothing to say."

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• Edward Snowden

Privacy vs. Convenience

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Importance of Privacy

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Keeping Transactions Private

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• Salaries, revenue, profits should be kept secret if desired
• Undisclosed business partnerships
• Downside to privacy → illegal activity

Charlie Shrem

Robert Faiella

Auditing

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• Some privacy coins also allow users to reveal their account to a singular party, without compromising the privacy of their account
• Helps fight crime, money laundering, etc.

Advertisers Tracking Purchases

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Dissuades hackers

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• How are you going to hack an address you don’t know?
• Number of bitcoin in an address is public

Unknowing Use of Tainted Money

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• Unknowingly use money cryptocurrency that had been used in past criminal activity.
• Fungibility → the property of a good or a commodity whose individual units are essentially interchangeable

Popular Privacy Coins

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DASH PrivateSend

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• Breaks down dash into denominations and puts them into new addresses
• OpenSSL Rand-Bytes picks masternode
• Wallet sends mixing request + collateral/fee
• Request goes into mixing queue
• Matched up with other people who want to mix
• Then each wallet tells masternode where where their dash is and which new empty addresses they want DASH to end up in (input and output)

Popular Privacy Coins

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DASH PrivateSend

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• Wallets check that their input and output are equal so masternode isn’t scraping off the drop
• Then all the wallets sign the transactions regardless of who else signs the transaction
• Then mixed transaction is sent to the rest of DASH network

Popular Privacy Coins

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Monero

“Cryptographically private by default”

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Created in 2014, Monero focuses on privacy, fungibility, and decentralization

• Facilitates an opaque blockchain and a more egalitarian mining process
• Adds an extra layer of obscurity to transactions and the public ledger

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Applications:

• First-ever true “digital cash”
• Yes, this means there may be illicit transactions.
• Government transactions and information sharing
• Anonymous P2P Transfer
• Anonymous purchase of other digital assets & currencies

@fluffypony

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Basic Technical Details

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Monero

Monero was founded on the CryptoNote protocol

• Blockchain variant that allows for obscurity within the distributed public ledger, without compromising functionality
• PoW Hash Algorithm:

With stealth addresses, a random, one-time address is created for a recipient

• All payments sent to a recipient are routed to unique addresses
• Prevents tracing back transaction inputs

Ring signatures mask transaction outputs by grouping them together with other transactions on the blockchain

• Obfuscates individual tx outputs, allowing for plausible deniability

Ring confidential transactions (RingCT) conceals the exact amount of a transaction, while still allowing for verification by the network

Can optionally choose to share a view key for transaction transparency

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Effect of Implementing Ring Signatures

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Basic Technical Details

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Monero

Monero’s privacy eliminates the possibility of coins being debased (tainted), ensuring fungibility

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Coming Soon: KOVRI

• Hide IP address when broadcasting a transaction to the network
• Potentially implemented through a public API
• Other cryptocurrencies could leverage Kovri
• Could hide that you’re using Monero at all

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Popular Privacy Coins

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ZCash

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• Zero-knowledge Proofs → method by which one party (the prover) can prove to another (the verifier) that a given statement is true, without conveying any information apart from the fact that the statement is indeed true
• ZCash uses zk-SNARKS → succinct non-interactive zero-knowledge proofs

Basic Technical Details

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ZCash

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• 2 types of transactions:
• Transparent → like Bitcoin
• Shielded → private

Questions?

Resources

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A Survey on Security and Privacy Issues of Bitcoin

IEEE, December 2017

(https://arxiv.org/pdf/1706.00916.pdf)

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Bitcoin Transactions Aren’t As Anonymous As Everyone Hoped

MIT Technology Review, August 2017

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