Written By: Fernando Gutierrez
Bitcoin is not anonymous
People often get this wrong. They believe that because they don’t provide their name in the wallet, nobody knows who they are. However, what that achieves is, at maximum, pseudonymity. It is true that there is no central registry of names and addresses, but everything else is public and there are multiple ways in which names and addresses can be associated. Once that association is done, the fully transparent Bitcoin blockchain does the rest in order to have a complete picture of that user’s transactions.
One of the most obvious ways to reveal who is behind an address are hacked exchanges. Most users verify their identity there. They then have their data and addresses leaked when the exchange get hacked. Note that I say when, not if, because history proves that centralized services with valuable information inside, do get hacked eventually. This could also happen with merchants or even private individuals with whom any user interacts. The truth is, whenever we give a Bitcoin address to someone who knows who we are, we are opening the door to our finances.
Bitcoin’s transparency is one of it greatest features, but there are many reasons why in some occasions that transparency is not desirable. Those who say that if you are not doing something illegal why do you care about privacy are wrong. Privacy is essential for human development because it gives us freedom to experiment. Also, it is essential for security reasons. It can also avoid giving governments and companies too much information they can analyze without our knowledge and use it to their advantage.
Another great feature of Bitcoin, its permanence, is also a privacy problem. That is so because the association between a user and the addresses can happen in the future. Then the party who is analyzing can go back into the blockchain an get information about transactions done many years ago.
Current Bitcoin anonymization methods don’t work
For all these reasons people have been trying to use Bitcoin anonymously since its inception. The most common method is mixing the funds with other people, so nobody really knows for sure the origin of a transaction. The problem with this method is that it is usually tedious and the user needs to trust in the third party that coordinates the mixing. There are numerous occasions in which the coordinator of such services has disappeared with the funds, so it is clearly not a good solution. Also, transactions can be traced through the ‘dead change’ method.
Enter Dash
Dash has developed a system to give privacy back to its users. Other alternative cryptocurrencies do this by destroying the transparency of the coin’s blockchain or using less tested cryptographic methods than those used by Bitcoin. Dash has managed to do it without any of those trade offs. The blockchain is fully transparent and the software is very similar to Bitcoin because its code is derived from Bitcoin’s code.
Dash mixes the user’s funds ahead of time and keeps a separated balance of those funds, which makes it more convenient than other methods. The security is also taken into account because the funds never leave the user’s wallet, so there is no risk of somebody stealing the funds that are to be mixed.
The process in detail
The first thing that the wallet does when a user wants to mix funds is to split them into common denominations (0.1, 1 or 10 DASH). This way the mixing is easier because all the sizes are standardized. Then, a coordinator of the mixing is randomly selected by the network among the available masternodes, which are a special type of node with some extra features. The masternodes creates a complex transaction with at least three users’ transactions in which they send themselves those standardized amounts. No third party can know what inputs and outputs of that transaction belong to who, as can be seen in this example.
To increase the security this process happens several consecutive times, with a new masternode selected randomly for each stage. Thanks to this, users can be confident that no third party can trace their funds because nobody can control a big part of the network of masternodes. The reason for this is that in order to start a masternode the operator needs to put 1000 DASH as collateral and set it aside. The operator always keeps the funds, but if he uses them, the masternode stops working. With that requisite it is impossible to control the network of masternodes. The malignant party that would want to do it would need to buy most of the coin supply.
At the time of this writing there are approximately 2800 masternodes in the network. This means that someone with 1000 masternodes, which is a crazy high number that probably nobody will ever have, only has 1 possibility in 4000 to trace a transaction that has gone through eight rounds of mixing. If he only had 100 masternodes, which is still really high and would cost almost half a million dollars, would only have 1 possibility in 500 billion.
The user can start this process by simply pressing a button in the wallet. After that he only needs to wait for the mixing to happen. Once the funds are mixed, he can use them anytime as he would with other funds.
DASH: XhE2ctUNhsCbCrTe1nQATnq4gqzihfZhc1
BTC: 1BtAepQzdjRtNCu2i98UnNyissehvynVxc
The information provided herein is the author’s opinion and provided for entertainment purposes only. While the author strives to make the information on this website as timely and accurate as possible, the author makes no claims, promises, or guarantees about the accuracy, completeness, or adequacy of the contents of this site, and expressly disclaims liability for errors and omissions in the contents of this site. The information contained in or provided from or through this website is not intended to be and does not constitute financial advice, investment advice, trading advice or any other licensed advice. The authors on this website are in no way liable for any decisions you make based on information provided herein. CryptoWorldwide.com and its staff do not necessarily endorse nor oppose any claims made by authors on the website. All content is subject to copyright and may not be reproduced in any form without express written consent of the publisher.
Source: Cryptoworldwide.com
No comments:
Post a Comment