The Anonymous Crypto-Currency Arms Race Part 1

4 minute read

Posted by: Greg Miller

October 22, 2014

All the parts are available in the Armsrace Tag  – Once published

While the world focuses on the many historical events happening around the world – the increasing divide between the west and Russia, Israel killing Palestinians, the Ebola outbreak in West Africa, and a heated Southeast Asian sea – there is an even more important event happening in the dark corners of the web. Since the deep web’s earliest days, the technology and business practices used have been improving steadily. Marketplaces have been getting better at avoiding economic oppression and making buying drugs as pleasant as buying an iPhone off e-bay. It is safe to say the emergence of Bitcoin was a great boost to the underground marketplaces. The deep web had marketplaces made for the internet but didn’t a currency made for the internet.

Hidden For All to See

Bitcoin allowed less friction in deep web commerce, but most importantly, it was run by computer code and not people. Government sanction (regulated) currencies and commerce provided a stiff barrier to the online black market, even people pro black markets provide a risk. Pre-Bitcoin digital currencies like Liberty Reserve, and E-Gold, did not mind people using their currencies to trade drugs and other illicit goods. The government, on the other hand, would not allow this Laissez Faire attitude. The government forced both businesses to either shut down or comply with the state’s law. With Bitcoin, there is no one for the state to point guns at. Bitcoin’s run free without the burden of gatekeepers of any kind.

Bitcoin was an amazing improvement, but it had its issues. Early, and until quite recently, Bitcoin was synonymous with financial anonymity. In some ways, it is more anonymous. The decentralized nature of it allows use of the currency without having to put your name, address and other private info in some database. On the other hand, the public blockchain leaves a trace of all transactions that can be tracked to the very beginning. Some have tried make shift solutions, like mixers, Tor, and schemes and technology. Some of practices and technology provide a decent level of anonymity but they are time consuming and complicated. Technically knowledgeable people can use Bitcoin anonymous but for the average person, it is well above their heads. For deep web, that is growing and getting more normal people using it, a simple but effective anonymous crypto-currency is must for the deep web’s further growth and maturity as a market. A simple but effective anonymous crypto-currency could have the same effect Bitcoin had the deep web.

The other issue, is a lot of interest and res reach. A lot of these practices and technologies have not been tested thoroughly. When, these technologies are analyzed, they have tendency to fail. This was seen, when, security researcher, Kristov Atlas proved he could de-anonymized transactions “mixed” by the very popular Coinjoin. The one thing that is true for all technologies and schemes to make Bitcoin anonymous, is that they are after thoughts. Sadly, Bitcoin wasn’t designed with anonymity in mind and thus all potential solutions are awkward fits.

This has left a hole to be filled. As Bitcoin becomes closer and closer to being regulated and controlled, some Bitcoin users have disdained themselves from the currency. They are looking for a more subversive currency. Political dissents, black market businessmen, and privacy minded individuals are looking for a currency better than Bitcoin. One that meets their needs of anonymity, ease of use, and regular transactions.

Beyond Bitcoin

As Bitcoin’s lack of anonymity have become more and more well know, a urgency has emerged.   At first, technologies surfaced which would work with the existing Bitcoin system, but these, such as ZeroCash and Coinjoin have faced issues. Then Altcoins, such as Darkcoin emerged, declaring a new currency must be made to achieve financial anonymity. While, Darkcoin pioneered the idea that a currency from scratch was needed, but Darkcoin itself, didn’t provide anything new. Since Darkcoin many anonymity focused Altcoins have popped up that are trying to new ways to anonymize crypto-currency transactions. This has resulted in an anonymous crypto-currency arms race. Communities have sprung up around each coin and ultimately the idea itself. Competition between the various currencies has caused innovation at a rate never seen before. No single currency has become the first truly anonymous currency but many currencies are fighting to emerge as the victor.

A truly anonymous crypto-currency would be a world of difference. Bitcoin’s lack of a central controller already allows for a more subversive currency but is still vulnerable to attacks from various states. An untraceable digital currency would allow online black market commerce to roam freely and at a rate of popularity we have not seen before. Though, the deep web is huge, it is just a tiny section of the black market at large. With each story about Silk Road, people convert from the physical drug trade, to the digital drug trade. They see more variety of drugs, and higher quality. They see more barriers to their personal protection from their dealers or police. What remains iffy, is the finical anonymity of Bitcoin. With a digital currency that is proven and built for anonymity, the floodgates of new users will open.

Stay tuned for part 2! In part 2 we will explore the various competing technologies that are trying to become the foundation for a truly anonymous currency.

Updated: 2014-10-22