Anonymous Crypto-Currency Arms Race Part 2

4 minute read

7258 tag-anonymous tag-arms tag-armsrace tag-cryptocurrency tag-race Posted by: Greg Miller

October 25, 2014

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

While developers scramble to get coins equipped with secure and anonymous features to present to the market at large, and raise above fellow anonymous crypto-currencies – all these coins come from a handful of technologies – CryptoNote, ZeroCoin/Cash, and decentralized mixing of various sorts. The differences between the technologies are huge, and could be mean life or death for these coins in the highly competitive world of crypto-currencies.


CryptoNote is a open source protocol, that has been used to build numerous crypto-currencies off of. The protocol was initially launched in July of 2012, about 3 years after Bitcoin was first lunch. CryptoNote wanted to improve upon Bitcoin, with simpler and more efficient protocol, but most importantly, greater anonymity. Bitcoin’s transparency of bitcoin’s blockchain bothered them. They felt for a crypto-currency to be successful it needed greater privacy. As a result, CryptoNote’s anonymity came be narrowed down to two things – ring signatures, and sleath addresses

Ring Signatures

Ring signatures go beyond simply sharing coins, and obstructing the coins involved in the transaction. Ring signatures actually share each other’s identities, making it much harder to know who is involved in the transaction. In a normal transaction there is two people or keys involved – the receiver, public key, and the sender, private key. In ring signatures there is six keys involved. As with any crypto-currency scheme, every participant has a private and public key. What ring signatures does is complicates the transaction by adding “senders” and “receivers” to the transaction. As in the example below, instead of the transaction being between Bob and Romulus, the addition of Alice, Carol, Dave, and Remus muddles the transaction. You don’t know if Bob sent funds to Romulus, or Remus. Alice could have sent funds to Romulus, and Bob sent funds to Remus. Or Bob could of not been involved at all and it Dave and Carol are the people who sent the funds. The private and public keys of random people are used in each transaction. Private keys, still working in a one way function fashion, are unseeable to the public, and don’t restrict the person sending the funds. It is just a simple requirement to obscure the transaction.

Unlinkable Transactions

CrypotNote anonymity is amazing for this very reason. If someone is looking at the blockchain, they wouldn’t be able to tell you who, is who. That in itself is major improvement over bitcoin, but CryptoNote doesn’t even let someone look at it. CryptoNote uses stealth addresses, stopping anyone from seeing your balance or what your public address actually is.

With sleath addresses you create one public address, from that public address many onetime public addresses are created. Anyone watching the blockchain would only be able to see the one time public address, but that is worthless for any investigator. That one time address will never be used again. In a crypto-currency without sleath addresses, if someone is trying to keep their anonymity, they will have to make a new address for each transaction, to avoid linking various addresses. Users start to lose their anonymity when they send funds from one of their addresses, to another address. That creates a link between them, but with sleath addresses that doesn’t happen, and you don’t have to go through the tiresome process of creating a new transaction each time. It does it automatically.


ZeroCash, originally ZeroCoin, is a very complex beast. With its developers hailing from the halls of academia, it is one of the most well-funded crypto-currency developments out there. It has been around for many years, and has not made stable, usable version yet. That hasn’t stop more hungry coin developers, like Anoncoin, to implement ZeroCoin’s open source technology.

ZeroCoin was originally a plan to create a decentralized mixer over the bitcoin blockchain. ZeroCoins were simply, what the developers referred to as basecoins, and bitcoins were the actual currency involved. This plan was scrapped after the ZeroCoin developers talked with the Bitcoin developers, and discovered there would be technical problems. ZeroCoin was burned to the ground, and ZeroCash rose out its ashes. ZeroCash was created in order to create a currency built around the ZeroCoin’s decentralized mixer. Currently, there are also problems with that project, as in its current form it would require a third trusted party to start the network.

While the semantics of ZeroCoin and ZeroCash are different, the underlying transaction anonymity is the same, and boils down to zero knowledge.

ZeroKnowledge Transactions

ZeroCoin/Cash transactions work on the cryptographic concept, zero-knowledge. Zero Knowledge allows people to transact without letting the person they are interacting know their public address, or any other information. The information that is needed for the transaction, such as the public address, is encrypted and hidden from both parties. Only the protocol itself, can decrypt and look at the information needed. That information lives in a world that only the protocol itself can reach.

Other Coin’s Anonymity Schemes

These two protocols are used by several coins, but beyond these two protocols there are numerous anonymity schemes made up by individual coin developers and used solely by that coin. In part 2, I will be looking at the leading anonymity focused crypto-currencies. While describing each coin, if the coin has unique anonymity scheme, not based on these, then I will explain it. Stay tune for part 3 and see the actual coins competing to win the arms race.

</div> </span> Updated: 2014-10-25