Posted by: Greg Miller
January 7, 2015
This article expresses the opinions of the author only
Bitcoin revolutionized the online drug trade but members of the cryptocurrency community believe that it has failed to develop the proper technology to anonymize those who use it.
People have been taken aback by the apparent lack of anonymity in Bitcoin transactions. With more flexible dev team and willingness to try new things, people have looked at Altcoins to find newer and better anonymity schemes.
Altcoin developers are focusing on the technical anonymity of cryptocurrencies, but those don’t actually matter. Not at this point yet. Bitcoin’s anonymity schemes, such as mixers, are adequate – for now.
The grand dream of anonymous Altcoin enthusiasts is that Altcoins will pave the way to a truly anonymous digital currency, one where there is no public information available, which is, from onset, had that goal in mind. In their eyes, Altcoins can fill a privacy conscious niche market that Bitcoin’s mass adopted predecessors cannot. The big blue giant can innovate as quickly as Altcoins, which are already technologically superior to Bitcoin’s trusted centralized mixers.
There is also no trade off in their eyes. An anonymous cryptocurrency must be subversive and underground. Bitcoin’s mass adoption and notoriety makes it a prime target for regulators and law enforcement – the No.1 enemies of everything good, holy, and anonymous.
Instead of having a public blockchain, which records all transactions ever done on it, you would have one that is fully encrypted with zero knowledge proofs such as in the case of Zerocoin. Bitcoin’s transactions, with the help of a public blockchain, allow investigators to know where all coins came from and went to. Darkcoin’s devs decided to improve upon the Bitcoin’s easy-to-trace transactions and created mixing nodes that automatically launder all coins sent from a wallet. Monero groups them and implemented ring signatures, which makes it impossible to know who did and didn’t send what, a who’s who nightmare for any investigator.
Other coins have made the networks run through the gold standard of anonymous IP networks, like in Tor. All of these coins have continued to improve the coin’s technological prowess but forgot the goal of anonymity- being hidden in the crowd.
But wait a minute, what is the goal of being anonymous?
The goal is to have nobody else know it was you by making the pool of suspects as large as possible. It is done so by knowing how anonymous you are equals how many other possible people there could be other than yourself. If they are looking for someone with brown hair, a result too broad, then it is a considerably large group. If they are looking for someone with brown hair, libertarian and likes philosophy that narrows it down a lot but still is a decent chance of not getting caught. If they are looking for a brown haired libertarian who likes philosophy, lives on Maple St. and has this 126.96.36.199 for an IP address then… Boom! Gotcha!
While technology might be helpful for achieving this, it might also be counterproductive to the goal. The more “anonymous” you get by using the latest and best technology, the more you get narrowed down to the list. Law enforcement or regulators might be suspicious of things you do anonymously by several reasons:
- You care enough about privacy to go to those lengths (probably hiding something).
- You have sufficient knowledge to use that technology.
- You are one of the users of that technology.
In contrast, Bitcoin provides a layer of anonymity no other coin can code into existence. When you use Bitcoin, you could be using it to buy a computer from Dell, to get coffee from a local ma-and-pa cafe, day trading, or sending money to a loved one in Africa. There are so many people and reasons you could be if you have Bitcoin compared to the much smaller Altcoin.
Another positive reason to use Bitcoin is that it is regulated, which makes it more anonymous. That might sound counterintuitive but laws don’t actually achieve their stated goals. Laws against killing don’t stop murders. Parking tickets don’t stop reckless driving. And we all know that the War on Drugs has not stopped the drug trade.
Regulation won’t stop “dirty” digital money from flowing between financial institutions, but it will give Bitcoin and the people who use Bitcoin a level of legitimacy that they have never had before. Bitcoin has always been called the “money” of seedy online black markets where you can buy drugs, hitmen, weapons and a whole bunch of other horrible things. Now that Bitcoin has Uncle Sam’s blessings, all the sheeple will stop considering it to be digital drug money. They will increase adoption and stop the suspicion that Bitcoin users are all drug users.
Tumblers and mixers do an adequate job of scrambling your transaction history so the coins you bought Afghan Kush OG with can’t be tied back to your Coinbase account. Nobody has been caught because of their transaction history and that is because (at least not yet) they are not looking there. It requires work and actual investigation. Police hate that! Cops hate to actually have to work to ruin someone’s life! They rather have it done for them and that is exactly what they are doing. It is reflected in comments by law enforcement officials and government documents concerning the matter that they are going after exchanges first and making them do the job of policing. And that isn’t so much of a problem for Bitcoin users because exchanges are the bottleneck for all crypto-currencies but Bitcoin has the largest amount of users and thus there is a larger group of people that could you could be.
With Project ITOM, it is clear that a new interest in deep web markets by law enforcement is growing. They might be taking the obvious and easy approach so far but as time goes on and the pressure increases, they will get crafters and start using blockchain analysis. Bitcoin will need to set up its game when that time comes.
So will Altcoins have a role to play then? No, not even close.
Their vital choke point is where Bitcoin is exchanged for fiat but that is slowly not becoming a problem. Deep web vendors and consumers would not need to obtain or sell Bitcoin if there was larger bitcoin adoption. As time moves on, more people will be paid in Bitcoin and sell their goods for Bitcoin. The need to go exchange Bitcoin will become less and less necessary.
The ability to have a separate blockchain that can exchange coins with another blockchain will allow the original Hail Mary of cryptocurrency anonymity to be possible and that would be: Zerocash.
Zerocash was going to be basically just that! It was going to be layer mounted on top of the Bitcoin blockchain, where Bitcoins would be exchanged for Zerocash tokens and sent through a decentralized anonymizer and would spit out fresh and laundered coins on the other side.
The Bitcoin devs said ‘no’ to the idea because they felt it would not get the adoption needed and just strain the network. Well, now there is the possibility of bringing it back by making it have its very own sidechain that exchanges with Bitcoin’s blockchain and most importantly, piggyback on the mass adoption Bitcoin has gathered.
The last thing is financial anonymity improvements might finally be possible. Sidechains, if successful, will release the floodgates for Bitcoin transaction scrambling.
While various cryptocurrencies may be superior in technical anonymity, they fail to provide the practical and real anonymity Bitcoin’s large adoption provides.