TLDR Privacy was not part of Satoshi Nakamoto’s white paper. This gives credence to the idea that the author was a fallible human being. Nor was privacy built into the Internet, as Facebook, NSA and others have taught us. Privacy is now being built into the lower levels of the Bitcoin stack and into the Internet stack; this is not good news for tokenomics funded privacy coins such as Monero and ZCash. Read on to learn about Freenet, I2P, Tor, Nym, Confidential Transactions & MimbleWimble.
This update to The Blockchain Economy digital book covers:
- Tokenomics Funded Privacy Coins
- Independent Bitcoin Mixers
- Confidential Transactions
- Context & References
Tokenomics Funded Privacy Coins
The two best known tokenomics funded Privacy Coins are Monero and ZCash
The market has not been kind to them compared to the recent market price action for Bitcoin BTC.
This is one of 5 reasons why I am an economic Bitcoin maximalist – any single feature of an Altcoin can be copied:
“Altcoins as a sandbox for experiments and a donation to the community is cool, but it is not compelling as an investment thesis.”
This is one reason why BTC dominance is so high in this bull market.
Independent Bitcoin Mixers
Before we get to Freenet, I2P, Tor, Nym, Confidential Transactions & MimbleWimble, lets look at the independent Bitcoin mixer (or tumbler) services; these are something that you add onto Bitcoin if you want a bit more privacy. There are so many of these that there is now a site dedicated to them.
This is now an arms race, with governments and companies paying well funded analytics vendors to track transactions. This is why many think this was a design error in Satoshi Nakamoto’s white paper, which some of the lower level privacy solutions aim to overcome.
TOR (The Onion Router)
TOR, the first anonymity network, uses a volunteer overlay network to conceal a user’s location and usage.
You can see that somebody is using TOR even if you cannot see who it is; so some websites restrict access through TOR.
TOR uses “onion routing”, which uses encryption in the application layer of a communication protocol stack, nested like the layers of an onion. TOR encrypts the data, including the next node’s IP address and sends it through a randomly selected set of TOR relays.
In the arms race, those seeking to de-anonymize the user may do so using vulnerable software on the user’s computer.
TOR was funded initially through the Office of Naval Research and DARPA.
I2P (Invisible Internet Project)
I2P aims to overcome TOR’s big problem, which is speed, by loading dark web services faster.
In many cases it is not TOR or I2P. It is TOR and I2P.Some dark web service hidden by TOR have I2P mirrors.
I2P is peer-to-peer friendly. TOR discourages heavy downloading, but many I2P users are also BitTorrent users.
Unlike Tor and I2P, Freenet is totally decentralized across thousands of hard drives. Freenet users store encrypted files on their hard drive without knowing the contents of the file.
In the most secure/private mode, Freenet users can choose to only connect to explicitly trusted friends of the user.
Freenet is widely used as an anti-censorship tool in China.
Nym’s CEO, Harry Halpin, is clearly going after the privacy coins such as Monero and Cash with this quote:
“peer-to-peer traffic is actually capturable/recordable by any enemy who is watching the network”
Nym has been added to TOR to as Halpin puts it to protect against big cyber savvy governments and corporation, as opposed to those “which can only see a small portion of the internet” .
Nym uses the mixing/tumbling technology mentioned above bu adds it to TOR and Halpin asserts that Nym does not take grants from the US government. Like most of the privacy solutions profiled here, Nym is open source software, run by volunteers on a non-profit basis.
Confidential Transactions is a mixer in Bitcoin Core that lets senders encrypt the bitcoin amounts in transactions with random strings of numbers called “blinding factors.” This is decrypted by the receiver.
Mimble Wimble (named after a Harry Potter curse) is another mixer in Bitcoin Core that does the opposite to Confidential Transactions as the the receiver (not the sender) generates the blinding factor. Although primarily designed for privacy, MimbleWimble also enhances scalability (because it gets rid of the need to track transaction history per coin).
Context & References
Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.
I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.
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