Some believe that bitcoins anonymous properties are a bug, not a feature. This past January, New York financial regulator Benjamin Lawsky called for a crackdown on software that anonymizes transactions in the online digital currency, saying it will merely help criminals evade law enforcement. And one of the currencys biggest supporters, venture capitalist Marc Andreessen, believes bitcoin will truly thrive only after it shrugs off anonymity protections.
But some parts of the bitcoin community have other plans in mind.
Even as regulators work to tie new identity restrictions to bitcoin businesses, a collection of projects is moving in the opposite direction, trying to preserve or even upgrade bitcoins properties as an ultra-private, untraceable payment system as anonymous as handing off a briefcase of unmarked bills. Last week saw the launch of Dark Wallet, a piece of bitcoin software that represents perhaps the most radical move yet to evade tracking of who spends and receives bitcoin. When it comes to describing the projects intentions, Dark Wallets 26-year-old organizer Cody Wilson doesnt mince words. Its just money laundering software, he says.
But despite the controversy that surrounds the idea of untraceable digital cash, efforts to make bitcoin anonymous serve a real need. Bitcoin transactions are public by default, visible to anyone who searches the blockchain, the distributed public ledger of all bitcoin payments that keeps it safe from forgery and fraud. Deny bitcoiners the ability to hide their identity, and theyre left with a serious privacy problem. The problem is not just about how to buy drugs online, says Ian Miers, a graduate researcher at Johns Hopkins focused on cryptocurrency privacy. As bitcoin becomes more mainstream, it becomes an issue of how to fix consumer privacy. The problem may be even bigger for companies. Legitimate businesses, for instance, may want to hide their transactions so that competitors cant track their sales growth.
Here are a few of the projects seeking a more private way to bitcoin:
Cody Wilsons project with Amir Taaki and the anarchist group unSystem launched last Thursday with two particular methods for protecting its users identities. One is what it calls CoinJoin. Every time a user makes a payment with Dark Wallet, the program is set by default to combine the transaction with that of another Dark Wallet user attempting to make a payment around the same time. The communications to set up that multiparty transaction are encrypted, so that detecting who paid whom becomes far more difficult. Eventually, Dark Wallet plans to expand CoinJoin to combine payments of three or more users, creating an even more tangled web of money flows.
On top of protections for senders, Dark Wallet adds another one for receivers that it calls stealth addresses. When a user publishes a stealth address instead of a normal bitcoin address as his or her public P.O. box for receiving funds, any money sent by another Dark Wallet user to that address goes through an extra obfuscating process. Instead of appearing in the blockchain as being sent to that stealth address, Dark Wallet encrypts the address in such a way that only the recipient can recognize it and sends the money to that encrypted address. The receivers Dark Wallet app scans the blockchain for payments encrypted to his or her stealth address and decrypts them to claim the funds. Crucially, no evidence remains in the blockchain that ties the sender and recipient.
Dark Wallet isnt the only wallet that offers to mix up its users coins to foil surveillance. So does one of the most popular bitcoin wallets already in use: Blockchain.info. An initiative from the company called Shared Coin implements CoinJoin to protect transactions as large as 50 bitcoins. But users have to choose to turn Shared Coin on. Unlike with Dark Wallet, its not enabled by default. And Blockchain gives users a warning that, although it doesnt log their transactions, its subject to laws that might compel it to track their transactions in some situations. The server does not need to keep any logs and transactions are only kept in memory for a short time, reads a disclaimer on Blockchains site. However, if the server was compromised or under subpoena it could be forced to keep logs.
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5 Bitcoin Projects That Could Make Payments Far More Anonymous