Privacy Protection Is Blockchain’s Weak Spot

Privacy Protection Is Blockchain’s Weak Spot

Blockchain is often regarded as safe and trustworthy technology, but despite that being true, distributed ledgers offer anything but privacy. For example, Bitcoin provides almost no privacy since transfers are public and anonymity refers to pseudonymity.

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Blockchain is often regarded as safe and trustworthy technology, but despite that being true, distributed ledgers offer anything but privacy. For example, Bitcoin provides almost no privacy since transfers are public and anonymity refers to pseudonymity.

Organizations like Elliptic and Chainalysis who are in the business of cyber forensics work on projects that keep track of transactions flow. Unsurprisingly, as the number of private coins rises, concerns over privacy and security rise as well. It may sound quite confusing to those unfamiliar with the field but it is still rather easy to catch up with the trend. Imagine how difficult it’ll be in just 5 to 10 years when the early days will be long gone.

In the world of cryptocurrencies, developers do not always share the same opinion. This is especially true when privacy is in question. Some believe that data tracks should not be public, while others are on the opposite side. Maybe the brightest example of privacy rivalry is the one between Monero and Zcash. By default, Monero offers privacy but Zcash prefer to give the choice to the customers, who can choose between transparent and shielded transactions.

We believe that both models have their advantages. Privacy is crucial to business or private transactions but sometimes authorities may require auditability and this is where Zcash are one-step ahead of Monero. You get confidentiality and transparency at the same time. Sounds like a win-win situation to us. Moreover, shielded money transfers use up more blockchain space compared to public ones. Bearing in mind that scalability is already an issue we must carefully evaluate if it is wise to make it even harder.

The success of Zcash relies on the zero-knowledge protocol but Zk-snarks are not perfect because they do not always function properly if the setup is not trusted. Zk-snarks use unpredictable hash functions instead of public key cryptography. Of course, this only motivates developers to work on various solutions of blockchain privacy. At the same time, they develop security technologies that are faster and lighter, too. Still, we are in the early stages.

So far, changes happen so fast, it is impossible to predict which ones will stand the test of time. The whole cryptocurrency and blockchain community is constantly raising questions over privacy protection and security. Maybe the leaders of the largest ecosystems will play crucial roles in 2018.

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