Exploring Privacy Coins: Blackbytes in Obyte vs. Other Contenders

In the realm of cryptocurrencies, the pursuit of enhanced privacy and anonymity has spurred the development of various privacy-focused coins, each striving to address the transparency limitations inherent in traditional blockchain networks like Bitcoin. Among these privacy coins, Obyte has introduced a distinctive approach with Blackbytes (often referenced as their larger unit — Giga-blackbytes, or GBB).

While traditional privacy coins often employ intricate cryptographic techniques like zk-SNARKs (used by Zcash) or Confidential Transactions and Ring Signatures (used by Monero) to obscure transaction details, Obyte's blackbytes take a different path. In this exploration, we will delve into the features of Blackbytes within the Obyte ecosystem and compare them to other leading privacy coins.

Why use privacy coins at all?

Privacy coins like Blackbytes in the Obyte ecosystem and Monero or Zcash outside offer a compelling solution to a key concern within the cryptocurrency realm: privacy and confidentiality.

In an era of increasing digital surveillance and data breaches, individuals are seeking ways to protect their financial transactions from prying eyes. Privacy coins provide a shield against the transparent nature of most networks, ensuring that sensitive financial information remains confidential.

The most known cryptocurrencies to date, like Bitcoin (BTC), Ethereum (ETH), BNB, and several stablecoins don’t offer this feature at all. Their ledgers are public, which means anyone can consult every transaction ever done just by looking into an explorer. Besides, every transaction includes details like addresses involved, amounts, dates, fees, and more.

The appeal of privacy coins lies in their ability to obscure transaction details, such as sender, receiver, and transaction amount. This enhanced privacy not only safeguards users' financial information but also protects their identities from potentially malicious actors. Whether it's protecting personal spending habits or shielding business transactions from competitors, privacy coins offer a level of discretion that traditional cryptocurrencies cannot match.

Moreover, privacy coins contribute to fungibility—a fundamental property of money where each unit is interchangeable with another. In transparent ledgers, tainted coins, such as those associated with illicit activities, can be tracked and discriminated against. Privacy coins mitigate this issue by dissociating transaction history from the coin's current use, ensuring that all units of the currency are equal and indistinguishable. As the demand for financial privacy grows, privacy coins like Blackbytes and Monero are poised to play a pivotal role in reshaping the future of secure and confidential transactions.

Most popular techniques (and coins)

Privacy coins employ a diverse array of techniques to ensure confidential transactions, each with its own unique approach to achieving anonymity. Here's an overview of some prominent techniques and the coins that utilize them:

1. CoinJoin: CoinJoin is a technique that involves combining multiple transactions from different users into a single transaction. This obscures the original source of the funds, making it difficult to trace individual transactions. Users voluntarily participate in mixing their transactions, creating a larger pool of funds and making it challenging to determine the source of any particular coin. Bitcoin-based privacy wallets like Wasabi utilize CoinJoin to enhance user privacy, but individual coins like Dash (DASH) use this method.

   
   

2. zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge): Also widely known as zero-knowledge proofs, this advanced cryptographic technique offers mathematical proofs that one party has possession of certain information without revealing what that information is. So, it allows the verification of transaction validity without revealing transaction details. Zcash (ZEC) and Dusk Network (DUSK) use this feature at different levels.

3. Stealth Addresses: They’re a mechanism where the sender generates random, disposable addresses for each transaction on behalf of the recipient. While the recipient discloses a single address, all incoming payments are routed to distinct addresses within the network. This arrangement effectively severs any traceable link between the recipient's disclosed address and the addresses used for actual transactions. Monero (XMR) uses this technique, along with others. Ethereum (ETH) is also considering a “light” version of it.

4. Ring Signatures: A ring signature employs a combination of a user's account keys and public keys (referred to as outputs) drawn from the ledger. Over time, prior outputs could be reused to create potential signers. Within this group of potential signers, known as a "ring," all members are treated as equally legitimate and valid. This uniformity makes it impossible for an external observer to discern which signer within the group corresponds to the user's account. So, the use of ring signatures guarantees that the origins of transaction outputs remain untraceable. Monero (XMR) and ShadowCash (SDC) use this method.

5. Mimblewimble: It’s a protocol designed to enhance both scalability and privacy. It allows the transaction data to be removed without compromising security. Therefore, there are no addresses, and transactions are confidential. Grin (GRIN) and Beam (BEAM) are two notable cryptocurrencies that implement Mimblewimble to achieve privacy and scalability.

All of these methods and coins have their own advantages and disadvantages. However, they’re likely sharing the same weakness that undermines their privacy.

Privacy coins in centralized exchanges

Regardless of the cryptographic techniques employed to conceal transaction particulars, the inherent privacy of cryptocurrencies becomes vulnerable once they enter the realm of centralized crypto exchanges. These exchanges, acting as intermediaries for trading and liquidity, often require users to reveal certain transaction information for regulatory compliance, anti-money laundering (AML), and know-your-customer (KYC) procedures. This crucial step compromises the confidentiality that users have sought through privacy-enhancing features within cryptocurrencies.

Even when private coins incorporate advanced methods such as zk-SNARKs, CoinJoin, or stealth addresses to obfuscate transaction details, the transfer of these coins to centralized exchanges necessitates revealing sender and recipient identities, as well as transaction amounts. This information can be accessed by the exchange's operators, regulators, and potentially malicious actors, effectively undermining the privacy safeguards these coins offer within their native ecosystems.

As a result, the transition from private transactions to the centralized exchange environment introduces a critical trade-off between privacy and compliance. This conundrum underscores the broader challenge facing the cryptocurrency landscape, where the pursuit of anonymity and regulatory adherence often find themselves in conflict.

So far, Japan, South Korea, Dubai, and Australia have banned these coins from exchanges. Additionally, because of regulatory scrutiny, several prominent exchanges such as ShapeShift, Bittrex, Binance, and CoinSpot have voluntarily chosen to delist privacy coins like Monero and Dash in some other regions.

Blackbytes in the Obyte wallet

Unlike the aforementioned coins, Blackbytes is more focused on individual users and devices. This asset divides the internal data of its transactions into two parts. One part is publicly available and registered in the DAG as an undecipherable hash. The rest of the related information (amount, involved addresses, dates, parents and children’s transactions, etc.) is sent directly to the recipient(s) via end-to-end encrypted private message.

If you try to find any evidence about Blackbytes transactions in the public Obyte explorer, you’ll just find a wall. Only the involved users have this data on their own devices (in the form of a digital file), offline. As for the ‘public’ hash, only the involved users know its origin and the hidden data.

Users can exchange this asset between them directly, without middlemen, via the Obyte wallet. They also can use the built-in chatbots to buy and sell Blackbytes, with an Obyte Hub as the only intermediary for end-to-end encrypted messages. The hub is a storage node: a service for temporarily storing and forwarding encrypted private messages (or transactions) to connected devices.

As the Obyte whitepaper reads:

“When a device wants to send something to another device, it connects to the recipient’s hub and sends the message. Unlike email, there is no relay — the sender connects directly to the recipient’s hub. All communication between devices is end-to-end encrypted and digitally signed so that even the hub (who is the only man in the middle) cannot see or modify it. We use ECDSA for signing and ECDH+AES for encryption.”

No data for exchanges

Due to the inclusion of past transactions in the shared private data among involved parties, the final users could potentially glean insights from previous users and their interactions with the same asset. This circumstance renders Blackbytes ineligible for inclusion on centralized exchanges, as such exchanges would accumulate significant quantities of Blackbytes and unravel substantial aspects of its historical usage.

Contrarily, Blackbytes was intentionally designed for decentralized utilization, serving as a true peer-to-peer (P2P) coin. The sharing of its data is restricted to individual users, exclusively exchanging between peers, thereby ensuring its confidentiality. Transaction records are stored locally on users' devices, inaccessible to external parties.

Besides, in a strategic effort to mitigate potential concerns, Blackbytes employs fixed denominations for its "coins" or "notes." These denominations, like 1, 2, 5, 10, 20, 50, etc., are unique and boast distinct histories. They remain separate and cannot merge, precluding the combination of "1s" to form a "2." This unique characteristic serves to abbreviate the transaction history of each asset, minimizing the disclosure of past ownership details.

The right to privacy

Decentralized money was created by privacy activists, in the first place. The digital world is being increasingly watched these days. Governments, companies, and even other individuals are now pretty capable of following our virtual steps —including the financial ones. Luckily, we can use a wide array of privacy tools to protect our transactions and personal data.

Blackbytes is just another of those tools. It’s important to combine it with others to reach a good level of online privacy. In the Obyte wallet, for instance, you can (and should) set a password, backup your wallet data out of the Internet, establish spending restrictions, and activate the use of TOR (the privacy browser). All of this is in the section “Settings (Global Preferences)”.

In addition to it, you could also use tools like Virtual Private Networks (VPNs), non-corporate operating systems, one-time emails, encrypted online communication apps, metadata cleaners, and password managers. Of course, you should also stay away from public WiFi networks and centralized exchanges if you want your transactions to remain private. Blackbytes in Obyte is a great tool for it!