The Underyling Technologies and Guiding Principles Behind Privacy Coins

We are all familiar with digital currencies such as Bitcoin, Ethereum, and EOS. The development of digital currency to the present has gone through a special development stage, during which the prices of various digital currencies have skyrocketed and attracted countless people.

This stage is marked by the emergence of a computer virus in 2017. That virus is the one that still exists, and still has the power to wreak havoc: the ransomware virus. Unlike previous viruses, this virus encrypts users’ data and documents, and the ransom demanded is no longer US dollars, but Bitcoin (provided the Bitcoin payment address).

With Bitcoin, virus writers no longer need to provide bank card numbers that involve personal information and are completely anonymous. Anyone who offers a ransom is paid into the bitcoin account of the virus writers. Virus writers can then use bitcoin to make transactions, redeem goods and merchandise on the black market.

However, there is still a big problem with Bitcoin’s anonymity. The anonymity of bitcoin addresses is only a pseudonym (or alias). Since all Bitcoin transactions are published on the bitcoin blockchain, anyone can view and verify them. In this way, special marks can be made for an account address, and the account address can be tracked and verified.

Once the real-name information of an account address is obtained (in general, the exchange requires the user to provide the real name, once the exchange information is mastered, the identity information of the actual holder can be obtained).

Based on this real-name information, go back one step at a time, and you can get all the relevant transaction information personnel information. The problem is what we call the avalanche effect of personal information.

Back on February 24, 2014, Mt.Gox, the world’s largest operator of bitcoin exchanges at that time, declared bankruptcy after announcing that 650,000 bitcoins had been stolen from its exchange.

Later, an investigation by law enforcement authorities found that of the so-called “stolen 650,000 bitcoins”, only 7,000 bitcoins were actually missing due to hacking, and the rest were taken away by insiders of the platform, which is a typical inside job.

In order to solve the problem of the anonymity of bitcoin, many technologies have been introduced into the blockchain to enhance the anonymity of blockchain accounts.

There is a very simple and effective way to deal with it, although some people have put forward different opinions, this technology is the most widely used, and the most effective.

This is coin join. The principle of coin join is that many accounts participate in the transaction, which contains more than one account in a “pool” of a large number of buying and selling, but it is difficult to find in the buying and selling one-to-one mapping relationship, buying and selling is fragmented, so no one can find out another account from one account.

The attacker cannot monitor and track the transaction process because the mix is implemented in the “pool”, and the execution of coin join relies on a coin join protocol or other protocols. There is no third party in the process, so it is safe, reliable, and completely decentralized.

Coin join can use multiple rounds of mixing, each mixing can increase the degree of data mixing, making reverse query more difficult. After multiple rounds of mixing, the coins mixed into the “pool” can no longer distinguish which coin is provided from which wallet, because each coin may be composed of a part of the coins provided by multiple accounts.

The advantage of coin join is that the solution is simple and easy to implement. And because of the concise logic flow, errors are less likely to occur during processing. “Existence is reasonable”. At present, coin join has been widely used in some blockchains, which is enough to illustrate the importance of the privacy processing of digital currencies.

Coinjoin uses Multisig, which requires the traders to separately split their signatures. Only those transactions that provide all the signatures can be judged to be legal and accepted by the network.

Otherwise, all the individual assets will be returned separately. Compared with the early coin mixing service, the improved coinjoin can effectively resolve the trust risk of the third party and avoid the possibility of the third party stealing and disclosing the coinjoin information.

Coinjoin is the basis of the decentralized coin mixing mechanism, which Dash applies. Some new anonymous  coins, such as CodeMason, also use this technology.

One of the biggest benefits of coin join is to make cryptocurrencies better interchangeable, that is, more fungible. The interchangeability of currency means that currency can be completely exchanged, which also guarantees that its own value will not be lost due to its state or previous use.

If everyone’s currency is continuously shuffled and combined, it will be difficult for an exchange or other company to “ban” or add “blacklist” it, and all currencies will be circulated on the market.

Coin join provides users with privacy by obscuring transaction addresses and amounts, and it is not possible to view the currency’s transaction history, thereby reducing the problem of non-interchangeability.

Although there are many advantages of coin join services, it has not been widely developed due to the current regulatory problems. However, no matter when the market for this service is a certain demand, it will not completely disappear, it will only become more and more perfect. In the future, coin join may also become an important consideration factor affecting the development of the cryptocurrency market.

Of course, there are still many areas that can be improved and optimized in the coin join technology. such as:

1. When a user submits a transaction, the user’s transaction information can be obtained through network sniffing, and the user’s target address and the amount can be restored through the transaction information.

2. The network must be used for transactions, and the real IP address of the user will be exposed during network transmission. The current leak of IP addresses can also provide hackers with information: getting the user’s real geographic location (which is scary enough).

3. Other security issues

The above problems have not been solved effectively at present, but with the continuous development of coinjion technology and the mutual combination of other technologies, it is believed that coinjoin can be better used to solve the anonymity problem.