How does a Blockchain Network keep its Transactions Anonymous?

telecoin

Ever since Facebook started sharing our private messages and personal information with third parties, the concept of individual privacy started gaining a lot of media attention. To name just a few data breach problems, BBC quotes, “A series of scandals including the Cambridge Analytica data harvest, incitement to violence in Myanmar, also known as Burma, evidence of Russian and Iranian meddling in the US elections, and several data-exposing bugs.” 

There must be something irresistibly tantalizing for large corporations in watching our private lives unfold, but it’s hardly exciting for us when someone reads stuff not intended for public use. 

Some of our friends might joke “When I make someone breakfast in bed, they should be giving me praise like, ‘Wow, your dedication to this relationship and your tenderness and care are awesome, thank you so much!’ and not all this “Who are you and how did you get into my house?” nonsense. 

telecoin
Source: xkcd.com

But people typically react very seriously when their privacy is breached. Facebook letting strangers into our supposedly secure conversations may have gotten a lot of publicity as of late, but the issues of privacy, tracking, and paranoia have been plaguing our society ever since the first Secret Service was invented all the way back in ancient Rome.

Who exactly is tracking you, and how? 

If you find a good source (which isn’t easy) and read about the research from real experts, you’ll come to find out that EVERYTHING spies on you. Do you have an iPhone for yourself, another smartphone for work, and a fitness bracelet? You’ll be glad to know all of these devices have GPS, and if someone out there wants to know where you are they can cross-reference the GPS data and find you anywhere. Think it sounds like an urban legend? Well, let’s take a look at which of your activities leave a trace on the Internet. Thanks to our friends at Lurkmore.to, we now know that:

  • Your data on Facebook and Twitter is stored in search engine caches and can be accessed by anyone, anytime.
  • Google knows about your every search thanks to your requests getting redirected to Google’s servers first.
  • Parents can see if kids skip classes at school because they can track the phone’s GPS.
  • Services like CALEA in the US allow the government to listen in on any conversation they deem necessary.
  • Google uses Skyhook, a database of over 100,000 Wi-Fi hotspots all over the world, to feed you geographically relevant ads. They know where you live…
  • Thanks to your registering an account with Google, it knows your number, your contacts, call history, and plenty of other stuff you probably don’t know they know. And they know you don’t know they know!
  • Some sites that use cookies track you. Additionally, flash cookies (called LSOs: Local Shared Objects) are installed by default and it’s impossible for a non-advanced user to delete them (also because they don’t know about them).
  • Google Analytics and LiveInternet use web bugs (web beacons) to track your browsing history.
  • The TCP protocol, according to Lurkmore, will “gladly provide information about your OS.”
  • ICANN gets information from all IPs everywhere, and it can be accessed by surveillance services at a moment’s notice.

Still think you have privacy? Maybe you don’t given this information, but as we learned from the legendary X-Files there’s never anything you can do. In this case, as you probably already know, services like TOR can help you keep your data more secure. 

Coincidentally, the onion routing that TOR is famous for using to make the KGB cry is also used in Cloak, a system that uses blockchain. Since then, more and more privacy-first solutions are including the blockchain in their technology stack, as we’ll soon see with TeleCoin and Z-Cash.

How does the blockchain maintain its users’ anonymity?

The fundamental feature of all security systems is its decryption, and the blockchain is globally famous for its insanely complex cryptography. One example of a network made as anonymous as it gets with supersmart code from Towards Data Science:

“Privacy and security of the data can be preserved while computations are performed on it. Only users with the appropriate decryption keys can access the private details of the data or transaction. Cryptographic techniques such as Zero-Knowledge Proofs (ZKPs) and zk-SNARKs already use homomorphic encryption. A popular crypto-protocol called Zcash uses zk‑SNARKs to encrypt its data and only gives decryption keys to authorized parties for them to see that data.”

Data encryption (which only users with keys can unencrypt) and decentralized storage are two ways blockchain can keep data safe. Add to that the fact that identities are anonymous as far as blockchains are concerned (sort of). But here’s where the problem lies. The blockchain is a supremely smart system, probably smarter than anything we have ever seen before. 

But is it smart enough?

telecoin
Source: unsplash.com

When one person sends money to another, the address of the sender is divulged, along with the address of the receiver and the sum. The identities are kept secret, but there are many more ways to explore the system’s capabilities to gain more information about a particular user. 

For example, if a real user’s identity was blown, wallet addresses they previously used could be tied to identity. If you were known to use several addresses and somehow someone connected your true identity to one of them, others could be compromised too. If those addresses were used at an exchange where you passed KYC/AML, someone could get access to your ID. Here’s another example of the blockchain being not completely anonymous (although it’s designed to be):

Non-anonymous Chinese newspaper buying

In this example, the adversary controls the destination and finds the source from metadata.

  • You live in China and want to buy a “real” online newspaper for Bitcoin.
  • You join the Bitcoin forum and use your address as a signature. Since you are very helpful, you manage to get a modest sum of donations after a few months.
  • Unfortunately, you chose poorly in who you buy the newspaper from: you’ve chosen a government agent!
  • The government agent looks at the transaction used to purchase the newspaper on the blockchain and searches every relevant address in it on the web. He finds your address in your signature on the Bitcoin forum. You’ve left enough personal information in your posts to be identified, so you are now scheduled to be “reeducated”.
  • A major reason this happened is due to the reuse of an address. Your forum signature had a single Bitcoin address that never changed, and so it was easy to find by searching the web.

So now you know not all parts of blockchains are anonymous. What about blockchains in general?

Are all blockchains anonymous?

As you now know, Z-Cash is as anonymous as it gets. In this system, there are two types of transactions: ones that omit the individual addresses, keeping participants anonymous, and the transactions that are recorded for the public to see. Seems like the perfect system for companies to use; with both transparency and confidentiality.

Bitcoin, on the other hand, is not anonymous. It’s pseudonymous. Bitcoin, Ethereum, and Litecoin are NOT anonymous. What does that mean? The address that receives your crypto is your pseudonym. You won’t ever be able to erase that transaction, and if anyone links the address to your true identity, they can trace the transaction back to you. Although Satoshi Nakamoto’s advice to use a different address for every transaction is sound, you won’t get full anonymity thanks to multi-input transactions. Read more here

telecoin
Source: blockchain.com/explorer

But that’s not right! You wanted a truly private network that no one ever can trace back to you! And so did companies that want to keep their contracts ultra-secure. Every B2B contract is confidential. Right? Sometimes the parties prefer to include a condition in the contract that makes it illegal to even mention the fact that the contract exists! 

That’s how important security is to companies, and that where a huge problem lies with blockchains and companies. They want to be friends. Or maybe more than just friends. But given that all relationships are based on trust, a relationship with a blockchain is, well, trustless. So what do we do?

What do we need to make a truly private network?

In our example, Z-Cash used zk‑SNARKs to achieve a truly impressive level of anonymity. From that we can infer that, in order to make a truly private network, one needs a lot of sophisticated code in the same way you would need a lot of good security to guard really valuable assets (like the Mona Lisa). TeleCoin, a network exclusively designed to strike back at the pressures of the era (the rise of smartphones, AI watching us, and security systems combing blockchains for leads) is made of excessively impressive technologies. 

What makes TeleCoin unique is a combination of the best features of many other projects. Just like Bitcoin was built using the best parts of other work, like Nick Szabo’s Bit Gold, the creators of TeleCoin put together “Proof-of-Stake, private transactions, masternode capabilities,  the Trend-Setter platform, and a decentralized blockchain voting system.” And more. Do we think TeleCoin is better than Z-Cash in terms of the capacity for anonymity? We’ll let you be the judge of that, but in terms of infrastructure, TeleCoin seems to be far more advanced.

1. PIVX

PIVX = perfect decentralization. NO central authority. People wonder why exchanges get hacked and then introduce that idea to criticize the blockchain. Well, it wasn’t the blockchain that was hacked but the central hub where all the money and passwords were conveniently stored. PIVX? No central point. Full stop. 

2. PoW vs PoS

Proof-of-Stake is a new and exciting method designed to replace the bulky and resource-consuming Proof-of-Work process. Think Wi-Fi and dial-up modems (Proof-of-Work is actually about that old). The PoS protocol is similar in terms of concept to the new MinePhone: you can mine ETH in a smartphone with dramatically smaller electricity bills and much less expensive hardware. PoW means very expensive hardware and a lot of wasted electricity.

3. Masternode (obfuscation)

Masternodes use a method called obfuscation, which is essentially coin mixing designed to make the transaction much harder to track. And with services like Chanalysis working with the authorities on programs that can track digital identities on the blockchain networks, every additional step taken to protect privacy matters. 

To think of a real-world example, obfuscation is the equivalent of taking number plates off your car, which, alongside other measures, will make it more difficult to trace your travels.

TeleCoin uses a variety of features other than these. For example, its Guaranteed Zero Confirmation Transactions method (SwiftTX) uses masternodes to guarantee no disclosure risks or downtime. Transactions are instant. Read more about masternodes, collateral, and obfuscating here

The future of privacy

What would ultimately make blockchains as private as needed is by having the best technology in the business and people who know how to use it.  We really liked the idea of zk‑SNARKs. Zero-knowledge proofs? Coin mixing? We’re pretty sure we can handle that, but when it comes to heights of elliptic cryptography, we need specialists to handle it. 

telecoin
Source: pinterest.com

The blockchain is in dire need of more privacy and the people who can make it happen, because the threats are growing, often from those who we considered our digital family (I’m looking at you, Google). To put it simply, sophisticated mechanisms that will defend our data right now are few and far between.

All materials on this site are for informational purposes only. None of the material should be interpreted as investment advice.

SAY WHAT YOU THINK