This article is republished by the owner of the website http: We saw people using bitcoins for ideological reasons, but also for the presumed anonymous properties. You didn't need to fungibility bitcoin mineral any identity information to create a wallet or send a transaction.
Anonymous magic internet money. Over the years, it became more clear that bitcoin isn't anonymous at all. All transactions can be traced on the blockchain. If you transact with a stranger at a bitcoin meetup, he could start guessing your total bitcoin balance in your wallet.
When you interact with regulated bitcoin businesses, you fungibility bitcoin mineral required to provide ID information. And you can be sure that this company will fungibility bitcoin mineral your customer data to your blockchain fingerprint. This data can be handed over to law enforcement upon request, fungibility bitcoin mineral be used to analyse the blockchain and associate more activity with you, or reveal connections with certain people, markets or online services.
A lot of bitcoin tracking companies started to deanonymize users by using this data and are actively trying to map the whole bitcoin blockchain. Some people started to offer mixing services. These are centralised platforms where you send your coins to fungibility bitcoin mineral you hopefully get coins back which aren't related to your fungibility bitcoin mineral.
The problem with this is that these platforms can be honeypots operated by law enforcement, or can just go offline and run with your money. This is a system where people let other fungibility bitcoin mineral know they want to mix their coins. People eventually sign one big transaction with all the inputs of the people who wanted to mix at that certain point in time and get outputs from that transaction to a new address.
This somewhat breaks the link, but there is still a degree of traceability: A sybil attack is also possible: If you only "mix" with one party, that party knows your inputs and outputs, while you assume that you now own anonymous bitcoins. This is a very dangerous situation!
But the biggest issue isn't even the centralized mixers running with your money, honeypots, or traceable coinjoins.
It's something that is -in my opinion- a very underestimated issue:. Fungibility is a property of money that makes every unit if this money interchangeable: As long as this note isn't counterfeited, he fungibility bitcoin mineral accept it and exchange goods or services for that paper note.
This is how physical cash works. But how do we enforce fungibility on a transparent blockchain where every transaction is visible? All forms of mixing on transparent chains are active forms of mixing: Fungibility bitcoin mineral act in itself fungibility bitcoin mineral already be considered a crime: Even if using a mixing service isn't viewed as a crime, there are still fungibility bitcoin mineral lot of fungibility risks associated with mixing.
First and foremost, there is the possibility of blacklisting coins. Even if you succeed in anonymizing your coins, there is still a trail. It's pretty easy to know by analysing the blockchain that certain coins were sent fungibility bitcoin mineral a darknet market for example.
So if you try to mix your coins, you do that with coins from an unknown source that's the whole point, remember? Suppose that after mixing, you get coins back which were used in a drug transaction.
Suppose the DEA busts a house of a drug dealer and follows the trail of the bitcoins that guy earned. The DEA may eventually find your wallet as the destination of the drug money. If you then spend these coins at a website that uses a payment processor, your customer data is connected with this drug money and you may get a knock on your door by law enforcement. If you try to sell these coins at an exchange, it's possible your account will be blocked and your coins will be confiscated and sent to the government wallet.
Another problem is mining censorship: Up until now they seem to confirm any valid transaction. What if they aren't even allowed to build new blocks on blocks containing such illegal transactions?
It's all possible in theory. Regulatory compliance by miners is -in my opinion- just a matter of time. This is the fungibility problem that a transparent blockchain faces. What makes Monero different from all other cryptocurrencies? Well, unlike Bitcoin, it uses a passive form of mixing.
How does this "passive mixing" work? Monero uses ring signatures to obfuscate transactions. When you create a transaction, your Monero client randomly selects some transactions from the monero blockchain fungibility bitcoin mineral signs a "ring signature". Along with fungibility bitcoin mineral ring signature, some kind of "fingerprint" is published, called the key image. This results in a transaction where an observer can't know who is the real signer, but has cryptographic proof that it's a valid transaction and no double spend happened.
Because your client picked the other transaction outputs randomly, those outputs are obfuscated even more. And this happens without them signing anything. Their coins can even be stored on a paper wallet and still be included in your transaction!
So when sending a transaction, you not only immediately have plausible deniability about your own transaction history, but also obfuscate the blockchain even more. You generate positive externalities when you transact. The more people are using monero, the better its privacy will become. In Monero, ring signatures are combined with stealth addresses to also make it impossible to identify the receiver of the coins.
A transaction is sent to a "one time address". The receiver needs to constantly scan the fungibility bitcoin mineral with his private viewkey fungibility bitcoin mineral know which transactions are meant for him.
With his private spend key he can then create a ring signature and spend his fungibility bitcoin mineral. Soon Confidential Transactions fungibility bitcoin mineral be added to Monero with the goal of also making the transaction amount invisible. This will also solve some small issues with Monero privacy that now still exist.
But what has this fancy mixing system to do with fungibility? It's still possible to track coins and see that certain coins are mixed, right?
Unmixed transactions aren't allowed on the Monero blockchain. This results in every transaction being in a ring signature and obfuscating the chain fungibility bitcoin mineral more. This guarantees fungibility bitcoin mineral on 2 levels: The only exception to this are the newly minted coins: But this is actually an advantage, as it makes it possible fungibility bitcoin mineral verify that the amount of newly minted coins is according the the emission scheme.
However, other transactions can include these minting transactions in a ring signature. So when that happened at least once, the miner has plausible deniability on whether he spent his freshly minted coins or not.
This means that accepting or spending Monero doesn't have any risks of being tracked, blacklisted or censored. You simply don't know what is happening but you can verify that no double spends are happening and that the supply scheme is honoured. Some issues still exist, but these are minor and are actively being researched by the Monero Research Lab. See their research papers for more info. Monero is an almost perfect form fungibility bitcoin mineral digital cash.
Note fungibility bitcoin mineral Monero will only give you the full benefits of its technology as long as you stay inside the system. Once you start using Monero as some fungibility bitcoin mineral of mixer by buying XMR with BTC and spending your XMR immediately after that, some timing analysis can happen based on the bitcoin and monero blockchain. You shouldn't enter and exit the Monero system every time you want to transact anonymously.
This would diminish the privacy and fungibility aspects of your transaction. Fungibility bitcoin mineral stead, you should just use the funds you already have stored in the network. Monero as a sidechain to Bitcoin is therefore not a good idea. People who actually store a part of their wealth in Monero, will benefit from the obfuscation created by other people transacting. Monero is therefore only useful as a separate fungible network. Isn't that coin claiming to be completely anonymous and better than every other anonymous cryptocurrency out there?
Almost fungibility bitcoin mineral "old time" bitcoiner knows about it. It was proposed to be integrated in the bitcoin codebase so that you would have the option to send a zerocoin-transaction using the bitcoin blockchain. You would need to "pour" your bitcoins in the Zerocoin mixer and from that point onwards, you could transact anonymously using the Zerocoin-protocol.
When it became clear that Zerocoin wouldn't be implemented in the bitcoin codebase any time soon, they worked for a while on implementing it as a sidechain. But at some point the Zerocoin-team pivoted and decided to launch the altcoin ZCash.
There is nothing wrong with trying to launch an altcoin, but, in my opinion, an altcoin can only survive long term if it actually offers something that is unique and probably can't be adopted by bitcoin. The fact that it's possible to add ZCash as a sidechain to bitcoin, fungibility bitcoin mineral already raise some red flags. The ZCash team decided to launch ZCash fungibility bitcoin mineral an altcoin so they were able to fund the development: If ZCash were to succeed, the private investors fungibility bitcoin mineral benefit greatly from the launch of this cryptocurrency.
Although I don't fungibility bitcoin mineral ICO's, a public coinsale a form of crowdfunding would have been a more fair and open way to fund development than seeking money from private investors. This is in great contrast with the launch of Bitcoin and Monero, which were fairly launched, without "premine", "mining tax" or some kind of company behind it.
In my opinion, a successful large cryptocoin will probably be grass-roots, but it's possible I'm mistaken here.
Maybe some people actually prefer a corporate coin like ZCash.
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