The foundation of a dark Bitcoin soft fork is forming. The securitization of Bitcoin by institutional investment has the potential to make it another marketing tool. The fear of corporate intrusion through the use of behavioral tracking software is creating the need for higher privacy. Though several projects like Monero, ZCash, Verge, Linda, and Dash already offer this, Bitcoin lacks any identity protection protocols of its own. However, all of this is about to change. Today a new anonymity-enhacement protocol called Mimblewimble entered use through the launch of the Beam coin. In combination with “Bolt,” Bitcoin might get a veil of invisibility of its own. However, dark coins like Monero and ZCash have become prime targets for regulators who postulate their use primarily for illegal activities.
Bitcoin can be commercialised and used to track people’s spending habits. The transparency feature of the blockchain makes it easy for anyone to analyze behavioral patterns such as purchases, transfers, wallet addresses, and amounts. Bitcoin is an open source blockchain whose data is available for public viewing. And the data generated is available for collection and analysis. In fact, this data has already been used to connect idividuals to their crypto wallets.
Last November, the Office of Foreign Assets Control (OFAC) linked the digital addresses of two Iranian individuals suspected of cybercrime. Ali Khorashadizadeh and Mohammad Ghorbaniyan allegedly helped Iranian hackers Faramarz Shahi Savandi and Mohammad Mehdi Shah Mansouri, exchange Bitcoin payments into their local currency. The criminals used the SamSam ransonware to attack U.S. institutions and collect $30 million. In response OFAC published the names of the individuals involved in the attack and disclosed their wallet addresses. Theoretically, the government can’t stop transactions coming or going into those addresses, but it can monitor them, along with any or all associated addresses. Furthermore, it can sanction the exchanges and blacklist all addresses and wallets transacting with the accused individuals. This incident showcases the ability to trace Bitcoin for legal, commercial, or public use.
Mimblewimble / Bolt
This is where these two security protocols come in; they add security features to Bitcoin that will make it harder for anyone to oversee.
Mimblewimble uses random values called blinding factors to encrypt bitcoin amounts in a transaction. The sender and recipient match the randomly selected range of blinding factors along with the number of inputs and outputs and decode the transaction. The matching of the inputs and outputs is another security feature of Mimblewimble called Cojoin. The beauty of this protocol is that it minimizes the amount of data imbeded in a data block, thus scaling the entire transaction.
On the other hand, Bolt makes use of the Lightning Network’s concept of payment channels by creating shielded transactions inside these channels. It uses blind signatures and zero-knowledge proof to obscure the sender and receivers’ indentities.
Soft Fork v Bitcoin Private
Bolt borrows from ZCash and it along with with Mimblewimble can integrate into Bitcoin through a soft fork. And though a dark Hard-fork already exist in Bitcoin Private, the combination of the two protocols would make Bitcoin superior. The advantage is that a soft fork would make both protocols compatible with the current version of Bitcoin. In contrast, Bitcoin Private is a combination of an iteration of Bitcoin and ZClassic; a venture that while successful in providing privacy features, it lacks the true marketability and versatility of Bitcoin.
The need for privacy extends beyond individual’s use of Bitcoin. It is critical for institutions negotiating prices and secret terms in smart contracts. If Bitcoin is to become a global currency it must integrate some form of privacy in its code. The lack of it is the reason for the development of private or permissioned blockchains like the IBM Hyperledger, Quora, Tradelens, or MOBI. Fortunately, there is a growing interest and development and it’s only a matter of time before this happens.
However, it is worth mentioning that the government is also working on a counter to privacy in cryptocurrencies. The Department of Homeland Security’s Small Business Innovation Research department is seeking proposals from companies with the purpose of analyzing blockchains. In particular, contractors skilled in blockchain forensics, data analysis, and information sharing. Therefore, adding privacy to Bitcoin will undoubtedly attract further scrutiny from the government.