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Bitcoin right now is not really anonymous. While Bitcoin addresses aren't necessarily linked to real-world identities, they can be. Monitoring the unencrypted peer-to-peer network, analyses of the public blockchain and Know Your Customer (KYC) policy or Anti-Money Laundering (AML) regulations can reveal a lot about who's using Bitcoin and for what.
This is not great from a privacy perspective. For example, Bitcoin users might not necessarily want the world to know where they spend their money, what they earn or how much they own; similarly, businesses may not want to leak transaction details to competitors.
Additionally, the fact that the transaction history of each bitcoin is traceable puts the fungibility of all bitcoins at risk. "Tainted" bitcoins, for example, may be valued less than other bitcoins, possibly even calling into question Bitcoin's value proposition as money.
There are potential solutions that may increase privacy and improve fungibility in Bitcoin. But most of these solutions are either partial, works-in-progress or just largely theoretical.
To reclaim their privacy right now, therefore, have begun to utilize one of its competitors: the altcoin Monero.
The article continues with an explanation of how Monero works differently from Bitcoin. Monero is based on the CryptoNote reference implementation, which is an altcoin that was designed from scratch. It uses XMR as its native currency which is one of the top altcoins by market capitalization It has implementation details that greatly reduce the ability of someone to follow the chain of inputs and outputs of transactions and trace back someone's identity. The real trick is Monero's use of "Ring Signatures":
The actual magic comes from a cryptographic signature scheme called "ring signatures," based on the older concept of "group signatures." Ring signatures exist as several iterations and variations, but all share the property of obfuscating which cryptographic key signed "which" message, while still proving "that" a cryptographic key signed "a" message. The version used by Monero is called "Traceable Ring Signatures (pdf)," invented by Eiichiro Fujisaki and Koutarou Suzuki.
Lastly, a Bitcoin holder can exchange Bitcoin for Monero, perform a transaction, and then (if desired) convert any change from the transaction back to Bitcoin (with suitable delays to allow other transactions to occur on the Monero blockchain.)
(Score: 1) by tftp on Sunday September 04 2016, @04:52AM
The research into cryptocoins is necessary and welcome. But this particular advantage - anonymity - is of little value to the vast majority of humans on this Earth. They do not even care what data MS and Twitbook steal from them, as they do not value that information. The majority of people live boring, predictable lives, and even their most extravagant spending (booze, blackjack and/or hookers) is trivial by any reasonable standard. Their existence is x-rayed by data mining, they are flooded with ads - but they don't care, they are already immune to such things, or so they think. There are very few rebels who won't lay down the text editor until the last ad is exterminated from the surface of their browser.
As result, those people read about untraceable, secure cryptocurrencies, and it does not click with them. Hey, it doesn't even attract me, even though the technology is interesting. But so is the technology to calculate Golomb rulers or to find arbitrarily long primes. It doesn't mean that I will run out and invest into an FPGA box that does these things. My life is also boring. Yes, the bank knows where I buy food and who I pay the rent to. This does not bother me, as my address is already known to them. There are very few payments in my life (close to zero) that I would not be comfortable disclosing - and absolutely zero that could harm me. (I don't use drugs, for example.) There is no reason for me to complicate my life now in an attempt to get rid of a problem that does not exist. The same thinking is shared by billions of people, and that's one of reasons why BTC is going nowhere, with a few thousand people controlling the exchange rate and with a few hundred thousand experimenting with single BTC values. I think I have a princely sum of 0.01 BTC somewhere. I can't even send it anywhere, as the transfer costs more.
As others already mentioned, cryptocurrencies suffer from an enormous volume of calculations and data transfer worldwide to service a routine purchase of a cup of coffee. Banks take care of that by centralized processing. The customer does not care how his transaction is cleared - he wants his coffee right now, not 15 minutes later. So far I am not aware of any cryptocurrency that could compete with a single mainframe or a cluster, as it is easy to distribute the load by the last few bits of the account number. This is another reason why BTC and altcoins are experiments for geeks. Most people are too much in a hurry to even think about a method of payment that delays their activities by mere seconds in exchange for... nothing of value to them. The BTC and all the altcoins failed, so far, to offer anything to the common man that he really wants. Even the prime example of value of BTC in international money transfers had been proven to me to be zero just a couple weeks ago. A coworker needed to send some trivial money (under $1K) abroad. I offered the BTC route. She said that neither she nor the recipient have enough knowledge about computers to do any of that. It would be a challenge for them to even find a BTC exchange and register there! In the end she used Moneygram. The clerks explained to her what exactly to do, and how, and checked the paperwork. Her transfer made it there nearly instantly. She paid for the service, of course. But with BTC she had an excellent chance to lose the whole sum, as BTC transfers are like gluing cash to a cannonball, carefully aiming, and firing it across the ocean. If you are a good shooter, the delivery is cheap. If you are not... better pay someone. There is no dispute mechanism, and nobody will check your actions for typos and other mistakes. It's not too far from logging into a huge live server and typing 'DROP DATABASE ...' - what exactly do I type here? :-) You'd better be damn sure what you do.
(Score: 0) by Anonymous Coward on Sunday September 04 2016, @06:15AM
> But this particular advantage - anonymity - is of little value to the vast majority of humans on this Earth.
Do you say the same thing about freedom of speech?
The vast majority of humans have absolutely nothing controversial to say at all either.
(Score: 1) by tftp on Sunday September 04 2016, @07:32AM
Do you say the same thing about freedom of speech? The vast majority of humans have absolutely nothing controversial to say at all either.
People always love to criticize their government, and they don't want to be thrown in prison for that. There is a good reason to insist on freedom of speech, especially because [nearly] everyone speaks on controversial topics now and then. But privacy of financial transactions? Just pay cash. What can be easier?
(Score: 0) by Anonymous Coward on Sunday September 04 2016, @03:30PM
> But privacy of financial transactions? Just pay cash. What can be easier?
Great answer!
In trying to duck the question, you contradicted your original premise.
(Score: 2) by G-forze on Sunday September 04 2016, @07:36AM
To me, one huge advantage of Bitcoin is the ability to purchase stuff online (and elsewhere) without risking my credit card information (or other personal information, if the purchase is digital and doesn't need a postal address).
If I run into the term "SJW", I stop reading.
(Score: 1) by tftp on Sunday September 04 2016, @07:52AM
Everyone is so much concerned about "risking their c/c numbers", but in the end most c/c thefts occur at the stores. Sure, BTC takes care of that problem, but creates other. For example, the transaction is not reversible[*], no matter what. You have to beg the recipient to return the funds. With a c/c this is a non-issue. Most people will lose more money on BTC just through the typos than they will ever save by not exposing their c/c numbers. I, actually, don't know anyone who would truly lose money through a c/c fraud because the bank refused to perform a chargeback. It's possible, I guess, if you never check your c/c transactions, but most people do that at least once per month - and it's sufficient.
[*] Some branches of BTC allow the sender of the funds to pull them back shortly after the transaction is concluded. It is also possible to cancel an unconfirmed transaction by double-spending with higher fee if the merchant accepted your unconfirmed transaction and let you walk out with the item. There are also more complex escrow-like [elidourado.com] schemes that most of the population will not find intuitive.
(Score: 2) by Fnord666 on Sunday September 04 2016, @04:16PM
Everyone is so much concerned about "risking their c/c numbers", but in the end most c/c thefts occur at the stores.
You can expect that to change in the US as EMV gets rolled out. CC fraud will shift to online transactions as the low hanging fruit disappears.