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Blockchain anonymity

Bitcoin, Ethereum, and most other public blockchains are in fact pseudonymous, as opposed to truly anonymous; individuals transacting on the network are represented by publicly viewable strings of numbers and letters called addresses. (More here: “What Bitcoin Is, and Why it Matters”)

As long as no one connects your real name to your address, you can effectively hide your transactions. If your true identity does get connected to your address, though, suddenly anyone who might be interested can see every transaction you’ve ever made on the network.

Law enforcement organizations have cottoned onto this, and over the past few years they’ve honed their ability to follow the money on the Bitcoin and Ethereum blockchains, tracking down people who use the cryptocurrencies for illicit purposes. (More here: “Criminals Thought Bitcoin Was the Perfect Hiding Place, but They Thought Wrong”)

Enter zero-knowledge proofs, a technology so mind-bending it seems taken from the pages of a science fiction novel. Essentially, it is “a way to prove something to someone without revealing any of the information that goes into that proof,” says Emin Gün Sirer, a computer scientist at Cornell University. As a simple example, imagine that you must prove that you are at least 18 years old. Instead of whipping out your ID, the math underlying zero-knowledge proofs can allow you to make someone 100 percent certain that you are older than 18 without revealing a shred of other information about yourself. Not your name, address, a photo—nothing.

The idea of zero-knowledge proofs has been known to cryptographers for two decades, but it wasn’t until last year that researchers figured out what could be the technique’s killer app: a Bitcoin-based cryptocurrency called Zcash.

Zcash uses zero-knowledge proofs to guarantee that transactions are valid despite the fact that information about the sender, the recipient, and the amount transacted all remain hidden. The power of the idea has major banks interested. JPMorgan Chase recently worked with Zcash to add zero-knowledge functionality to its own private Ethereum-based blockchain.

Source: MIT Technology Review 11/9/17 Chain Letter #6: At Cryptography’s Cutting Edge, a Glimpse of the Blockchain Future