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Based on blockchain technology, most cryptocurrencies have an open and public book. Although these systems need to work, the problem is very significant: privacy is often rather limited. Government agencies, analyst companies and other stakeholders – let's call them "spies" – have ways to analyze public blockchains and peer-to-peer networks of cryptocurrencies like Bitcoin, to group addresses and link them to IP addresses or other identifying information.
Unsatisfied with Bitcoin's privacy features, several cryptocurrency projects have been launched over the years with the specific goal of improving them. And not without success. Many of these privacy systems are among the most popular cryptocurrencies on the market today.
However, as detailed in this month's cover story, Bitcoin's privacy features have recently seen significant improvements and are set to improve further in the coming months and years. This miniseries will compare different privacycoins with the privacy offered by Bitcoin.
In the first part: Dash.
background
Dash (DASH) is among the most popular but also most controversial cryptocurrencies in space today.
Originally a fork of Litecoin codebase (which in turn is a fork of Bitcoin codebase), Dash was launched by its founder Evan Duffield in January 2014 as Xcoin. The project was quickly renamed Darkcoin, apparently in reference to Dark Wallet, a now-defunct bitcoin wallet project focused on privacy. Darkcoin was renamed for the second time at the beginning of 2015, with the current name Dash, which means "digital money". At the time of writing this article, Dash claims a twelfth place in the list of cryptocurrency market stocks, down from a position in the top five for a while in early 2017.
Much of the controversy surrounding Dash comes from the early days of the project. While the coin was not rewarded, it was instinct. When the cryptocurrency went live, the miners created 2 million coins in a few days. Quite a significant amount, with a planned supply currently foreseen for a total of 22 million and about 8 million coins in circulation today. According to Duffield, himself one of the first miners, histamine was an accident. But instead of solving the problem, for example by changing the protocol rules or re-launching, it was decided that the currency would continue despite histamine.
Since then, Dash has been transformed into a decentralized autonomous organization, or DAO, and boasts of being the first successful example of such an organization. The DAO is focused on Dash "masternodes" – DASH nodes representing (proof of ownership) at least 1000 DASH – and it should help the network in certain ways, for example by confirming "instant transactions". In return, these masternodes receive 45% of newly generated DASH.
Another 10 percent of each block premium is reserved for Dash's treasure. What happens with these funds is decided by the masternodes by voting. In practice, this money finances the Dash Core Group, in effect the company behind Dash, today led by CEO Ryan Taylor.
In addition, this portion of the prize pool funds various forms of Dash promotion, as well as some external projects, including the Arizona State University's Blockchain Research Laboratory, a platform for legal payments to the cannabis industry and various initiatives in emerging markets.
While once marketed specifically as "privacycoin", in recent years Dash has shifted his attention to his tone. Although privacy is still very much on the Dash website and promotional material, it also emphasizes ease of use and low costs, apparently oriented towards traditional adoption. As a particularly notable detour from his privacy-focused past, Dash has also established a partnership with the blockchain analysis company Coinfirm. While the details about this partnership and the implications of it remain somewhat unclear, it is not difficult to see how this partnership is a strange measure for a currency formerly known as Darkcoin.
Which brings us to these privacy features.
private life
Dash actually offers a special privacy feature called Private Send. The private send function is conveniently offered in a client drop-down menu of the full Dash Core node and in other Dash portfolios.
Private Send is really an implementation of CoinJoin, the first-time Bitcoin privacy solution proposed by Bitcoin Core developer Gregory Maxwell. In Private Send, three users add their coins together in one big transaction, which sends coins to newly generated addresses belonging to the same three users. As such, the coins are effectively shuffled between the three participants, breaking the trail of property blockchain between them. This process can be repeated automatically up to eight times, with (hopefully) several mixing participants, for greater privacy.
Like any CoinJoin solution, private submission requires someone to build the CoinJoin transaction. This is done using the Dash masternode system. Users of Dash wishing to mix their coins contact a random masternode, which then collects coins from different users and crushes them together in the CoinJoin transaction. It is important to note that the masternode can not steal coins.
However, it means that Dash users must trust the masternodes with their privacy. After all, mixing masternodes can link sending and receiving addresses together; they know exactly which coins are going where. If these masternodes are operated by spies or share their information with spies (intentionally or by accident), Dash users earn less than nothing: they do not have privacy, revealing that they wanted privacy.
Of course, if a Dash user mixes his coins more than once, the odds should decrease that all mixing masternodes lose this information. * However, to optimize uptime (and collect block premiums), many masternodes to appear run from virtual virtual servers that could be compromised relatively easily in one fell swoop, for example spies sponsored by the government. Also, many masternodes could be controlled by the same people (keep in mind that about 25% of all coins were extracted in the first week), which means switching from one to another might not help.
It is also worth noting that Private Send requires users to make the specific mix transition, which in turn takes time, effort, and comes with a (modest) rate. Therefore, it is likely that only users interested in privacy will participate in the mixing process; users who feel they have nothing to hide will not do it. This has the potential disadvantage that mixing can be considered suspect. And while the ownership track is broken on the blockchain, the story of the mix is still visible.
Bitcoin
But perhaps, more importantly, CoinJoin is not really unique. The technology has not only been proposed for the first time on Bitcoin, but is also available on Bitcoin. The most noteworthy and powerful CoinJoin solution available today is Chaumian CoinJoin, which is incorporated into the ZeroLink framework, which is, in turn, implemented in the Wasabi Wallet and the Bob Wallet and announced for Samourai Wallet.
Similar to Private Send, ZeroLink allows users to add their coins together in one big transaction, which sends all these coins to newly created addresses belonging to the same users. But above all, and unlike Private Send, in this case the mixer is not able to connect the sending and receiving addresses. Intelligent cryptography helps break the link without needing to trust anyone.
While Dash, with its GUI interface, offers a more user-friendly CoinJoin solution right now, the privacy guarantees are weaker than on Bitcoin: do not worry about serious contenders like Monero or Zcash. Needless to say, for a cryptocurrency that is, or at least has been, promoted as a system of privacy, this is quite disappointing.
Or like Maxwell – whose CoinJoin invention was used for private submission – once Dash's privacy features have been described: LOL.
* Change note: after the publication of this article, we found this article by researchers at Princeton and Johns Hopkins University, which shows that Dash's mixing protocol is quite weak even though Masternodes would not lose any information.
Read also the articles in this series on Monero, Verge, Zcash and Mimblewimble.
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