Most DarkNet vendors deal exclusively in Bitcoin (BTC) because no competitor has more liquidity, price stability, or widespread adoption. In terms of DarkNet adoption, the next closest currency is Litecoin (LTC), which historically averages about 5% of Bitcoin’s market capitalization. Litecoin also has a relatively broad web infrastructure, and has been accepted sporadically by smaller DarkNet Markets. However, being essentially a Bitcoin clone, Litecoin has never offered enough competitive advantage over Bitcoin to justify regular use in the Deep Web.
Surprisingly, until late 2013 with the advent of Anoncoin (ANC), no crypto-currency directly addressed the anonymous market, giving more time for Bitcoin to build on the early lead that it garnered from Silk Road. Although no crypto-currency has made headway so far, an anonymous crypto-currency will eventually have sufficient adoption and privacy improvement to be useful for many of the largest DarkNet markets.
Early Anonymous Crypto-Currencies
Of those crypto-currencies with the potential to challenge Bitcoin’s prevalence in DarkNet, Anoncoin was the first to release support for the Tor and I2P privacy networks, allowing users to hide their network identities from peers. Running the network through I2P provides anonymity, similar to Tor, but it should be noted that I2P is newer, smaller and less studied, meaning the validity of the anonymity is questionable. However, even if using I2P or Tor with Anoncoin, anyone with minimal resources could data-mine the necessary public record of transactions, or “blockchain”, to get insight into who made certain transactions. While your IP may be hidden, using Anoncoin will still leave a public line of transactions in plain view.
Originally a fork of Litecoin, Anoncoin is open-source. Beside the network anonymity through I2P/Tor, very little has been implemented in the coin. To address blockchain privacy, many coins, including Anoncoin, have put their hopes into the ZeroCash project.
ZeroCash originally started as a project to add a layer on top of the Bitcoin protocol that would be a decentralized mixer for Bitcoins. The Zerocash project was progressing and getting a lot of attention until Bitcoin developers decided that it wouldn’t be a good idea to implement it into the Bitcoin protocol, as they thought it would be too much burden on the network and slow down every-day transactions, which would take as long as 6 minutes. ZeroCash masks transactions by allowing a user to interconvert Bitcoins with anonymous ZeroCash, which use the Bitcoin blockchain for security, but have have a separate ledger for transaction. The ZeroCash ledger is anonymous because it contains cryptographic proofs of transactions rather than ledger entries that explicitly describe the transactions, as is the case with Bitcoin.
ZeroCash development has stalled in recent weeks, and no coin presently incorporates a finished product, although a “ZeroCoin” team is working towards releasing a coin based on the protocol. Additionally, ZeroCoin/ZeroCash also has what many consider to be a fatal flaw in the way it works. At launch, everyone using the network must trust the creator to destroy certain secret startup data. When a Zerocoin is minted, the coin is added as a valid member by a one-way cryptographic accumulator. In order to prove later that a given Zerocoin belongs to this set, during the initial setup of the accumulator, it is necessary to define a number N that is the product of two prime numbers P and Q. The N would be defined by a third-party, in the original Zerocash scheme. Though, if the prime numbers are large enough, it would be impossible for anyone to know what N is and thus, obtain knowledge of P and Q. If a party knew what N was, they could create their own accumulator and be able to make as many Zerocoins as possible.
The problem manifests with the total number of coins in a ZeroCash network. Since the total is obscured, it is impossible to know if the person who created the coin secretly kept this data, and with it the ability to create new coins at will.
AnonCoin is currently working on a testnet to address this problem, which will use RSA UFO’s (RSA UFOs (generalized RSA moduli of unknown complete factorization) for the number N, which can be done in a trustless manner.). It is important to note that, though Zerocash takes a long time for transactions, that won’t be a problem for everyday users of Anoncoin. Zerocash works off a base coin, which in this case is Anoncoin, and is simply a mixer, not a currency.
The Anoncoin team includes K1773R (Coin developer, focus on security), Gnosis (Zerocash implementation/RSA-UFO work), BroToxer (Project Manager), Meeh (Lead developer, fueled by is disdain for the clamp central banks and governments are trying to put on crypto-currencies). According to a blog post by Meeh “Gnosis is paid by anonymous investor(s) to implement Zerocoin. One of the demands of the investor(s) demanded that the public should be aware of it…”
AnonCoin Wallets, Website, and Source Code:
- Website – https://anoncoin.net
- Wallet – https://anoncoin.net/index.php/downloads
- Source Code – https://github.com/Anoncoin/anoncoin
Another hurdle to ZeroCash is bloat of the blockchain, which is a necessary public record of all of the transactions for a crypto-currency. Bloat also afflicts a new family of anonymous coins known as CryptoNotes, with the most notable being Monero (XMR) and Bytecoin (BCN). CryptoNotes bloat the blockchain with ring signatures that are signed by many different keys to hide the person who actually created the transaction. In their current form, CryptoNotes require storage of all of the keys and individual signatures made with these keys.
Bloat is destructive to the usefulness of a crypto-currency, as it requires much storage per transaction than a standard Bitcoin wallet. Suggestions to address bloat have centered around pruning the blockchain of unnecessary information, or to partially store the blockchain offline. Added to bloat are technical problems that arise from the immaturity of CryptoNote itself. Hired by the Monero development team to audit the computer programming behind Cryptonote, Peter Todd stated that “The Cryptonote/Bytecoin codebase #XMR is based on is atrociously bad, orders of magnitude worse than Bitcoin,” although he did not give any specific examples of how the code was bad.
— Peter Todd (@petertoddbtc) September 4, 2014
Should CryptoNote coins successfully address these challenges, they may become the natural candidates for Dark Market adoption. The reasons are that CryptoNotes obfuscate accounts, have total resistance against blockchain analysis, and can be routed through a privacy network. Additionally, CryptoNotes reveal the total number of coins in the network, ensuring that a hidden cache of coins do not suddenly appear on the market, destroying the value of the crypto-currency.
Anoncoin and Monero have both garnered attention from a Norway-Based I2P-focused charity named Privacy Solutions. Privacy Solutions recently focused on their upcoming release of Abscond Browser Bundle (I2P’s answer to the Tor bundle).
- Website – http://monero.cc
- Wallet – http://monero.cc/downloads/
- Source Code – https://github.com/monero-project/bitmonero
A Dark Horse
Many question why ring signatures are not simply added to Bitcoin’s codebase. According to Bitcoin core developer gmaxwell, ring signatures are possible, but present challenges. A new arrival in the arena of anonymous crypto-currences, StealthCoin (XST), promises to add ring signatures to the Bitcoin codebase with StealthSend, which is still in development. According to the StealthSend whitepaper (https://www.dropbox.com/s/do4urdefwoungjz/Stealthsend-Whitepaper-Brief-201409.pdf?dl=0), StealthSend transactions using ring signatures of 100 keys will only require about one third the space of similar CryptoNote transactions, but give the same level of privacy protection. This savings is achieved through the use of the use of so-called “Chandran Signatures”, and innovations related to the selection of the keys used for the ring signatures. In StealthSend, key selection is based on four numbers: two random numbers (called “nonces”), one number that reduces the difficulty of selecting the keys by specifying a subset of all possible keys, and one number to specify the size of the ring. Thus, the nonce key selection specifies any set of randomly selected keys using only 32 bytes of storage.Applied to CryptoNotes, the nonce key selection proposed for StealthSend would lead to a space savings of about 30% for future transactions.
If successful, Stealthsend will have an obfuscated blockchain similar to CryptoNotes while utilizing the well established bitcoin protocol. Additionally, it will also offer a significant reduction in storage.
To avoid the memory-expensive proofs required by an anonymous proof-of-stake coin, StealthSend will be a proof-of-work coin. StealthSend coins will be created by rewarding holders of StealthCoin at a 1:1 ratio in a proof-of-burn conversion. In other words, to get one StealthSend coin, a StealthCoin holder would have to burn one StealthCoin. After the proof-of-burn conversion, the remaining 15% of the total money supply will be emitted via proof-of-work, using a smooth emission algorithm.
- Website – http://stealth-coin.com
- Wallet – https://drive.google.com/file/d/0B8rWObF4xz1YWHdhNlVHcWJ5dWM/edit?usp=sharing
- Source Code – https://github.com/StealthSend/Stealth/
Decentralized Dark Markets
In addition to Stealthsend, the Stealthcoin team recently announced that they plan to support Open Bazaar, which is an anonymous, decentralized marketplace. With the closings of Silk Road and many other Bitcoin commerce sites, a decentralized solution to an anonymous marketplace would fill an important niche.
Open Bazaar promises to be such a solution. It is an open-source project touting many innovations that improve on traditional markets, including a reputation system based on proof-of-burn pledges, which allow users to burn Bitcoin in exchange for reputation. Released under the permissive open source MIT License, the Open Bazaar project plans to launch before the end of 2014.
The Future of Anonymous Crypto-Currencies
Anonymous crypto-currency technology has progressed from virtual non-existence in mid-2013 to being a central feature of a multitude of crypto-currencies today. A year from now, we may see a crypto-currency that boasts network, blockchain, and address privacy. It will also be “trustless”, meaning that users need not trust a central service to provide anonymity. This future currency will require only small amounts of storage and may even usurp Bitcoin as the leading currency on the Dark Markets.