Zerocoin, a potential Bitcoin extension, aims to improve anonymity

Bitcoin is pseudonymous, but not exactly anonymous. A group of Cryptographers out of John Hopkins University are aiming to change that. The group, led by Professor Matthew Green, has been working on Zerocoin, a proposed Bitcoin extension that would increase Bitcoin’s anonymity.

In an interview with Forbes, Professor Green says, “You can feel like you’re private using Bitcoin, but there are going to be companies like Google and Facebook and [Google-owned ad firm] DoubleClick looking at the data and pulling personal information out of it. There may be already, … It’s not wrong to be paranoid about privacy when it comes to Bitcoin.”

From the Forbes piece

The Johns Hopkins’ team’s system would work by allowing any Bitcoin user to convert a Bitcoin into an anonymous token–a Zerocoin. Zerocoins would theoretically mesh seamlessly with the Bitcoin network, could be traded and spent in the same way as Bitcoins, and could be redeemed for a Bitcoin at any time. But thanks to some mathematical tricks, a Zerocoin would be both unique–it couldn’t be forged or duplicated–and yet also be impossible for an observer to identify as the same Zerocoin between the moment it substituted for a Bitcoin and the moment it was traded back for one.”

The result would be that Bitcoin would essentially have its own, built-in laundry system. ‘In fact, you can think of Zerocoin like the world’s biggest laundry — one that can handle millions of users, has no trusted party, and can’t be compromised,’ Green writes in a blog post explaining Zerocoin posted Thursday. ‘Once a user converts her bitcoins into zerocoins, it’s very hard to determine where she took them back out. Their funds are mixed up with all of the other users who also created zerocoins. And that’s a pretty powerful guarantee.‘”

“Getting Bitcoin users to adopt Zerocoin may not be easy. To have its intended effects, nearly all Bitcoin users would have to add the Zerocoin code, which the Johns Hopkins researchers are releasing next month, to their Bitcoin client software. In the mean time, the system could be adopted incrementally, Green says. But until it’s integrated into the Bitcoin protocol, Zerocoin would require third-party services to act as issuers of its anonymizing tokens, introducing some of the same trust problems that currently exist with laundry services.”

“Zerocoin also takes about 50 times more computational power than Bitcoin, which could cause delays and glitches in the system. But on that front, Green argues that the code only needs to be honed by the Bitcoin community to increase its efficiency.”

Professor Green’s motivations are the protection of privacy. “This isn’t about hiding transactions from governments…privacy is important. And people have a right to it.”

The group plans to present the software at next month’s IEEE Security and Privacy conference in San Francisco. Until then you can read the full paper on Zerocoin here.


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