How to Use Cryptocurrencies Anonymously – Today I’m gonna explain some projects that are working on building anonymity in cryptocurrency transactions because when people transact and make a payment via cryptocurrencies some people wanna be anonymous right? So, you know blockchains already, are usually the underlining technology behind cryptocurrencies.

So let’s say some of the information that’s stored in the blockchain is an address. An address is a long string, i.e., a piece of text that has a hexadecimal value (hexadecimals are just another type of number system).

Mechanics of an Address – How to Use Cryptocurrencies Anonymously

How to Use Cryptocurrencies Anonymously – Think of the “address” is literally an address. Think of it as a place on a blockchain that is responsible for storing that said cryptocurrency. The thing is that although it’s technically anonymous (nobody knows what my address is)…if I’m sending a transaction to my friend.

They can look over my shoulder of my computer and see my public address, so my public key.

So the address is the same thing as the public key because every address has both public key and a private key (which is like a password).

The password is hidden so that’s, so every address has really two keys.

How to Use Cryptocurrencies Anonymously – Let’s say somebody looks over my shoulder and sees what my public address is (my public key). That is dangerous if you don’t wanna be known because whenever you look at a blockchain anyone can see everyone’s public address, that’s why they’re called public addresses or public keys (they’re synonymous by the way).

Coin Mixers – How to Use Cryptocurrencies Anonymously

How to Use Cryptocurrencies Anonymously – To hide who you are – if you don’t wanna show the financial transactions you’ve been making on a blockchain.Automatically the public address, automatically changes.

So after a few, maybe a few days, a few hours perhaps, the public address can change to something different (see projects like: https://blockchain.zendesk.com/hc/en-us/articles/360000574523-My-receiving-requesting-address-has-changed)

 

…And you can still use the original one, or you can use the second public address, and you can use a bunch of new ones that are automatically generated. That’s a system to help protect people’s anonymity. But it’s a bit slow.

What people have tried to do is use “mixers”. A mixing service is a service that helps you hide your transactions. How? Well, I can send my bitcoin to a mixing
service and the mixing service will hide my transactions. It just takes the cryptocurrency and mixes it with a pool of other participants who add funds to this pool of cryptocurrencies and it mixes it all around.

I get a new address and it sends it back to the new address, or it can make an address for you and you get it to the new address.

Some of the problems with coin mixer services are that they are centralized. By centralized, I mean that there is one particular company or organization or group of people that are responsible for mixing the coins around and redistributing them.

There is an opportunity for human error or just manipulation. Somebody may take
something that’s not theirs, and there’s obviously a fee for using the service. They may take a small cut of all the people who participate in the mixing service. There are some “decentralized” services as well. But again there are fees, human error etc.

 

zk-Snarks – How to Use Cryptocurrencies Anonymously

How to Use Cryptocurrencies Anonymously – A way to deal with some of the problems with coin mixer services or if you wanna look for other solutions. Some people build the privacy within cryptocurrencies. Monero is one of the most popular, if not the most popular project that’s focused on privacy when it comes to cryptocurrency transactions. They have a built-in system for anonymizing the transactions that take place. Another project that I’m more familiar with is Zcash, oops. So another project that I’m more familiar with is Zcash. Zcash uses something called “zero-knowledge proofs”. This is a type of technology that doesn’t require you to know about who sent the transaction for you to actually validate it. They use a particular technology called zk-SNARKs. So, a very strange word but all a zk-SNARK is is a particular type of zero-knowledge proof.

Zcash and Komodo – How to Use Cryptocurrencies Anonymously

How to Use Cryptocurrencies Anonymously – That is how Zcash anonymizes transactions. Zcash is a cryptocurrency that’s based on a blockchain project, projects such as Komodo can fork in other words, copy, the original code for Zcash and build on top of it to add extra features.

Komodo actually leveraged some of the technology in Zcash to build something called Jumblr. Jumblr is a project that has a coin mixing service built into the protocol.

So that’s just a quick look at some ways of ensuring that people’s transactions on cryptocurrency projects are anonymous or truly anonymous rather. I guess some concerns are that yeah, it may elicit some money laundering activity. On the positive side, some people like the idea of being truly free from the big guy” looking down at all of our transactions.

This article by Natu Myers was originally published at Freestartupkits.com: