What is Privacy?
Exploring what Privacy means on-chain
In a previous article the concept of ‘Why Privacy?’ was explored and showed a glimpse of how important and fundamental the rights to privacy are. In this article, exploring what privacy means on-chain will be looked at from the perspective of the CryptoNote whitepaper written by Nicolas Van Saberhagen. Commonly within the blockchain space, privacy is usually equated to on-chain obfuscation, which means that information around a given transaction is hidden through the use of cryptographic algorithms and techniques shielding the information from an external viewer to the data on-chain. There are a variety of techniques to achieve obfuscation of on-chain data to prevent leaking information about who the sender/receiver pair is, as well as the transaction amount and linking transaction history to profile/match transaction participants.
In comparison to the techniques employed by other privacy-based blockchain projects, Conceal’s approach is as close to the original sentiments derived in the CryptoNote whitepaper. Two critical critiques that Van Saberhagen made against Bitcoin are that it lacks both untraceability and unlinkability.
- Untraceability — for each incoming transaction all possible senders are equiprobable
- Unlinkability — for any two outgoing transactions it is impossible to prove they were sent to the same person
How Bitcoin Lacks Privacy
For Bitcoin, many people who don’t have a background in computer science or explore the technical aspect of Bitcoin would assume that the pseudo-anonymity that Bitcoin provides is privacy, but in reality, it doesn’t suffice the two traits pointed out by Van Saberhagen. In the setup employed by Bitcoin, UTXOs (Unspent Transaction Outputs) in conjunction w/ hashed addresses generated from a private and public key pair is traceable because of its lack of fungibility. UTXOs carry a specific trait in that as UTXOs are combined in future transactions and generate new UTXOs they are traceable because the outputs of a transaction must trace back to its inputs. This means that each Bitcoin UTXO is not unique since you can backtrace its history.
From an unlinkability standpoint, although a user can generate multiple receive addresses and mask who they are, the UTXO’s can be puzzled back together from transactions as they flow out from a singular wallet. This means that as more transactions funnel out of a wallet, the inputs and outputs can again be puzzled back to reveal spending habits and could link an individual/entity to that wallet. This is how both untraceability and unlinkability within the Bitcoin protocol lead it to not be a privacy protocol.
Privacy by Design
Conceal utilizes various methods to ensure privacy and stays true to many of the initial principles that were introduced in the CryptoNote Whitepaper. The main features are ring signatures (specifically Borromean Ring Signatures) and stealth (or one-time) addresses. To cover at a high level, ring signatures work by grouping together users that produce a digital signature that is created by a member of a group that each has their own keys. Subsequently, it is impossible to determine the person in the group who create the signature.
Stealth addresses are unique addresses that are created for one-time use in each transaction. This one-time use address is used, but the incoming and/or outgoing payments are actually from the unique private/public key wallet address. Stealth Addresses and Ring Signatures in combination make it infeasible to reverse back who made which transaction and where the transactions are coming and going, thus enabling privacy.
