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Zerocoin

| June 25, 2024

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Key takeaways

  • Zerocoin introduces anonymity by offering a separate cryptocurrency known as zerocoin. This cryptocurrency operates within the Bitcoin blockchain.

What is Zerocoin?

Zerocoin proposes an enhancement to the Bitcoin protocol that aims to introduce genuine cryptographic anonymity to Bitcoin transactions. In the current Bitcoin setup, transaction details are stored in a public ledger (the blockchain) that allows you to trace transactions.

To achieve anonymity, users can purchase zerocoins through a zerocoin mint transaction. You can purchase them in fixed denominations with the base currency. Subsequently, these zerocoins can be exchanged for the base currency at a different address via a zerocoin spend transaction. This process utilizes cryptographic accumulators and digital encryption along with zero-knowledge proofs. It becomes infeasible to link the address utilized for minting the original zerocoin to the address used for redeeming it.

However, initially, zerocoin was conceived to integrate with the Bitcoin network. Today, it holds the potential for incorporation into any cryptocurrency ecosystem.

Zcash

Zerocoin emerged as a blockchain and cryptocurrency privacy protocol in response to Bitcoin’s limited privacy features. It serves as an extension of Bitcoin. The Zerocoin protocol enables users to enhance the privacy of their transactions by mixing their coins. This protocol evolved into the more efficient and feature-rich Zerocash protocol through collaboration between the Zerocoin development team and cryptographers at MIT.

Zcash is derived from the Zerocash protocol. Compared to its predecessor, it offers enhanced privacy features and efficiency. With Zcash, users can execute direct private payments while concealing the value of their transactions. This evolution led to the creation of ZCash, a fully functional cryptocurrency.

In Zcash, two types of transactions are possible: pour transactions and mint transactions. Pour transactions enable private payments by generating new coins from existing ones. Thus, only the serial numbers of the previous coins were revealed without disclosing any information about their previous owner. Additionally, pour transactions can convert zerocoins into Bitcoins or cover transaction fees. On the other hand, mint transactions allow users to convert non-anonymous Bitcoins into anonymous zerocoins. Thus, it provides anonymity through an encryption process using a SHA-256 hash function to conceal the coin’s value and owner’s address.

How Do You Make A Zero Coin?

The Bitcoin protocol and clients tackle the issue of privacy in two main ways. Firstly, all Bitcoin transactions use public keys as identifiers. These identifiers are not directly linked to individual names. Additionally, Bitcoin clients offer users various public keys (“identities”) to shield them from tracking attempts. However, these measures have proven insufficient because data miners can still exploit this information to connect transactions and identify user activities.

To address this concern, Bitcoin laundries mix multiple users’ bitcoins to obscure transaction histories. Nonetheless, reliance on laundry services comes with drawbacks. This includes the challenge of trusting these services to return coins. It also includes the risk of compromised or malicious laundries compromising anonymity.

Advancements

In contrast to previous methods, Zerocoin and the newer Zerocash protocol introduce significant advancements:

  1. Zerocoin and Zerocash extend Bitcoin’s protocol. Both enable their use without a central authority or coin issuer, unlike previous e-cash schemes. Moreover, since Zerocoin operates without a single trusted party, attacks on its system would require a substantial portion of the Bitcoin network to be compromised.
  2. The Zerocash protocol employs secure cryptographic techniques to prevent Bitcoin tracing. Users can conduct transactions on the Bitcoin network with strong mathematical assurances that their activities cannot be tracked. This is true even in the event of a partial compromise of the Bitcoin network by an attacker.
  3. Other anonymous cash systems usually distribute anonymization tasks among a set of parties. Zerocoin leverages Bitcoin’s widespread distribution across its peer-to-peer network. This ensures system availability even when many nodes are compromised, thus minimizing the risk of “denial of service” attacks.
  4. With the new Zerocash protocol, users can directly transact with each other using a significantly more efficient cryptographic protocol. This protocol not only conceals the transaction’s origin but also hides its amount. Thus providing enhanced privacy compared to the older Zerocoin protocol.