Will bitcoin retain its status, if does not increase confidentiality?

Long time the bitcoin was perceived by many as anonymous payment service provider for online calculations. This myth intentionally extended media which called the principal cryptocurrency of the world a popular payment method among criminals. However, it is not true…

Because of the publicly visible blockchain, each bitcoin wallet and each transaction are visible to any user on a network. Many perceive such shortage of financial confidentiality as a noise for mass use of bitcoin. There were several attempts to increase anonymity of this cryptocurrency. The considerable of them — Confidential Transactions (confidential transactions).

What are confidential transactions?

As one of the chief developers of bitcoin Greg Maxwell explains, confidential transactions (CT) is a tool for the increase in confidentiality and safety of bitcoin which shows the amount of transfer only to participants of operation (and to the users specified by them).

Maxwell emphasizes the need for the additional level of anonymity for bitcoin transactions:

“The lack of financial confidentiality can threaten safety and anonymity of commercial and private transactions. Without the existence of adequate protection swindlers and hackers will be able to concentrate the efforts on large deals, competitors will be able to receive business particulars and to undermine line items of a certain company during negotiations. […] Insufficient confidentiality can also lead to loss of interchangeability — when some coins are read by more acceptable, than others that in turn will undermine the usefulness of bitcoin as means of payment”.

Though the bitcoin partially solves this problem, using pseudo-anonymous addresses of purses, in fact, when you carry out the transaction with some user, you can connect his data with other addresses used by it and evaluate his financial position and also habits and regularities in operations. Certainly, such level of financial confidentiality is unsatisfactory.

As Maxwell claims, confidential transactions can solve this problem, having made the amounts bitcoin transactions confidential by means of ring signatures of Borromean and diagrams of obligations of Pedersen, having saved at the same time verifiability of coherence of all a blockchain inputs. CT does it possible without the need to add the new cryptography assumption.

Being put simply into words, Confidential Transactions allow users to create bitcoin transaction which will be checked completely by a blockchain, but the amount of which will not be visible to strangers.

When are confidential transactions entered into a bitcoin network?

The concept CT was introduced by the scientist-information scientist, doctor Adam Beck, at the forum BitcoinTalk in 2013 for the first time. Then this subject was widely discussed in bitcoin community as high confidentiality of transactions with digital currencies is a necessary condition for broader acceptance of such currencies by corporations and individuals. Based on the original operation of doctor Beck, Greg Maxwell began to develop confidential transactions for bitcoin.

The latest news about CT is dated November 2017 when Maxwell declared progress in the testing of the decision.

In last testings, confidential transactions were in 16 times more normal that would not allow a network to process bitcoin them. However, thanks to the researcher from Stanford, Benedict Byuntsu who used Johnathan Butel’s operations managed to reduce the number of transactions. Now they are only 3 times more than normal operations.

It brings the closer introduction of confidential transactions to a bitcoin network. Perhaps, we will even see CT and in other digital currencies, such as Litecoin what on the Twitter the creator of Litecoin, Charlie Lie hinted at.

Yet there is no exact Date of Introduction of confidential transactions because it is necessary to carry out a lot of operation for a warranty of their functioning.

Whether the status will manage to retain bitcoin if does not increase confidentiality?

The status of bitcoin as leading digital currency with the largest capitalization of the market can reel, more and more users select more anonymous digital currencies for online of payment and money transfers.

For example, the principal anonymous Monero (XMR) cryptocurrency allows hiding addresses of purses and a detail of operations in case of payment. Using ring confidential transactions, ring signatures and the hidden addresses, transactions of Monero do not give strangers any information.

The Zcash (ZEC), on the other hand, uses zk-SNARKS — the cryptography type with zero permission allowing users to hide the amount of transaction and details of the sender and the receiver.

Considering the financial confidentiality offered by currencies of Monero, Zcash and also lower commissions, than at bitcoin, it is quite possible to assume that one or even several such cryptocurrencies will be able to bypass, eventually, bitcoin as the most used digital currency on the Internet.

If there are more advanced options of confidentiality, such as Confidential Transactions, then it will increase chances of bitcoin to retain the status of the leading digital currency of the world in the future.

Though as the bitcoin moves ahead from the status of digital currency for payment to a class of investment assets, the additional level of confidentiality so desirable to many can lose special relevance. The state and departmental investors, venture capitalists and the large companies invest more and more in bitcoin as they see its limited inventory, similar to gold. Therefore, confidentiality of transactions is not so important for this group of owners of bitcoin.

Now anonymous cryptocurrencies become more and more popular as means of payment for online calculations and transfers. However, any of them cannot brag of such developed ecosystem, as at bitcoin. Therefore there will pass some more years before such currencies are able to compete to the principal world cryptocurrency as means of payment, and, perhaps, several decades before they are able to press it in a class of assets for investments.

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