Zerocoin Startup Revives the Dream of Truly Anonymous Money

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http://www.wired.com/2015/11/zerocoin-startup-revives-the-dream-of-truly-anonymous-money/

     Andy Greenberg	Date of Publication: 11.04.15.

Zerocoin Startup Revives the Dream of Truly Anonymous Money

Bitcoin, despite its reputation as anonymous internet cash, was never
designed for perfectly private payments. For the promise of fully
untraceable money, cryptocurrency fans have been waiting for
Zerocoinâ??a technology designed to have default uncrackable anonymity.
After years of development, that incognito cryptocash is finally
showing signs of a life, now in the form of a stealthy startup.

Late last week, a company calling itself the Zerocoin Electric Coin
Company published a post on Angel List, a website startups use to
raise funds from private investors. Zerocoinâ??s new CEO and co-founder,
cryptographer Zooko Wilcox-Hearn, confirms in an email to WIRED that
the company will put into practice the Zerocoin (alternatively known
as Zerocash) design initially created by a team of encryption
researchers at Johns Hopkins in 2013, with the goal of creating a
bitcoin-like currency with the greatest privacy and anonymity
protections that modern mathematics can offer.

â??Bitcoin is HTTP for money. We are HTTPS,â?? reads Zerocoinâ??s Angel List
description, an analogy to the layer of privacy enabled on encrypted
web pages versus the surveillance perils of visiting an unencrypted
site.

In fact, Zerocoinâ??s privacy advantages over bitcoin could be even more
substantial than that HTTPS comparison implies: Bitcoin transactions
are published on the blockchain, the public record of all bitcoin
payments that serves as the backbone of the bitcoin economy. Any
slip-up that identifies a userâ??s bitcoin addresses also makes it
possible for anyone to trace all of his or her payments from and to
those addresses. Zerocoinâ??s blockchain, on the other hand, uses a
cryptographic trick known as a â??zero-knowledge proofâ?? to guarantee
that transactions in the Zerocoin economy arenâ??t fraudulent or forged.
But that zero-knowledge feature means that in contrast to bitcoin,
Zerocoinâ??s blockchain doesnâ??t reveal anything about the paymentâ??s
origin, destination, or even the transactionâ??s amount. (Read the full
paper Zerocoinâ??s creators presented at the 2014 IEEE Spectrum security
and privacy conference here.)

In other words, Zerocoin will let users spend internet cash with
theoretically perfect anonymity. But Zerocoinâ??s new Angelâ??s List page
also notes that if necessary, the same zero-knowledge proof trick can
also allow a zerocoin user to forego that privacy and choose to reveal
proof that any individual transaction was his or hersâ??say, as a
receipt for some zerocoin purchase. â??We are adding *selective
disclosure* to Bitcoin and Blockchain technologies,â?? the Angelâ??s List
page reads. â??Transaction metadata in the Blockchain is confidential by
default but can be disclosed to specific parties. This allows the best
of both worlds: both strong privacy and transparency on the
Blockchain.â??

Just how Zerocoin will make money as a startup, however, is far from
clear. For now, Wilcox-Hearn declined to answer any of WIREDâ??s
questions about how the company will function, when it will officially
launch, or how it plans to put its new cryptocurrency into
circulation.

Like any bitcoin alternative, Zerocoin will no doubt face stiff
competition from bitcoin itself, which already has buy-in from
millions of users and an exchange rate thatâ??s appreciated sharply in
just the last week. Even so, a roster of influential angel investors
have already invested $715,000 in Zerocoin, according to Wilcox-Hearn.
Two early backers listed on the Angelâ??s List posting are Naval
Ravikant, an investor in Twitter and Uber, and Barry Silbert, the
founder of startup equity trading platform SecondMarket. Another is
Roger Ver, a staunchly libertarian bitcoin mogul whoâ??s made
investments in startups like Blockchain.info and Bitpay, and who used
his substantial crypto-fortune to bankroll much of the criminal
defense of now-convicted Silk Road creator Ross Ulbricht.

Zerocoin also cites an impressive collection of â??advisorsâ?? on its
Angelâ??s List page. In addition to the academic team that designed
Zerocoin, led by Johns Hopkins computer science professor Matthew
Green, those advisors also include Vitalik Buterin, the founder of
buzzy cryptocurrency startup Ethereum, and Gavin Andresen, one of the
first bitcoin coders and the chief scientist of the Bitcoin
Foundation. The companyâ??s CEO, Zooko Wilcox-Hearn, has crypto cred of
his own: Heâ??s the creator of the Tahoe Least Authority File Store, or
Tahoe LAFS, a decentralized, encrypted file storage system.

Even with those supporters, Zerocoin is sure to face criticism and
even legal trouble because of the very privacy properties that make it
unique: A cryptographically untraceable, anonymous currency could
offer massive potential for money laundering and black market sales.
The Silk Roadâ??s federal prosecutors, after all, proved how valuable a
tougher-to-track cryptocurrency would be to criminals, when they
traced $13.4 million worth of bitcoin from the drug-selling site to
its creator Ross Ulbrichtâ??s laptop.

Zerocoinâ??s creators attempted to answer that concern in their online
FAQ, pointing out that criminals can already make anonymous
transactions with cash, or even with bitcoin if theyâ??re careful to use
â??mixingâ?? services like Dark Wallet or Bitcoin Fog that are designed to
anonymize transactions. â??The introduction of yet another method to
anonymously move money is of little consequence,â?? they write. But cash
canâ??t be spent online, and mixing services only make tracing payments
more difficultâ??they donâ??t render it impossible, as Zerocoinâ??s
zero-knowledge proofs are designed to do.

More convincingly, the Zerocoin authors also argue the opposite point:
that the alternative to their cryptocurrency is to rely on bitcoin,
whose blockchain can create real problems for any user seeking to keep
his or her transactions private. â??Would you want to publish your bank
statement for everyone to see? Of course not: your bank statement can
revealâ?¦intimate details about your life,â?? they write. â??For example,
your payments to a psychiatrist could reveal that you have a mental
health issue.â??

Zerocoinâ??s coming launch as a startup, by contrast, revives the
cryptocurrency communityâ??s dream of truly anonymous moneyâ??with all the
promises and perils that come with it. Stay tuned.