Cryptocurrencies such as Bitcoin were proposed as a means to address the limitations of centralized banking system and to offer its users privacy with regard to their transactional data.
Data leakage and other privacy-related matters receive more and more attention. Cryptocurrency technology gained significant and growing attention across the globe. The technologies responsible for huge success of cryptocurrency market are blockchain and consensus mechanism. It is believed that crypto will soon overtake traditional money for online trading business.
The technology in Cryptocurrencies includes data security involving dimensions such as integrity, authenticity, confidentiality, etc. Cryptocurrency privacy relates to provision of data control including prevention against data delays and data disclosure.
The privacy of cryptocurrencies can be understood by the structure and functionality of cryptocurrencies. The most popular cryptocurrency across the globe is Bitcoin so it is better to explore the privacy of Bitcoin.
Bitcoin and Privacy
The Bitcoin system offers its users the option to take on online transactions without dealing with central authorities. In this decentralized system, transactions take place directly between users. Bitcoin users have accounts that are based on public keys of an asymmetric cryptographic system and which can be generated by users themselves in random numbers. Users can use it for making transactions in the same way one uses a bank account. The transactions are propagated over peer-to-peer networks and are thus visible to every participant. In Bitcoin, blockchain technology plays the role of distributed ledger. Bitcoin transactions are stored in a blockchain. The blockchain is stored on the computers of all the users and contains transaction history. Transactions can only be executed after it has been added to the blockchain. Blockchain provides information about the transactions and it can be traceable. Blockchain is continuously updated by the system users in order to protect it from manipulation, it works on proof-of-work mechanism where validators validate and record transactions by solving complex cryptographic puzzles on Bitcoin network. It requires computational power for solving cryptographic puzzles and miners get bitcoin in rewards for their work.
Security and Privacy Threats
The technology of Cryptocurrency is based on decentralized model with an uncontrollable environment and hackers find cryptocurrency system an easy way to fraud the transactions. The security and privacy threat include double spending which will always be possible in Bitcoin. Apart from this, it includes various attacks such as wallet attacks, network attacks and mining attacks.
Users in the Bitcoin network achieve a double spend if they are able to simultaneously spend the same set of bitcoins in two different transactions. In Bitcoin, the network of miners verifies and processes all the transactions and ensures that only the unspent coins can be used as input for a follow-up transaction. This is done to protect against possible double spending in the network.
Mining Pool attack
In a mining pool, the pool manager determines the amount of work done by individual pool members by using the number of shares a member finds and submits while trying to discover a new block.
A group of dishonest miners could perform a set of internal and external attacks on a mining pool which is called mining pool attack. Internal attacks are those in which miners disrupt the function of pool.
In external attacks, miners use their higher hash power to perform attacks.
Client-Side Security Threats
In order to access Bitcoin account or wallet, a client posse a set of private-public keys. If the keys of a client are lost or compromised the client will suffer monetary loss. To use Bitcoin users need to install a wallet on their desktop or mobile device,wallet stores a set of public-private keys associated with the owner of the wallet, thus it is necessary to take protective actions to secure wallet. The most common networking attack called Distributed Denial of Service (DDoS) targets Bitcoin currency exchanges.
Cryptocurrencies have a lot of variations as to how they are structured, their technology, the anonymity involved, and other technical aspects. Cryptocurrencies run on various parameters such as permissioned or permissionless, and their decentralized nature. Privacy in cryptocurrency provides a way to prove ownership and control of cryptocurrency. Cryptocurrencies can protect the information of users. Users can easily make transactions without compromising their privacy as user address would never be traceable.