Bulletproofs, a technological innovation proposed by Stanford University’s Applied Cryptography Group and several Blockstream developers, could enable bitcoin users to transact with enhanced privacy, even when making on-chain transactions.
Contrary to mainstream media reports, bitcoin transactions are not private. Although addresses are pseudonymous, all transaction information is publicly viewable using block explorers, and developers have created enhanced tools that allow their users to obtain a range of enhanced information and link addresses to their parent wallets.
The U.S. Internal Revenue Service (IRS), for instance, uses these blockchain-tracing tools to help identify and prosecute taxpayers who use bitcoin as a method for tax evasion. The presence of these tools is also why many dark web marketplaces have adopted monero, an anonymity-centric cryptocurrency, as their payment method of choice.
First presented in a paper (PDF) titled “Bulletproofs: Short Proofs for Confidential Transactions and More,” Bulletproofs promise to provide bitcoin users with the ability to make private, on-chain transactions at a more affordable rate than currently-existent methods.
Bitcoin Bulletproofs could bring privacy to Bitcoin
As described by the paper’s authors, Bulletproofs operate on a “non-interactive zero-knowledge proof protocol with very short proofs and without a trusted setup.”
This protocol will purportedly improve upon current implementations of zero-knowledge proofs, which, at a basic level, allow observers to verify the integrity of transactions while obfuscating the amount of the transaction to everyone except the sender and receiver. Although onlookers can still see what addresses are involved in the transaction, senders can create so-called “false negatives” by paying zero bitcoins to several addresses, preventing observers from identifying what address received the coins.
Critics say that the problem with current implementations of zero-knowledge proofs is that they must either utilize a trusted setup — as zcash did through its famous “Ceremony” — or they must be “prohibitively large” in size, exacerbating what many people believe are already exorbitant fees that must be paid to transact on the bitcoin network.
Bulletproofs, the paper’s authors claim, will reduce the size of confidential transactions considerably by shortening the cryptographic proofs needed to implement them. This, ultimately, will make confidential transactions much more affordable and practical for average users without subjecting the network to the systemic risks of employing a trusted setup.
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