Hot Topics

Advertisement

Advertisement

Bitcoin’s Lightning Network Has Potential Privacy Issues

Bitcoin’s Lightning Network Has Potential Privacy Issues

The Lightning Network is often viewed as the holy grail when it comes to scaling Bitcoin to many more transactions per second, but questions remain as to how well the current version of this layer-two network can preserve or improve user privacy. During the Scaling Bitcoin workshop at Stanford University over the weekend, Zcash co-founder Ian Miers presented on the Lightning Network’s privacy issues and a potential solution to these problems.

Privacy Issues with the Lightning Network

At first, it may appear that the Lightning Network would provide improved financial privacy by default because transactions are mostly taken off of the public Bitcoin blockchain; however, Miers explained that the aggregate payment data is really all that matters to an observer. “It doesn’t matter I’m telling you that I’m paying a psychiatrist every week for $500; it matters if you know that I’m paying the psychiatrist regularly at all,” said Miers.

Miers added that the situation does get better in a payment channel network (as opposed to a simple payment channel between two parties) because then an observer can only see a user’s entry point to the network. Having said that, Miers also pointed out that problems still exist in payment channel networks such as the Lightning Network. In short, the payment hubs or colluding nodes on the network can learn about a specific user’s transaction activity. “If you have a path in the network and all of the peers on the path collude, they can identify you,” explained Miers. “They can do this via direct collusion, [or] they can do this via correlation after the fact. You don’t really get strong privacy from this model.”

A Centralized Lightning Network May Provide Less Privacy Than Bitcoin Itself

Miers went on to explain that the privacy problems found in the Lightning Network become much worse when the topology of the network is centralized. In this situation, collusion or coordination between nodes is not necessary because the centralized node already knows everything. The level of centralization that will be found in the Lightning Network has been subject to debate since the concept was first announced.

An article exploring this debate can be found over at Bitcoin Magazine. In Miers’s view, a centralized setup would provide a level of privacy lower than what is already available via traditional payment systems. In fact, Miers went as far as to say a centralized Lightning Network would provide worse privacy than the base Bitcoin blockchain. “The situation gets a little worse for Bitcoin because it’s not likely to be some regulated or vaguely regulated entity like Visa or financial institutions, which have (admittedly thin) rules on what they can do with your personal data, [that acts as a Lightning Network hub],” said Miers. “It’s going to be: insert your favorite sketchy exchange here.” Reasons for on-chain transactions being more private than a centralized Lightning Network provided by Miers included:

  • The creation of multiple identities for on-chain transactions is free, while new identities on the Lightning Network require a user to lock up funds into escrow.
  • To gain the fee-related benefits of the Lightning Network, identities must also be long-lived.
  • Some Lightning Network hubs may also decide to implement policies related to Know Your Customer (KYC) and Anti Money Laundering (AML) regulations. This would mean a real-world identity is also attached to one of these long-lasting pseudonyms.

“Even if there’s not [KYC/AML], it’s a long-term pseudonym, and it’s quite easy to figure out and link these to your actual, real-world identity,” said Miers. “You use the payment channel network once to make a payment to Amazon and they ship you a product, well, now someone knows the linkage on this stuff if they collude.” Miers added that the privacy issues associated with payment channels are not even solved with something like Zcash because there are still long-term pseudonyms attached to the off-chain activity.

A Solution to These Privacy Issues

As one potential solution to the Lightning Network’s privacy issues, Miers pointed to a project called Bolt, which is based on a paper (PDF) he co-authored with fellow Zcash scientist and Johns Hopkins Associate Professor of Computer Science Matthew Green. With Bolt, Lightning Network-esque payments can be sent through intermediary nodes without revealing the participants in the transaction or their associated payment channel balances. These features are achieved through the use of zero-knowledge proofs.

“All you have to do is do a zero-knowledge proof that [says], ‘Look, this [valid signature] exists, I’m not going to tell you the balance, and here’s the new thing that differs by five dollars,’” explained Miers. According to Miers, everything about the off-chain transactions, including payment values and participants, is hidden from the blockchain. Miers added that Bolt could be added to Bitcoin or Zcash via a soft fork or hard fork through the addition of a new opcode. “The one caveat to this is that in Bitcoin you need to be able to anonymize the funding of the channel,” Miers clarified. Without an anonymous funding mechanism, the last payment associated with a particular channel can be linked to the original funding of the channel.

You can share this post!

Advertisement

SoftBank CEO believes bitcoin will be useful in the future but “not any time soon“

SoftBank CEO believes bitcoin will be useful in the future but “not any time soon“

Quick take

1 minute read

  • Crypto adoption is on the rise recently since the leading cryptocurrency of bitcoin has been doing the rounds when it comes to bullish momentum. 
  • But not everyone yet understands fully what bitcoin is or how it works. 

Crypto adoption is on the rise recently since the leading cryptocurrency of bitcoin has been doing the rounds when it comes to bullish momentum. But not everyone yet understands fully what bitcoin is or how it works. 

There are numerous videos and articles out there that explain it but some people will leave those articles and videos more confused than when they started!

This is a sentiment that is being shown in numerous institutional investors such as Masayoshi Son, who is the billionaire technology entrepreneur and the Chief Executive Officer of SoftBank, a conglomerate institution based in Japan. He has said that he doesn’t “understand“ bitcoin as it rises significantly in its value.

Son has said that bitcoin investment is seemingly pulling his attention away from his actual own business according to a report from business insider last week on the 19th of November.

He added that he would spend five minutes every day watching the price of bitcoin go up and down highlighting that he was told by a friend to invest 1% of his personal assets into the coin. Quick maths shows that this is around $200 million.

When discussing the future of digital currency, the CEO said that digital currencies will be useful in the future and are great for development but it will take time and they won’t go anywhere any time soon.

“I think digital currency will be useful [...] But I don't know what digital currency, what structure, and so on.”

For more news on this and other crypto updates, keep it with CryptoDaily!

© 2020 CryptoDaily All Rights Reserved. This article is provided for informational purposes

You can share this post!

As it grows, how much ground will XRP cover next year?

As it grows, how much ground will XRP cover next year?

Quick take

1 minute read

  • Is 2021 XRP’s year?
  • How adoption will result in the success of the token.

Timothy Peterson, the well-known advocate for bitcoin and manager of global macro, believes that the San Francisco-based XRP token will have its best year in 2021 since 2017. 

As previously reported earlier this week, Peterson has recently said:

“I know it doesn’t look like much but this is $XRP lowest price forward. I think people will be surprised at $Ripple’s performance in 2021. It will probably have its best year since 2017 and maybe outperform #Bitcoin.”

As many people will already be aware, the success for ripple and its token will all depend on adoption by financial institutions. They have developed numerous new products such as rippleX in order to help facilitate a seamless transaction on the decentralised ecosystem for the network. But for the tokens targeted market, only 2% of financial institutions are actually willing to use it.

The Chief Technical Officer of Ripple, David Schwartz has previously said that there are numerous obstacles that prevent adoption for the token some of which include problems with regulation. That being said, well-known traders and investors at Galaxy trading have said that the asset is proven to be resilient.

“Although it is perhaps one of the most disliked projects, it has more than once shown its aggressive nature at a time when no one is expecting it.”

They see that the coin is capable of sparking by 10 times its current price as they say:

“We believe that this moment is very close and since catching the exact bottom is something very unpredictable, our advice to all who want to invest is to start buying at these “golden” levels of support where 10X can become a reality.”

For more news on this and other crypto updates, keep it with CryptoDaily!

© 2020 CryptoDaily All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Related TAGS:

You can share this post!

The benefits of Ethereum 2.0 will come sooner rather than later according to Vitalik Buterin

The benefits of Ethereum 2.0 will come sooner rather than later according to Vitalik Buterin

Quick take

1 minute read

  • Vitalik Buterin, has recently answered a number of questions from the community as a part of a “ask me anything“ session on Reddit. 
  • The co-founder highlighted many different topics but specifically said that he expects some significant and noticeable network improvements to come for the project sooner rather than later. 

Vitalik Buterin, the co-founder of one of the biggest crypto projects in the industry known as Ethereum has recently answered a number of questions from the community as a part of a “ask me anything“ session on Reddit. The co-founder highlighted many different topics but specifically said that he expects some significant and noticeable network improvements to come for the project sooner rather than later. He further said:

“TLDR: merge happens faster, PoS happens faster, you get your juicy 100k TPS faster.”

Over the years, the network for Ethereum has experienced some significant rounds of high congestion. Three years ago in 2017, the popular CryptoKitties game slowed down the network massively but with the decentralised finance space growing rapidly, the network has been seriously clogged up.

As a result of this, it has led to high fees and longer than average confirmation times.

With Ethereum 2.0 very much just around the corner, there is a significant scaling upgrade solution that is supposedly going to speed up the network rapidly. This will increase the number of transactions per second and it will also move the blockchain to a different consensus algorithm known as a proof of stake. Phase 0 for the upgrade is set to occur on the 1st of December in two weeks!

The co-founder further went on to say that “all of these changes are designed to decrease the time until eth2 becomes useful to people.” 

For more news on this and other crypto updates, keep it with CryptoDaily!

© 2020 CryptoDaily All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

You can share this post!

The second richest man in Mexico invest 10% of his portfolio into BTC

The second richest man in Mexico invest 10% of his portfolio into BTC

Quick take

1 minute read

  • Ricardo Salinas Pliego is the second wealthiest businessman in Mexico and the 166th richest man in the world. 
  • It was recently announced last week that he has invested 10% of his liquid portfolio into the leading cryptocurrency, bitcoin. 

Ricardo Salinas Pliego is the second wealthiest businessman in Mexico and the 166th richest man in the world. It was recently announced last week that he has invested 10% of his liquid portfolio into the leading cryptocurrency, bitcoin. This came after he shared a video throwing huge amounts of paper money into the garbage. Not only does it show how worthless the government-issued cash is in today’s world but it also shows how important digital assets such as bitcoin could become.

Furthermore, the video indicates the hyperinflation and how bad it got in Venezuela.

Ricardo is worth more than $11 billion at the time of writing and is the only billionaire from Mexico who seems to have benefited from the coronavirus pandemic and the economic crisis that has come as a result.

For more news on this and other crypto updates, keep it with CryptoDaily!

© 2020 CryptoDaily All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Related TAGS:

You can share this post!