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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.

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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.

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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.

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Coinbase co-founder, Fred Ehrsam set to join Fireblocks as a member of the board

Coinbase co-founder, Fred Ehrsam set to join Fireblocks as a member of the board

Quick Take

1 minute read

  • Fred Ehrsam, the co-founder of the crypto platform known as Coinbase is getting ready to join the digital asset security platform Fireblocks. 
  • It was announced last week that Fred would be joining the board following a recent round of funding.

Fred Ehrsam, the co-founder of the crypto platform known as Coinbase is getting ready to join the digital asset security platform Fireblocks. It was announced last week that Fred would be joining the board following a recent round of funding.

The co-founder of the well-known crypto platform is getting ready to join the company as a board member following a $30 million funding ground to help expand its operations on an international level.

Throughout 2020, Fireblocks has launched a secure asset transfer network which would allow more institutions to efficiently transfer assets on chain. And on top of this, the platform also announced that it has seen more than $150 billion in transferred assets over the course of the past year. Fred has said:

“Fireblocks has become the go-to for any business looking to build new digital asset operations or scale existing ones… The extraordinary growth of the Fireblocks Network and its team in the last year attests to the enormous value they have unlocked for enterprise and institutional customers.”

 

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.

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XRP Price Analysis: XRP Continues Correcting

XRP Price Analysis: XRP Continues Correcting

This analysis brought to you by RoboForex.

On Friday, November 27th, XRP has reached stability but is still correcting and trading at $0.5550.

As we can see in the daily chart, after finishing a quick rising wave, XRP/USD price is correcting to the downside. At the moment, the asset is trading close to 61.8% fibo, a breakout of which will indicate further pullback towards 50.0% fibo. The MACD histogram has broken 0 and is still moving to the upside – it may be another signal in favor of a new rising impulse. The upside target of the completion of the correction will be at 0.6800.

In the H4 chart, the cryptocurrency continues correcting to the downside. Right now, it is testing the support level, a breakout of which will result in further decline towards 50.0% fibo. The Stochastic indicator has formed a “Black cross” inside the “overbought area” and is still falling, which is an additional signal in favor of further decline towards 50.0% fibo. After completing the correction, the asset may test and break 61.8% fibo, and then continue trading upwards. The upside target is similar to the daily chart, 0.6800.

Ripple started its rally on November 20th, together with other cryptocurrencies. There are a lot of explanations of why it happened, from investors’ search for alternatives to fiat instruments to a surge in interest in cryptoassets from institutional players. Indeed, all of this really took place and, of course, expansion of the interest was in favor of cryptocurrencies. The entire market is on the rise but since “trees don’t grow sky-high”, active purchases faded to the correction.

Over this period of time, XRP has managed to update its high reached in May 2018. The asset is still moving like 80% below the highs of January 2018, when it was trading at $3.7, but investors are surely positive about further growth.

At the moment, XRP is back to third place in the list of the strongest and most popular cryptoassets.

By Dmitriy Gurkovskiy, Chief Analyst at RoboForex

 

Disclaimer

Any predictions contained herein are based on the author's particular opinion. This analysis shall not be treated as trading advice. RoboForex shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

 

© 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.

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