Privacy and Cryptocurrencies—A Systematic Literature Review

Abstract

Our transaction history in the current centralized banking system has the ability to reveal a lot of private information for each spender, both to the banking system itself, but also to those entities that surround it (e.g., governments, industry etc). Examples of leaking information constitute the amounts spent, the goods on which the amounts were spent, the spending locations and the users we exchange money with. This knowledge is powerful in the hands of those who have it, and can be used in multiple ways, not always to our benefit. Cryptocurrencies, such as the famous Bitcoin, were proposed as a means to address the limitations of centralized banking systems and to offer its users privacy with regards to their transactional data. In this work, we perform a systematic literature review on the realm of privacy for electronic currencies. We present the development of digital money from electronic cash to cryptocurrencies and focus on the techniques that are employed to enhance user-privacy. Furthermore, we present flaws of the current cryptocurrency systems, which reduce the privacy of the cryptocurrency users. Finally, we describe three research directions to enhance privacy for cryptocurrencies: transaction propagation mechanisms, succinct ZK proof systems without a trusted setup, and specialised trustless zero-knowledge proofs. INDEX TERMS Anonymity, bitcoin, confidentiality, cryptocurrencies, electronic cash, privacy, zero-knowledge.

On Prices of Privacy Coins and Bitcoin

“…Bitcoin's weakness is simultaneously its strength-the entire blockchain is publicly open ledger, and all transactions and their history could be followed (Herskind et al 2020;Harvey and Branco-Illodo 2020). If a person pays, e.g., to an online store by giving identification information (what is typically required so the retailer knows who their customers are), then the retailer has information about the wallet, its ID and also the network address of the used device.…”

“…However, follow-ups from criminal activity and/or chasing of Nakamoto tell that different countries and authorities are nowadays very well aware of who is using Bitcoin, when, where and how. Just only by following graphical form transactions of one unknown wallet and then seeing what is purchased, where, when and if known wallets are also used in the screening, much of the "unknown" wallet user is already known (Orcutt 2017;Eldefrawy et al 2019;Herskind et al 2020). Although, Bitcoin is increasingly popular nowadays, its ownership is extremely concentrated.…”

“…Crypto coins and their global as well as digital money world is starting to mature as leading cryptocurrency, Bitcoin (BTC), is more than decade old (Eldefrawy et al 2019). In the very beginning, cryptos were providing a revolution through their blockchain style hash databases (Herskind et al 2020), which have proven to be rather functional. After all, transactions are executed around the world, and compared to commercial banks, securing of transfers do not need an army of direct labour (which is used to supervise and possibly correct transfers).…”

“…This development led to the current high level as in 2020 there were already more than 8000 cryptocurrencies available for sale. As one major concern in projects was the anonymity and privacy issues of leading cryptocurrencies, this has been tackled by numerous alternatives in previous years (Eldefrawy et al 2019;Herskind et al 2020;Harvey and Branco-Illodo 2020).…”

Non-Interactive Zero-Knowledge for Blockchain: A Survey

“…Combining confidentiality with public verifiability is not easy. Privacy issues related to blockchain technology can be found, for example, in the surveys of Khalilov and Levi [17], Feng et al [23] and Herskind et al [24]. All nodes need to be able to verify the validity of the data.…”