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Zcash: Financial Privacy Heaven or a New Crime Facilitator?

When Bitcoin was released back in 2009, many people believed that a new era of currency anonymity was rising. After all, Bitcoin transactions don’t require you to reveal any personal identity attributes, right? Well, not exactly. All Bitcoin transactions are logged on a traceable public ledger, known as the blockchain. In addition, each Bitcoin user owns a digital fingerprint (a random alphanumeric string), which is used as a reference to every transaction that he makes. Law enforcement has the right to request access to this data, and use sophisticated data analysis in order to associate fingerprints with real persons, therefore revealing their activity and their financial connections with other people and businesses. Furthermore, many tracking companies have emerged, which are trying to deanonymize Bitcoin users and map the blockchain to real people.

In an attempt to avoid Bitcoin tracing and conserve their privacy (or for other “darker” reasons), many users started to investigate alternative options, such as tumblers and coinjoins, so that they can mix their Bitcoins and obscure the origin of their transactions. However, all these alternative platforms can have their downsides: they are not completely untraceable, they can be shut down at any time, or they can be potential “honeypots” operated by law enforcement authorities. In addition, by “mixing” your coins you can never be sure of the origin of the new ones you’ll be receiving. And since every transaction is recorded, you could have the authorities knocking on your door, simply because It turned out that the coins you received while “mixing” were previously used in a drugs transaction.

A few weeks ago, the first electronic coins of Zcash (ZEC) were minted, bringing us a new cryptocurrency that promises complete privacy and untraceability to our transactions. Zcash uses zk-SNARKs (zero-knowledge Succinct Non-interactive ARgument of Knowledge), a type of zero-knowledge proof, initially developed by a team of cryptographers working on M.I.T., Technion (Israel Institute of Technology) and on the Tel Aviv University, in order to verify transactions without revealing all the inputs, thus protecting the users’ privacy. More specifically, Zcash still uses a blockchain but, unlike Bitcoin, the users have the option to fully obscure their address, the transferred amount and the destination of a transaction, revealing only a timestamp.

It seems that, finally, everybody will have the right to complete privacy and untraceability in their financial transactions. According to the Haifa Center of Law and Technology “the right to privacy gives us the ability to choose which parts in [our] domain can be accessed by others, and to control the extent, manner and timing of the use of those parts we choose to disclose.” And Zcash achieves exactly that: it allows the users to choose which of their transactions will be disclosed to the blockchain and which ones should be obscured. Traders, investors and financial institutions will be able to hide their strategies on blockchains, while also protecting their customers’ private financial data. Zcash blockchains won’t reveal to corrupt and oppressive regimes any financial details about their citizens. People will be able to use cryptocurrency in order to buy medicines, without fearing that their medical conditions will be derived.

In addition to privacy, Zcash also adds fungibility, a very important feature that was missing from cryptocurrencies until now. By anonymizing the origin of each coin, Zcash can effectively eliminate any discrimination among them. Therefore, all the Zcash coins become interchangeable and can be exchanged without caring where they come from, as is the case with paper notes.

This is all great, of course, but it should be obvious by now that there is a catch behind it. In 2015, a former FBA agent was able to trace on the blockchain more than 700.000 bitcoins (approximately $13.4 million) which were transferred from servers seized during the investigation of Silk Road, one of the most popular online black markets for drugs. Such tracing would never be possible in an untraceable blockchain, like the one promised by Zcash. And even though the Silk Road was taken down during 2013, a lot more online black markets have emerged in its place. Therefore, it’s only normal to assume that Zcash will soon become a very attractive magnet for anyone who wants to get involved in transactions within these black markets. Drug selling, human trafficking, arms trading, poaching and any kind of money laundering could be greatly facilitated by this new cryptocurrency that allows criminals to transfer their money in total anonymity.

So, does the privacy and anonymity of all those millions of legitimate financial transactions worth opening a potential Pandora’s box of criminal abuse? Well, the moon will always have its dark side and bad people will always exist. If we let ambiguity and potential abuse to determine our technological evolution, then we would probably live in a world with no internet, no cars or airplanes, no atomic energy, maybe not even fire.

About the author(s)
Vangelis Bagiatis | UPCOM

Vangelis Bagiatis | UPCOM

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