Ever since Bitcoin was introduced in 2008 one of its most attractive features has been its “anonymity”. The fact is however that Bitcoin is not truly anonymous. There are several attempts by companies to create a truly anonymous, and thereby secure, cryptocurrency. One of those companies, the creators of XCurrency (XC) and their new Xmixer, may be making this a reality in the very near future.
This release is the finalization of an anticipated new private payments technology that incorporates two exciting new features. The release is scheduled for today, September 15, 2014. If everything goes as planned, not only will users be much more secure they will be able to earn fees for trustlessly mixing transactions with its new “coinjoin-killer” feature while at the same time engaging the “privacy mode” which, when engaged “reveal neither the amount sent, nor the sender’s and receiver’s address, and additional features conceal the user’s IP address and conceal the receiving address from even the sender.”
How it Works
The company unveiled its trustless mixing idea on July 7, 2014. This allowed for the first time a third party being able to forward information on a user’s behalf without the user being required to “trust” the third party. This means that third parties can now forward coins in complete security and the sender’s identity can even be concealed from the third party. This will probably sound like an unlikely scenario as long as you think of “third party” being a single individual. This is not the case with this idea because transaction-forwarding is distributed effectively making each node the third party to all other nodes. The tool used to accomplish this is a proprietary piece of software called “Coinshuffle”.
Bitcoin mixing is nothing new. There have been services such as Bitmixer.io and BitcoinBath available for a while now but the problem is that you have to be willing to trust the mixing service. Also, under this system anonymity is only guaranteed to people outside of the system. Coinshuffle solves both of these problems by using complete decentralization instead of the semi-decentralization used by mixing services. Coinshuffle does this by simply removing all connection between sender and receiver and, to conceal the amounts they are broken up into smaller, random, amounts with each part being sent to a different third party for forwarding.
The current problem at XC is capacity. If the company expects to be ready to handle potential mainstream adoption, which will include not only the decentralized exchange but also a flood of blockchain 2.0 apps, it will need to greatly expand. The problem is that this creates two potential problems in the future:
- If there are not enough nodes making private payments it may delay, or even cancel, transactions that are waiting and,
- Even if there are enough nodes if their combined balances are not sufficient they may not be able to support very large transactions.
This is where the Xmixer comes into play. The Xmixer uses the same protocol as Privacy Mode except that they collect portions of the transaction fees as remuneration. This allows them to forward transaction even when payments are not being made by users. Users who want to take advantage of Xmixers simply have to create a dedicated Xmixer wallet. It is advisable however to maintain a balance of at least 1000 XC to make sure that there are enough coins for sustaining transaction volume, for mixing coins, users are rewarded a very small amount of XC.
This does not lead to the creation of “super nodes” or even specialized nodes that perform mixing on behalf of others however. The reason for this is that while all XC nodes mix, only Xmixers will participate in private transactions even when their users are not transaction, which keeps the system going. There is even an advanced server set up which moves this tool even further toward decentralization.
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