Bitcoins. Photo from Flickr user antanacoins under Creative Commons for Attribution.
Anarcho-capitalists unite. Soon purveyors of cryptocurrency will be able to conduct digital payments in private.
Meet Zerocoin, an alternative to the alternative currency Bitcoin, the decentralized digital cash created in 2009. As the Baltimore Sun reports, a team of researchers at the Johns Hopkins University is now working on Zerocoin’s implementation.
The overall goal: create a digital currency that is untraceable in any public ledger. While Bitcoins aren’t controlled by any central banking institution, an online record — publicly accessible — shows transaction histories of Bitcoin users. The record is necessary to prevent duplications of Bitcoins, of which there are a finite amount. Industries are now popping up dedicated solely to the online “mining” of these Bitcoins: people using software to solve mathematical puzzles to “discover” the crypto-coins. As of the morning of Feb. 3, $820 in American greenbacks were good for one Bitcoin.
Zerocoin will make those transactions private “by creating a separate anonymous currency that operates side-by-side with traditional Bitcoin” as transactions are conducted and recorded in the online ledger. (In Bitcoin-speak, the “block chain.”) According to the Zerocoin website, the online coinage “is a proposed extension to the Bitcoin payment network that adds anonymity to Bitcoin payments” that will “gain their value from being redeemable for [B]itcoins.”
Leading the project is Matthew Green, a cryptographer and assistant professor of computer science at Johns Hopkins, who told the Sun that “there is a legitimate need for anonymous financial transactions.” From the Sun:
If virtual currencies are going to exist, he and his team of graduate students say, there should be one that provides the same kind of privacy that people have when exchanging traditional forms of money.
Fear propagates among people in the U.S. government that digital currencies will also be used in money-laundering schemes, or to buy narcotics online, as was the case with the Silk Road drug market.
The Zerocoin group think such fears are hyperbolical. According to the Sun:
To Green and his team, fears of Zerocoin being used for widespread money laundering are overblown. They say they can incorporate a method of allowing law enforcement to identify users suspected of criminal activity while keeping the system anonymous for everyone else.
As Technical.ly Baltimore reported in December, Fells Point bar Bad Decisions became the first Baltimore city business to accept Bitcoins as payment.