Bitcoin add-on makes your virtual purchases private

Hal Hodson, technology reporter

Bitcoin is the perfect currency in many ways. The distributed network that governs the creation and distribution of this digital money means there's no need for central banks, no centralised control, nothing to come between you and your cash.

But it does have a privacy problem. The lack of need for a bank or any central authority is derived through the distributed Bitcoin network, which verifies all transfers across multiple nodes to ensure that no coin is spent twice. This means a record is kept of all transactions between accounts, known as wallets. Although there's nothing that immediately links these accounts with real people, it's relatively easy to link purchases and figure out who's spending what.

Researchers at Johns Hopkins University in Baltimore, Maryland, have come up with a way around this problem. Called Zerocoin, it's a cryptographic add-on to Bitcoin that allows for transactions which cannot be linked together. The key is that it does this without introducing any new centralised elements into the network or using laundering, whereby coins are spent through intermediaries to hide the root purchaser's wallet address.

Zerocoin works by allowing Bitcoin users to leave their coins floating on the network for someone else to redeem, on the condition that they can redeem the same amount of Bitcoin, similarly left floating on the network, at an arbitrary time in the future.

"Anyone can put Bitcoins in, and anyone else can take one out," explains Johns Hopkins researcher Matt Green. "The anonymity comes from the fact that there will be a lot of people doing this. It makes a pool of hidden coins from which anyone can withdraw.".

Green says that he and his fellow researchers are not interested in facilitating criminal activity with Zerocoin. "Zerocoin would give you this incredible privacy guarantee, then we could add on some features which let the police, for instance, to be able to track money laundering. A back door." The paper is due to be presented at the IEEE Symposium on Security & Privacy in Oakland, California, in May.

The lack of any centralised infrastructure affects Bitcoin in other ways too. Since it's backed and regulated cryptographically, bugs in the code that underlies Bitcoin can affect its behaviour. This happened yesterday when an unforeseen bug in the latest version of the Bitcoin software led to a 25 per cent drop in value.

Source: http://feeds.newscientist.com/c/749/f/10897/s/29878c4d/l/0L0Snewscientist0N0Cblogs0Conepercent0C20A130C0A30Cbitcoin0Ezerocoin0Bhtml0Dcmpid0FRSS0QNSNS0Q20A120EGLOBAL0Qonline0Enews/story01.htm

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