Bitcoin Privacy Extension to Have Backdoor for Government Snooping?

Bitcoin Privacy Extension to Have Backdoor for Government Snooping?







Eric Blair
Activist Post

Bitcoin banknote concept - Wikimedia Commons

Bankers are desperate to force governments into regulating decentralized virtual currencies like Bitcoin. With good reason.

As currency wars rage with a rush to devaluation while banker bureaucrats openly rob depositors in Cyprus and as financial privacy disappears, Bitcoin has become a safe haven currency to a growing number of people. Bankers and governments can't control it or tax it, but now they're attempting to fix that.

Andrew Leonard of Salon writes:
<blockquote class="tr_bq">
The more popular Bitcoin gets, whether as a symbol of resistance or a
perceived safe haven in financially troubled times, the more government
attention it will inevitably draw, and the more inexorably it will be
sucked into existing regulatory structures. Incomes denominated in
Bitcoins will be taxed. Efforts at money laundering will be cracked down
upon. It’s the price of success. Resistance is futile.</blockquote>



Last week, the Financial Crimes Enforcement Network (FinCEN) revealed their initial guidelines to regulate virtual currencies. Although it said that users of virtual currencies are not subject to FinCEN regulations, exchanges for that currency are:
<blockquote class="tr_bq">
A user of virtual currency is not an MSB under FinCEN's regulations and
therefore is not subject to MSB registration, reporting, and
recordkeeping regulations. However, an administrator or exchanger is an
MSB under FinCEN's regulations, specifically, a money transmitter,
unless a limitation to or exemption from the definition applies to the
person. An administrator or exchanger is not a provider or seller of
prepaid access, or a dealer in foreign exchange, under FinCEN's
regulations.</blockquote>
Additionally, the CIA's venture capital firm In-Q-Tel has taken a great interest in Bitcoin and has called some of its developers to give a presentation about Bitcoin this June, which is troublesome for the prospect of freedom and privacy.

But resistance is not futile as Andrew Leonard would like his readers to
believe. Other developers are working on Bitcoin extensions to add
further privacy for users. Bitcoin transactions are already fairly
anonymous even though they can be viewed on a public open-source record.

Privacy
lacks for Bitcoin users, not in the transaction, but in where the coins
are stored. Specific encrypted coins can be traced through a
transaction to a certain wallet whose owner is may or may not be
anonymous. Even if the wallet is anonymous, everyone knows where their
specific coins have been which could potentially expose the wallet
owner's activity and identity.

A new Bitcoin privacy extension, Zerocoin, is seeking to solve this
privacy concern. Zerocoin, being developed by Johns Hopkins University,
will basically pool Bitcoins in escrow and scramble them between buyers
and sellers to hide the origin and destination of specific coins.

New Scientist reports:
<blockquote class="tr_bq">
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. </blockquote>
<blockquote class="tr_bq">
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.</blockquote>
Jon Matonis of the American Banker interviewed Johns Hopkins research professor Matthew Green, who said:
<blockquote class="tr_bq">
"Zerocoin creates an 'escrow pool' of bitcoins, which users can
contribute to and then later redeem from," Green explained. Users
receive different coins than they put in (though the same amount) and
there is no entity that can trace your transactions or steal your money.
"Unlike previous e-cash schemes, this whole process requires no trusted
party. As long as all the nodes in the network support the Zerocoin
protocol, the system works in a fully distributed fashion," added Green.</blockquote>
Green is due to present his paper Zerocoin: Anonymous Distributed E-Cash from Bitcoin at the IEEE Symposium on Security & Privacy this May.

It sounds like an amazing innovation for a currency that is already far superior in many ways
to establishment currencies and banking. However, Green adds one
disturbing statement with huge implications for the legitimacy of
Zerocoin.

Green
told the New Scientist, "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."

Apparently Green has received a lot of grief for attempting to provide
an anonymous privacy protocol that would allow back-door snooping, and
he has since backed off his previous statement even if it still appears
in his paper.

"The back door isn't part of Zerocoin. There's absolutely no need for
it, and building one in would take significant additional effort. In
fact, we only mentioned it as a brief note in the conclusion of our
paper, mostly to motivate future research work," Green told the American
Banker.

So Green included the idea of a backdoor to "motivate future research
work"? In other words, he seems to be seeking public funding to
continue creating this backdoor. Obviously, the "authorities" would be
the only ones interested in this pursuit which answers the question
about who he is trying to motivate. The bigger question is who funded
this work?

In an attempt to put the issue to rest, Green claimed that a backdoor
was impossible, anyway; "If someone did try to build a back door for any
reason, the open source Zerocoin would quickly become Zero-adoption."

In any respect, creating a random escrow pool for Bitcoin transactions
is a brilliant concept and an innovation that can be used alongside
other open-source programs like Coin Control which allows users to choose what wallet they want individual transactions to go to.

Yet as Bitcoin developers are hard at work finding ways to make it even
more anonymous, will they be successful in preventing backdoors for
government access, thwarting FinCEN regulations, and involvement by the
CIA?

Source:-
http://www.activistpost.com/2013/03/bitcoin-zerocoin-privacy-extension-to.html