UK Regulators Announce new Cryptocurrency Task Force
It is evident there are big things on the horizon for the cryptocurrency industry. As of right now, all markets remain prone to extreme volatility. The launch of this new UK cryptocurrency task force may not help matters much in this regard. Although such a task force is not a bad thing, it remains to be seen how this will play out.
The UK’s new Cryptocurrency Task Force
This by the UK’s Finance Department comes at an interesting time. More specifically, they are now looking at both risks and benefits of various cryptocurrencies. That in itself a remarkable decision and one few people expected. At the same time, the fintech sector is booming in the UK. Keeping an eye on innovation and regulation at the same time has proven to be quite challenging.
It is evident bitcoin and altcoins pose a to institutional financial services. Various banks around the world have echoed such sentiments throughout 2018. The UK Finance Minister wants to ensure the nation remains at the cutting edge of the digital revolution. Cryptocurrencies can no longer be ignored as we speak and it is a positive turn of events for the industry as a whole.
It seems this will all lead to a bit more in the near future. How that will pan out exactly, has yet to be determined. Regulatory measures help legitimize this industry in the long run. That is, assuming things are done in a positive manner and with an open mind. As of right now, it seems this task force will try to keep an open mind first and foremost. That doesn’t mean things will not change in the near future, though.
The Cryptocurrency Market Volatility
One of the main topics of focus for this task force is dealing with cryptocurrency volatility. Fighting this trend of market manipulation will not be easy, though. There is very little regulators can do in this regard. All markets are volatile by default, even fiat currencies and stocks. bitcoin and altcoins are not all that different in this regard. Then again, their price swings are currently a lot bigger compared to other assets.
How all of this will affect the cryptocurrency markets in general, remains to be seen. There is a growing sense of unease across all markets as we speak. This new task force may not calm the markets down anytime soon. At the same time, it is a positive measure when looking at the bigger picture. Whether or not this will make bitcoin “the world’s single currency”, as puts it, remains doubtful.
With the cryptocurrency industry maturing as we speak, good things are bound to happen. Regulatory approaches seemingly tend to be more positive overall. There is still a lot of work to be done until cryptocurrencies go mainstream. This new task force has the support of the UK central bank and the local FCA. Together, they will hopefully come up with a plan of action that benefits bitcoin and its brethren as a whole.
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Ádám “nopara73” Ficsór, developer and, and “TDevD,” the pseudonymous developer, are joining forces on a new privacy project: ZeroLink. ZeroLink is set to realize a trustless mixing scheme first by contributor Gregory Maxwell years ago — but one that hasn’t been realized thus far.
According Ficsór, the ZeroLink framework, which utilizes a scheme known as “Chaumian CoinJoin,” is actually more straightforward than many of the alternatives that have been proposed.
“Back in 2013, there was this sort of obsession with decentralization. ‘Everything that can be decentralized will be decentralized’ was the slogan,” the developer recalls. “By now we realize that decentralization is actually not always that useful. As long as a mixer cannot steal funds or link transactions, that’s enough.”
CoinJoin
Each bitcoin transaction essentially sends bitcoins from one or several bitcoin addresses (really: “inputs”) to one or several bitcoin addresses (really: “outputs”). That’s how bitcoins “move” over the blockchain.
The problem, from a privacy perspective, is that the blockchain is completely public, which means that anyone can see which addresses are paying which addresses. If these addresses can be linked to real-world identities, it can reveal a lot about who transacted with whom, and perhaps for what.
, the well-known coin-mixing scheme first proposed by Maxwell in 2013, is a potential solution to this problem. A CoinJoin transaction is basically a combination of several transactions merged into one big transaction. In other words, it includes inputs from several different users, and the bitcoins move to outputs controlled by several different users. As such, it’s not clear which bitcoins moved where. All users effectively paid all users.
While that’s great, the next problem is that whomever or whatever combines the different transactions into one CoinJoin transaction can be a central point of failure from a privacy perspective. That person (or that server, or whatever it is) still knows which bitcoins moved where. So if that individual is either corrupt or corruptible, the problem isn’t really solved.
“For CoinJoin to live up to its promise, even the entity that creates the transaction must not learn which addresses are paying which addresses,” Ficsór noted.
ZeroLink
ZeroLink provides a privacy framework for wallets that can be used for different mixing schemes. And it defines its own mixing technique as well: an implementation of CoinJoin referred to as “Chaumian CoinJoin.”
With Chaumian CoinJoin, users both send and receive equal amounts of bitcoin from a CoinJoin transaction, so everyone receives each other’s coins. This obfuscates the trails for all of these coins.
In practice, ZeroLink users will require two types of wallets: a pre-mix wallet and a post-mix wallet. As the names suggest, the first type holds coins that are to be mixed, while the latter is where the mixed coins end up.
Users then connect their pre-mix wallets to the ZeroLink tumbler and provide an input (“from” address) and an output (“to” address), which they both control. But importantly, the outputs are disguised (“blinded”) using a mathematical trick. So while the tumbler knows where all bitcoins are sent from, it does not yet know where bitcoins are sent to.
At the heart of the trick, the tumbler then cryptographically signs all blinded outputs, using a type of cryptographic signature introduced by David Chaum: a “.” This allows data to be cryptographically signed even if it is disguised. And importantly, these signatures can be checked against the original, unblinded data as well to see if the blinded data and the unblinded data match.
Next, all users connect to the tumbler again, but this time through some type of anonymity network, like Tor. They will then provide the tumbler with the unblinded versions of the outputs. Using the cryptographic signatures it just created, the tumbler can check that all revealed outputs match all blinded outputs. If they do match, the tumbler knows that all the outputs it received are legitimate, and thus were provided by the same users that also provided the inputs to send funds.
The tumbler then adds the revealed outputs to the CoinJoin transaction. And it sends this transaction back to all users, for these users to sign with their bitcoin private keys. Doing so validates the transaction. (The users should of course double check that the amounts and their outputs check out, to be sure they receive as much as they send.)
Finally, the tumbler broadcasts the CoinJoin transaction to be included in a bitcoin block. As a result, all users end up with different bitcoins than they started with: all bitcoins were mixed, and the blockchain trails broken.
While all this is actually relatively straightforward compared to some alternative schemes, and to a large extent already suggested by Maxwell back in 2013, the process has never been realized. This is probably because it was long thought to be too vulnerable to attacks, Ficsór thinks.
“When Maxwell first published the proposal, bitcoin transaction fees were practically non-existent. Because of this, it would be relatively easy and cheap to launch denial of service attacks against a CoinJoin mixing system. An attacker can just keep providing valid inputs, but refuse to sign when he should. That invalidates the whole transaction, and wastes everyone’s time.”
Interestingly, this attack vector is now to some extent resolved simply because it would be too expensive to keep it going. In order to maintain the attack in a way that it’s not easily countered, an attacker must provide new inputs for each round, meaning he must be able to keep moving bitcoins to new addresses to do so. “Assuming $1 transaction fees, that could cost up to $1,000 a day,” Ficsór pointed out. “In this particular context, high fees are a blessing in disguise.”
Development
Ficsór is currently about to help wrap up the development of another highly anticipated privacy tool,, for Stratis’s. This is expected to take another three months.
After that, he plans to focus on realizing ZeroLink, while TDevD may even start working on the framework sooner. Concretely, three new codebases need to be developed: the pre-mix wallet, the tumbler and the post-mix wallet.
“The tumbler needs to be developed from scratch. But it should be relatively easy to add the pre-mix wallets to any existing open source wallet. The same is true for the post-mix wallet implementations, though for privacy reasons not all wallets are a good fit,” Ficsór said.
His own HiddenWallet as well as Samourai Wallet are “fully committed” to implementing and deploying ZeroLink into production, Ficsór said, while Breeze Wallet may be interested as well.
Optimistically, an initial implementation of ZeroLink could be live before the end of this year.
For more information on ZeroLink, see Ficsór’s on the project (which also includes a) or.
