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Will Lightning Help or Hurt Bitcoin Privacy?

Will lightning help or hurt bitcoin privacy?

Will Lightning Help or Hurt Bitcoin Privacy?

Will lightning help or hurt bitcoin privacy?

Faster, cheaper bitcoin transactions? Check. But at what cost?

For bitcoin users, many of whom were drawn to cryptocurrency for its promise of financial sovereignty, bitcoin is still synonymous with privacy. But the gap between the vision and the reality, in which user transactions today must be published to a globally distributed ledger, has long been one of the technology’s biggest points of controversy.

“bitcoin is Twitter for your bank account. Everything is public to everyone,” Ian Miers, the co-founder of the privacy-centric cryptocurrency zcash, told CoinDesk.

Compounding matters, however, is that as bitcoin users get closer to gaining a whole new way to send transactions, powered by an innovation called the Lighting Network, concerns are spreading that privacy could degrade from its already imperfect state.

On the surface, the idea might seem promising – because Lightning payments occur “off-chain,” the information isn’t included in the blockchain that all nodes store.

But while there is no Lightning ledger so to speak, payments in the scheme are still broadcast across nodes within the network. Essentially, to ensure routing is always available, those using Lightning channels need to trust other network users to help relay transactions.

Conceptually, this means that participants within the system could pry on a transaction, or even potentially sell that information to governments or advertisers. This is a risk that’s worsened if the network becomes centralized into a “hub-and-spoke” type structure, where hubs are large, well-known and often-used entities.

“Lightning likely won’t improve privacy, it may make it much worse from an average consumer’s perspective,” Miers added.

And like many, more speculative concerns surrounding the upcoming tech, the risk to user privacy may not be obvious until the network is deployed – an uncertainty that, combined with a wave of efforts on behalf of Lightning developers to include privacy features, has led to mixed sentiments as to what the future of private bitcoin transactions might be.

According to privacy researcher Kristov Atlas, in a worst-case scenario, privacy attackers could “thrive” on hubs “vampirically feeding off” the data as he wrote in a blog post.

However, the upcoming Lightning release does have some privacy features embedded, and there’s reason to believe that developers are at least making advances on the problem.

Onion-routing

To date, the most advanced privacy feature included within Lightning is called “onion routing,” and it’s part of the Basics of Lightning Technology (BOLT), a series of protocols that ensure the multiple iterations of Lightning can interoperate.

In onion routing, payments are passed through multiple channels, and only the minimum of information about that payment is exposed.

For instance, upon receiving an encrypted payment, a node can only know where that payment came from and to what node that payment should be relayed.

According to Olaoluwa Osuntokun, a leading figure in Lightning development who first suggested the scheme on the developer mailing list, the importance of this is that nodes can’t be selective when it comes to what payments they’re willing to take.

“Nodes shouldn’t be able to arbitrarily censor certain payments, or blacklist certain destinations within the channel graph,” Osuntokun explained.

Often compared to the Tor network for its use of onion routing, Lightning has occasionally been celebrated as a darknet for bitcoin payments – however, it’s comparatively untested, and could face some of the problems native to Tor as well.

“Similar to Tor, there exist known possibilities of timing leaks, and also unknown active attacks that may be viable,” Osuntokun said.

And according to some, there’s ways that onion-routing could be manipulated, leading to the loss of privacy, especially in an early Lightning network.

For example, the last node within a route, as well as whoever sent that payment, will know the transaction information, and theoretically, nodes could collude to break privacy, piecing together each layer of the payment in order to create a complete picture.

On top of this, there’s the risk of a “global adversary which is able to instantaneous monitor all channels on the network,” something that the current privacy protocol doesn’t address, Osuntokun continued.

Fixed identifiers

And there’s further defects to privacy on Lightning today as well.

For example, Lightning payments are currently given a fixed identifier that is repeated throughout the entire route. “This means that if an adversary has two non-contiguous nodes on the route, then they can trivially link a payment flow,” Osuntokun said.

That said, Osuntokun assured that there’s ways to correct this in future.

For example, if Schnorr signatures, a scaling method that works by aggregating public keys, are adopted into bitcoin, it could correct this issue in a “simple and attractive” way, Osuntokun said.

Plus, there’s other, “more heavy weight solutions” such as using zero-knowledge to encrypt payments. However, because this encryption device is heavy, it will “significantly increase the amount of data one needs to send in order to complete a payment,” Osuntokun said.

According to Osuntokun, the “lowest hanging fruit” is to obscure this payment identifier with random numbers as the payments pass through the network.

Hub and spoke

Even more speculative risks exist as well, but according to Miers, it’s all highly contingent on the structure that the Lightning network will take.

“Some people think the amount of money you need to lock up in a channel and the costs of running nodes will inevitably lead to centralization,” Miers said. “And then there’s clearly no privacy.”

Because onion routing works by passing payments through multiple nodes, in the case of a highly centralized network, active nodes could have perfect visibility of the payments.

However, Blocksteam engineer Christian Decker told CoinDesk that the development teams are  creating “counter measures” against this risk of centralization.

Programming the system to open channels at random, Lightning “tries to avoid having hubs that can observe traffic,” Decker explained, which has the added benefit of “strengthen[ing] the network as a whole against single points of failure.”

Decker said that this randomness could be extended to how routes are formed on the network, making payment paths less predictable but potentiality increasing fees.

Other researchers maintain the risk involved in maintaining a node with high throughput will stave off the formation of centralized hubs.

Miers concluded:

“We will see which one actually ends up happening.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Zcash Company, the for-profit entity that develops the zcash protocol.

Tesla coil image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at news@coindesk.com.

Published at Sat, 24 Feb 2018 12:00:34 +0000

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Quanta Partners with Coinfirm to Bring Compliance and Mass Adoption to Their Blockchain Lottery Platform

Coinfirm to help Quanta develop strict anti-money laundering and counter-terrorism financing prevention methods and streamline compliance processes through the Coinfirm AML/CTF Platform.


LONDON, UK, December 7, 2017 – Quanta has announced its partnership with leading global regulation technology company Coinfirm to ensure being the first global and compliant blockchain lottery.

Quanta has enlisted Coinfirm to help identify and solve problems related to achieving and maintaining compliance and adhering to regulations. Through its API and structured reports, Coinfirm will help Quanta develop strict AML/CTF and fraud prevention methods, streamline the compliance process and give Quanta the ability to safely realize its potential and goals.

Gaming is one of the most heavily regulated industries in the world, and being a pioneer requires particular care and attention to established requirements. Achieving full compliance is one of Quanta’s most important goals and the company are taking significant steps to ensure success through a strategic alliance with Coinfirm.

Coinfirm is globally recognized for their Blockchain AML/CTF Platform that uses over 200 proprietary algorithms, risk flagging scenario’s and big data analysis to deliver structured, actionable data,  increasing efficiency and streamlining compliance to near automation. The Platform also serves as the foundation for cryptocurrency and blockchain adoption by traditional financial entities and paves the way for mass markets. Headquartered in London, the company is establishing industry compliance standards for blockchain transactions thanks to its combination of cryptocurrency and blockchain technology expertise and experience working with major financial institutions, regulators, tech companies and start-ups.

Adam Vaziri, Chief Regulatory Officer at Quanta, commented:

We are very impressed with Coinfirm’s leading accomplishments in establishing compliance standards for blockchain and are certain that their Blockchain AML & Compliance Platform, expert knowledge and guidance will ensure mainstream trust and adoption for Quanta.

In addition to the specialized services provided and joint development, Pawel Kuskowski, the Co-Founder and CEO of Coinfirm will join Quanta as an advisor to intimately work with the project to ensure that Quanta becomes the first ever blockchain-based lottery that is fully compliant.

An entrepreneur and regulatory AML/CFT and compliance thought leader, Pawel is a former Global Head of AML/CFT/Sanction Functions for major international banks. He has over 14 years experience in the financial sector and is the Chairman of the Compliance Association of Poland. Pawel is also an innovator in the application of blockchain technology within financial systems and has extensive experience conducting global projects for international financial institutions that cooperate with supervisory authorities.

Kuskowski said:

I am really glad Coinfirm is bringing our AML/CTF Platform and compliance solutions to such a great project like Quanta, which will help push blockchain further into mass markets. I’m equally excited to personally advise and work hands on with Quanta on their further development and growth. The collaboration of our two companies is another notch for this ecosystem and its development.

The two companies are bringing the world its first regulated blockchain-based lottery and in doing so are establishing new levels of legitimacy for the whole blockchain ecosystem by raising standards and setting new benchmarks for the industry.

Coinfirm has also added another feature to the AML/CTF Platform with the release of their AMLT Token. The Token of Compliance, AMLT is designed to enhance transparency and democratization within the financial system by allowing market participants to help determine the potential risk of others as well as act as the utility token that allows the holder access rights to the Coinfirm AML/CTF Platform and a range of prepaid products. Currently in Pre Sale, the AMLT public token sale begins December 12th at 3 pm UTC and is available directly through the AMLT site.

About Coinfirm

Coinfirm serves as a foundation for the safe adoption and use of blockchain. The Coinfirm AML/CTF Platform uses proprietary algorithms and big data analysis to provide structured, actionable data that increases efficiency, reduces costs and streamlines compliance to near automation. A recognized leader in their field and among the most influential blockchain and regtech companies, the blockchain agnostic platform benefits not only companies operating around blockchain but also major financial institutions, asset management, and BI companies. In addition, Coinfirm develops dedicated blockchain solutions such as their data provenance platform Trudatum, currently being piloted for adoption by multiple financial institutions. Trudatum is an easy to use blockchain solution to register and verify the ownership and authenticity of any type of document, file, or data. www.coinfirm.io

About Quanta

Quanta is a pioneering technology company that develops and implements breakthrough, blockchain-based products and services. Quanta is currently preparing for the global launch of their premier product – Quanta Lottery. The first fully compliant blockchain lottery in the world, Quanta is built on the Ethereum blockchain and utilizes smart contracts to ensure fully autonomous, manipulation-immune gaming. Developed with breakthrough RNG (random number generation), the first provably fair lottery can operate independently or by adopted as a white label solution. Quanta also actively researches the ways in which its proprietary technologies can be implemented by diverse fields and industries.

For more information about Quanta visit their company website or email them at info@quanta.im.


Images courtesy of Coinfirm

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