Category Archives: Altcoins

Dumb Contracts and Smart Scripts

Published by:

The rise of Ethereum and other “Smart Contract” platforms like Waves or Neo was very confusing for Bitcoin maximalists. They missed out on huge gains, meanwhile new investors were (and still are) cashing in on the hype. With Rootstock around the corner, I want to explore what “Turing Complete Smart Contracts” actually achieve. Are there any applications or is it really all BS?

What is a smart contract?

Smart contracts were first proposed by Nick Szabo back in 1996. To be clear: this is before the Blockchain Era. He defined a smart contract as follows:

A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises. (…) The basic idea of smart contracts is that many kinds of contractual clauses (…) can be embedded in the hardware and software we deal with, in such a way as to make breach of contract expensive (…) for the breacher.

So Szabo envisioned contracts that had some kind of self-execution that is costly to attack. Obviously, once blockchain came around, people tried to implement smart contracts that were self executing and costly to attack using this new tech. After all, reversing transactions on a blockchain is expensive (if PoW is used) and provide censorship resistant transactions which could guarantee the self-execution. Enter Ethereum et al. They promised us Turning completeness, which means that “anything can be coded”.

All these new Smart Contract platforms are promising the users a new decentralized world: it would become possible to write and execute “unstoppable code” which could result in all kinds of futuristic innovations, like “a decentralized uber“, “a decentralized Air BnB” or “a decentralized Darknet Market“. Or more in general: decentralized computing. Ethereum tries to become “the world computer”. You can check the official Ethereum video below for more claims on what the Ethereum tech is supposed to enable:

eth_world_computer(click on image to start video in a new tab)

ISSUE 1: Real world assets

But when reading Szabo’s article, it becomes apparent that he was aware of the fact that trusted people and notaries were needed to be able to connect real world assets and actions to the smart contract. You can’t force someone using blockchain to hand over his car through software. You can’t force someone using blockchain to build an certain app according to the agreed upon specifications through software. You can’t force your drug dealer using blockchain to send you the weed you’ve paid for. It’s just impossible. In these cases, an arbitrator is clearly needed. Both parties need to trust a 3rd party who will decide on the settlement of the contract in case the parties don’t agree.

In these cases, when real world assets or services are being exchanged for a digital currency, it’s clear that “smart contracts” can’t add a lot. The only thing they can do is provide the logic for some kind of joint account. In most cases, this will be a simple “2/3 multisig”: The buyer, seller and a trusted third party create a joint account. When the buyer received the goods, he signs the transaction. The seller will sign as well and the money will be sent. If the buyer doesn’t want to sign because -according to him- something is wrong with the product or service, the trusted third party can do arbitration and issue a (partial) refund if he deems this appropriate. If the seller can prove he did deliver as was agreed upon beforehand, the arbitrator can decide to bypass the buyer and send the money.

But wait… What are we doing here? Isn’t this possible on Bitcoin for several years? Yes! This means that this whole use case is possible on Bitcoin as well. In this regard, Ethereum and other “smart contract platforms” aren’t adding anything useful. No need for “Turing complete platforms” it seems.

ISSUE 2: Trusted nodes

And what about the running of¬† websites or platforms? No real world assets are used in these projects. For sure there is more to this than just monetary transactions, right? Well, let’s think this through… Say we want to run a website on the Ethereum World Computer. This would enable the website to be “unstoppable”. Governments can’t shut it down because, presumably, the whole network is executing the code for the website. This sounds pretty vague. What could this mean in practice? The creators of the website put their code on the blockchain and all nodes download the code to open the website. If every node needs to download every website, this will result in huge bandwidth and storage costs. This seems pretty inefficient. If you don’t need the website, why should you download all the code for it? Usually, a user just downloads the needed files from the website’s server and opens it in a browser. What “Turing complete smart platforms” try to do, is the other way around.

Ok, so let’s say only certain nodes download the website content, other nodes are pruning it. What we are getting now is some kind of distributed servers to which casual users can connect to access the website. The users themselves won’t run full nodes to connect to their own version of the website. But… what is the incentive to run a full node? You only get paid for executing code, not for storing and broadcasting huge amounts of data. Let’s say that somehow the Smart Contract platform manages to code up a contract that makes a user pay for each data request to the node. [Note that this also requires something called “sharding” because when only certain nodes can deliver the requested data, only these nodes can verify the validity of the smart contract.]How is the user certain that he gets the correct version of the website and not an outdated version or, even worse, a faked version? This can’t be solved unless the user verifies the data with the original service. So either the user blindly trusts the node he connects to, or…

he just connects to the original node that put the website on the blockchain. So we’re back where we started… It’s clearly more efficient to just connect to a central server that serves the website. If you want an unstoppable website, just run it as a hidden service on the Tor or I2P network. No huge bandwidth and storage costs for the network, no need to trust nodes, no need to pay for access, … People tend to forget that the internet is pretty decentralized by itself. If you run your own server, you are running your website in a decentralized manner. It’s however more efficient and reliable to use a hosting company for your website ūüėČ

ISSUE 3: Oracles

This brings us to the concept of oracles. An oracle is basically a trusted service that provides data. It’s a less radical idea compared to the pruned nodes being used as website servers, as the sole purpose of an oracle is serving a specific data input for a smart contract. Imagine a binary option on the EURUSD exchange rate. You can bet that the EUR will drop below 1 USD by the end of the year. The smart contract handles everything. All the code is running on the blockchain: you deposit an amount in the contract address and when the contract detects that when a euro indeed became worth less than a dollar, the contract executes and you’ll get double your money back. If this doesn’t happen by the end of the year, you lost your bet.

This seems pretty straight forward and easy to code, right? One little problem though… Where does the contract gets the data feed needed to check the EURUSD exchange rate? That data isn’t on the blockchain. It’s external. You can use for example a free API like this one to track the exchange rate and code that into your “smart contract”. But there is still a (huge) problem though… what happens when the data feed craps out and accidentally displays 0 as the EURUSD exchange rate for a minute? The smart contract would be executed automatically. The transaction is valid and immutable. So the creator of the binary option lost his money due to a bug in the oracle. You can probably use different oracles to provide data and ignore outliers. For example you use 3 data feeds and the smart contract automatically ignores the one that’s the furthest from the average and recalculates the average based on the remaining 2 oracles. This seems to have fixed the issue. If there is an outlier, it won’t affect the data used in the smart contract. But the weakness is still there. What if it’s december 31 and you are about to lose 10 million USD because the EURUSD exchange rate still didn’t drop below 1 USD. You now have a very big incentive to bribe 2 of the 3 oracles to display 0.9 USD as exchange rate for a minute. You pay them both 1 million to do this. The result? You’ll win the bet and receive 20 million! Oracles can also create bets themselves and deliberately create bugs in their software to profit from them.

Clearly, blockchains doesn’t solve this oracle problem, it makes it worse. While a wrong data feed on the NADAQ can be fixed by rolling back some trades, smart contracts on a blockchain can’t be rolled back (unless you are friends with Vitalik Buterin). I hope you now understand why I’m very skeptical on this whole notion of trusted oracles. You can trust an oracle if the stakes are low. If an error happens you either lose a small amount of money. If you trust your counterparty you may even get your money back if he’s acting honestly. But I’m sure that large corporations dealing with big transactions won’t trust these oracles. They will require someone signing off on the transaction. Yeah indeed, we’re back at trusted third parties.

If you don’t trust the oracle, can’t we just use a simple multisig transactions to decide who won the bet? The implementation is very easy: you run a “Smart Script” on a server. This server uses the oracles as input to decide when to trigger an alert that is sent to the arbitrator. The arbitrator manually checks if the data is indeed correct and if that’s the case, he signs the multisig transaction. If the arbitrator confirms wrong data, you can sue him and get your money back. So the oracle has an incentive to act correctly. This system is also very efficient, as the blockchain doesn’t need to check every “smart contract”, it only needs to verify the validity of the multisig transaction. Everything else happens off chain. I won’t go into the “innovations” that pretend to be building “decentralized oracles”. I’m pretty sure those are gameable as well, but this is beyond the scope of this article.

ISSUE 4: Scaling

Still not convinced that there is no real use case for “unstoppable code”? I’ll provide another example which does not require trusted oracles. One can imagine a gambling “dapp” (decentralized app) where the previous block hash is used as random number generator. You can bet on the hash being even or odd. The owner funds the smart contract with a pool of money. The gambler sends money in advance to the smart contract and bets on “even”. If the hash is indeed even, he gets 1.98x his wager back. When it’s odd, he gets nothing, so the house edge is 1%. This can all be coded and executed automatically. There is no need for a website, all this can be done on the blockchain. Often you would provide a (centralized – lol) website as a GUI for the clients, but it’s not required. The problem is: all this gambling transaction data still needs to flow through the whole Ethereum network. Every node needs to check all the games started by the users.

In the past, Satoshidice used to operate in a similar manner on the Bitcoin Network. You could send transactions to fixed gambling addresses and if you’d won, the website would automatically send coins back. But… you needed to trust the website to actually act honestly. They could in theory take your coins and run. This is an advantage of Ethereum then! Wait wait wait, not so fast. Satoshidice USED to operated as an “on blockchain” service, but it doesn’t anymore. Any guess why? The answer is simple: congestion. All those little transactions needed to be stored and forwarded by all the nodes. When in the early days Bitcoin wasn’t used much, there was enough block space for these low value transactions. But currently the fees are so high that such a service isn’t possible anymore. Thus Satoshidice switched to a centralized model: you first deposit bitcoin at the website an then you can start gambling. When you’re done, you withdraw your coins. It’s way more efficient to do it this way compared to the decentralized model. Been there, done that. It was fun, but it’s not sustainable for the network health in the long run. So no, Ethereum also doesn’t add anything useful here. By the way, Etherdice is currently unavailable due to… network congestion. Need more proof? Check this article on Microsoft dealing with Ethereum: they won’t use the blockchain itself, they need a more scalable solution which is off chain.

ISSUE 5: Miner incentives

Going back to the previous example, there is a second issue besides scaling: the miners can manipulate the block hash. They can bet and then only publish blocks with the desired hash. Actually, that’s why Etherdice uses the external data (probably¬† for their source of randomness:

The only external dependency is a source of randomness, as the deterministic nature of blockchains make it difficult to come up with random data within the chain in a secure way.

So if even a simple small gambling “smart contract” can’t even rely on the blockchain, how will big companies ever use this tech to create important and complicated smart contracts?

Need another example? I heard this story from someone in the Ether mining community: during a popular ICO, “investors” compete against eachother to get their transactions in a block as soon as possible, to not mis out on the fantastic “investing oppurtunity”. Some miners are being paid through a side channel to get their transactions in the blockchain. These miners reject other transactions. Or miners just buy the whole ICO themselves and exclude other investors. So mining incentives can lead to miner censorship to gain financially.

Need another one? At the moment, a decentralized exchange isn’t implemented yet. But imagine for example a miner that is able to censor certain buy or sell orders on a decentralized exchange and front run it with his own transactions? He would be the first to dump a certain token and thus be able to exit before the price crashes. It’s all possible.

So imho, “smart contracts” are not safe on a blockchain. You will need an arbitrator and a “smart script” on an external server to do these kind of things in a reliable, scaleable and efficient way.

Bearer assets only

So what we are left with are “smart contracts” that only use on chain data and don’t rely on the randomness of the block hashes, nor rely on the sequence of execution. The data that resides inside a blockchain is very limited in scope: transaction data, block hashes and timestamps. That’s it. So these “smart contracts” are actually just “dumb contracts”. They can’t do anything useful.

At the moment, the only on chain value is cryptocurrency. It’s impossible to blockchainify real world assets, as those assets are not digital in nature. Cryptocurrency is a so called “bearer asset”. The value is the token itself. You don’t need to trust an external platform. When you transfer the token, you transfer the value. There is a way in which we can broaden the scope of smart contracts: create new bearer assets.

At the moment this happens at a very high rate: the number of ICO’s on Ethereum is staggering. These tokens are representing the value itself. For most of them, trust in an underlying platform is needed, as the token will receive future profits as dividend. But the token still holds the (expected) value and should reflect the trust in the platform and the chances of ever receiving the dividend. So yeah, ICO’s are indeed a natural application of smart contracts. One could create a platform that has a revenue stream and the profits are automatically distributed to the token holders, without interference of the developers. This is a potential use case of smart contracts, but it’ll probably suffer from the same inefficiencies as we saw with the satoshidice example. It can’t operate at scale. If the owners/developers of the platform are manually approving dividend payouts, there is no advantage for using a “Turing complete smart contract platform”. This can be done on Bitcoin as well through the Colored Coins protocol. No need for Ethereum. Also consider the potential legal risk for these ICO’s. Most of them will be shut down by regulation. The remaining ones will be shady “decentralized companies” (darknet markets) and investing in them may by itself be a risk.

There is also a more interesting type of bearer assets: cryptofiat. If governments ever decide to issue fiat on the blockchain, then the token can represent the value itself. In that case in theory more interesting smart contracts will become possible. If you are able to create a decentralized exchange you could, theoretically, have on chain exchange rate data, removing the need for oracles. But as we saw blockchains can’t safely implement on chain trading. And again,¬† blockchains are very inefficient and any large scale trading won’t be possible anyway. It all sounds nice, but it’s not possible in practice. And besides that, I don’t think governments will ever put fiat on a blockchain. They dislike bearer assets and prefer registered value for tax purposes.

Turing completeness is adding more risk than benefits

So in my opinion, blockchains aren’t really useful for smart contracts. The (very limited) added benefits are not worth it because we also need to consider the risks. The fact that the platform is Turing complete, makes it very hard to build secure applications. We’ve seen this with the DAO fiasco. I rather trust a solid blockchain that focuses on being money than trying to apply “smart contracts” on a blockchain with in most cases no benefit at all and substantially more risk.

So “smart contracts” are possible…

… but only in very specific circumstances. Scaling issues prevent widespread use. The only “smart contracts” that can function on a blockchain are contracts that are easy to compute, don’t require much storage and bandwidth and aren’t executed very often. So in practice, this can only apply to large transactions. It’s economically infeasible to execute a lot of small value transactions using smart contracts on a blockchain. If you still want to scale the number of transactions, you’ll need to use “smart scripts” running on an external server and settling periodically to the blockchain. The smart contract also comes with a risk if you use oracles, so you are better off using multisig on chain and a “smart script” on an external server. If you don’t want to use oracles, you are limited to bearer assets using only data that is on chain, resulting in “dumb contracts”.




Thoughts on mining centralization and PoS weaknesses

Published by:

In this article I want to dig a bit deeper into how secure PoW and PoS really are.¬†I start with PoW and describe why decentralized mining is important. Then I move onto PoS and will show it’s a fundamentally unsafe system to run a decentralized cryptocurrency.¬†

Proof of Work – importance of the decentralization of mining

In general, PoW makes sure that the network selects a validator of a block at random. This is a desirable feature so joining the network is permisionless which ensures decentralization. It’s also important for censorship resistance: if everybody has the ability to create blocks, then it’s very difficult for governments to forbid everyone to create a block which includes a certain undesirable transaction.

In this sense it’s also important to note that mining decentralization is desirable. the “1 CPU = 1 Vote” Satoshi envisioned is the only real guarantee that mining stays decentralized and thus censorship resistant. Sadly mining centralization is happening in most cryptocurrencies. There is still ongoing research for so called “asic-resistant” algo’s. ZCash uses Equihash (but as far as I know it’s mainly GPU mined) and Monero uses Cryptonite, which is partly CPU partly GPU mined due to optimizations for CPU AESNI operations (CPUs still have a decent hashrate compared to GPU’s).

So in my opinion, decentralization of mining is very important to avoid blacklists of txo’s. At the moment, just a handful of pools and mining farms are responsible for the large majority of the hashrate. These companies can easily be compelled to enforce blacklists.¬†In this sense, botnet mining is¬†a net positive for a currency: it makes it extremely hard to force miners to enforce blacklists or shut down the network.

I saw your counterargument in some older video: the hashrate increase per chip will slow down so ASIC chips will become more distributed again. Even if that happens, there is still the issue that only a few companies produce those chips. Peter Todd alluded to this in an interview a 2 years ago: he said the following:¬†‚ÄúThe most fundamental way is for[governments] to regulate ASIC manufacturing, e.g. by forcing [manufacturers] to add ‚Äėkill switches‚Äô to the hardware, and/or require end-users to have licenses.‚ÄĚ

I tend to agree with Todd on this: governments will find a way to regulate ASIC chips (either the production or the users) as long as chip production is centralized. If¬†ASIC production would become more distributed in the future, this problem can become less important. But creating ASICs is a very specialized business, so I don’t see this happening any time soon.

Proof of stake – General thoughts on the weakness

With PoW, the hash puzzle is generated by the network. The difficulty is set by consensus rules and the randomness is set by the data in the previous block. The miner needs to generate a random nonce to find a solution to the hash puzzle.
The only way to do a double spend is by withholding blocks and secretly mining a longer chain than the entire network. this requires 51% of the hashrate (or a bit less if you’re lucky).

With PoS, there is no hash puzzle. This means that the validator whose turn it is to sign a block can easily create multiple blocks (and thus forks) to try to doublespend coins. Also there is no objective way to determine which chain is “the real chain”. With PoW this is determined by the chain with the most accumulative PoW, but this option (obviously) isn’t available with PoS.
There is also no real randomness. So it’s deterministic based on data in the blockchain which user/address will be allowed to sign the next block based on blockchain data which means that a signer can know in advance which user/address will be allowed to sign the next block based on the block data he is signing.

PoS reverts back to an unsafe version of PoW

If a signer knows which address will be picked as the next validator, it is (at least theoretically) possible for the current validator to manipulate the data in the block he’s currently signing in such a way that he’ll be the next signer.

Some examples on how block data can be manipulated:
* transaction malleability
* sending transactions to oneself
* dropping transactions from the block
* changing the order of the transactions within the block

This leads to a very dangerous attack: when a validator is picked by the network, he can then calculate (Proof of Work!) a lot of possible blocks and try to find a new block that will enable him to be the new validator. He can even try to find a series of blocks that will make him the validator for (for example) the next 10 blocks. Meanwhile he can publish another block for which he won’t be the next validator. By doing this, he has the abiity to double spend. Once he managed to pull of the double spend, he releases his other chain for which he’s the only validator. This chain will then become the longest chain and the attacker doubled spent successfully.

Note that if the validator didn’t manage to “attack” the network, he can try again when it’s again his turn to sign a block. One does not need 51% of the coins to be able to attack. This assumption made by proponents of PoS is -imho- false.
Also the cost of attacking is significantly lower compared to PoW. While for a 51% on PoW you need to spend a lot of money on electricity and you need to continuously spend that money, an attack on PoS can be done with a minimal amount of energy.

Reverting a transaction retroactively is nearly impossible with a PoW system, because you’ll need to have a lot of hashing power to “go back in time”. If you want to revert a transaction that has 1 confirmation, you need to mine 2 blocks while the whole network is searching for 1 block.
h^2  = (1-h) => h = 61.8%
You need 61.8% of the total hashrate to change a transaction with 1 confirmation, on average. Note that if a transaction has more confirmations, you need a larger share of the total hashrate of the network.

In the case of PoS, you can easily try to revert every transaction from a block height in the chain where you were a validator and you don’t need spend substantially more to revert a transaction that has more confirmations.

PoS attacks can be “solved” by centralization

This attack can be “solved” by having a limited number¬†of “trusted” witnesses that keep track of which blocks they received first.¬†If they then detect an alternative version of a block, it indicates a attempt to attack the chain. Then these witnesses can flag the attacker and he may be punished by loosing a part of his stake.
The problem with this is that this group of witnesses/people/nodes/validators/… need to be trusted. It’s not decentralized. Once the witnesses are in power, they can collude to attack the chain.
This witness system¬†also raises a lot of questions surrounding reaching consensus: ¬†what is a few witnesses disagree with the others? Who is right? The majority? It’s not as easy as it looks because an attacker can try to submit his block with the double spend to a majority of the witness nodes and the ‘fair’ block to a minority of the nodes. If he succeeds, the attacker “legitimately” double spend!

It is pretty obvious a currency doesn’t want to have anonymous witnesses. If they are anonymous, they have a very big incentive to attack the chain themselves and perform double spends. After all, there is no objective way to determine who “is telling the truth” when a double spend happens. So there will usually exist¬†a process to appoint these witnesses. This will in practice often look like elections.
In Bitshares it’s quite literally that. they use “Delegated proof of stake” (DPOS) in which people need to be trusted community members to be able to raise enough stake votes to become a witness. In DASH the requirement to be a witness (aka masternode) is currently owning 1000 DASH, but this will change once the “evolution savings account” goes live which will be a variant of DPOS. The Casper system proposed by Ethereum will likely also be a variant of DPOS with a limited number of witnesses. So for currencies who have some kind of witness election, these public people who act as witnesses can be forced by governments to censor or even revert certain transactions.

Proof of stake Рthe choice between a  constant forking blockchain or centralized witnesses

To conclude, the a naive implementation of¬†PoS¬†will lead to a blockchain that is able to fork and do reorgs constantly, which is completely unworkable. Why didn’t we see this yet? My guess is because the on chain value never was high enough to be worthy of an attack.

The “solution” by centralization depends not on decentralized hash puzzles but on trusting individuals to not cheat. This is certainly not permisionless. These solutions aren’t decentralized and the government can thus easily try to force witnesses to censor certain transactions.

This leads me to the conclusion that PoS currencies can’t guarantee censorship free transactions, which is -imho- the only value behind a cryptocurrency. If we accept censorship, we can just start using Paypal. No need for an inefficient blockchain at all.


The Untrusted Setup – Why you shouldn’t trust ZCash

Published by:

Hidden inflation

ZCash will launch today. This is not a “normal launch” like any other altcoin, because ZCash required a so called “trusted setup”. During this setup, some secret (public) parameters were generated based on a “master private key”. These network parameters are needed to create the so called “zero-knowledge proofs”, which is the anonymizing mixer on the ZCash network. The “master private key”, referred to by Zooko as toxic waste, needed to be destroyed.¬† If this data is not destroyed, someone who has access to this key is able to generate an infinite amount of anonymous ZCash.

This is the so called “hidden inflation problem”; unlimited counterfeiting of coins while nobody is able to detect it. If this were to happen, it would undermine the value proposition of the ZCash cryptocurrency. ZCash would never be considered to be “sound money” where the emission scheme can be checked by all participants. The problem is that nobody can check if the setup actually did occur¬† in a correct manner. People who hold value in ZCash will need to trust the setup process from the genesis block onwards.

Setup of the setup

ZCash used a “multi party protocol” which means that, according to the team, as long as one of the participants in the generating process is honest and doesn’t keep a copy of his part of the “toxic waste”, nobody else will be able to get access to the full “master private key” that is needed to create counterfeit coins. Only 6 people participated in the setup. This is a very small group and thus creates a theoretical possibility that these people were conspiring or were being coerced by a TLA to keep a copy of the “master private key”. While this is a possibility (certainly considering possible involvement of the Israeli government), it doesn’t seem all that likely due to the involvement of Peter Todd, who isn’t a part of the ZCash team.

What’s more worrisome is the fact that the setup itself could have been compromised: think about hardware, network, software, operating system, binaries, etc. There are a lot of attack vectors. Governments had a very big incentive to compromise the setup of the setup. If successful, they are able to create free money without people noticing and meanwhile diluting the value of a potential powerful cryptocurrency. State sponsored attacks are known to be very sophisticated, like Stuxnet that sabotaged the Iranian nuclear power plants.¬† Is it therefore likely that governments were able to compromise this “trusted setup” as well? I my opinion it is. It’s impossible to prove that an unknown attack didn’t happen. You don’t know what you don’t know.

Sybil zk-proof attack

The ZCash team often repeats that even if the setup is compromised, the anonymity of the network isn’t at risk. However, I beg to differ. Due to the high RAM requirements to generate “jointsplits”, it’s unlikely that the anonymizing feature of the ZCash network will be used much in the first years of the existence of the coin. This leads to the possibility of “timestamp analysis attacks”. People tend to use new mixing technology as an “intermediate step” for obfuscating bitcoin transactions. But due to volatility risk, people tend to have their value for the shortest possible time in an altcoin. If people use the zk-mixer for obfuscating bitcoin transactions, it will be trivial to connect the transparent ZCash that enters the zk-mixer and the ZCash leaving the mixer again after only a few minutes or even hours. (Sidenote: this leads to fungibility problems within ZCash; you can read more about it here.)

Imagine an attacker counterfeiting a lot of fake zk-proofs. This could create the illusion of a liquid mixer. A lot of usage means that suddenly one can hide his transaction in this mixer with a lower (perceived) risk of being tracked. Timestamp analysis attacks become increasingly harder. But the attacker, who knows all the fake zk-proofs, can ignore his own counterfeited liquidity. He is still able to do the timestamp analysys based on the real (low) liquidity inside the zk-mixer. This leads to a very dangerous situation in which the user thinks he is transacting anonymously, but in which an attacker will still be able to track all transactions. Privacy theatre is a huge risk.

Chain rollbacks

There is a (drastic) option to solve this issue. Zooko proposed recently to periodically force everyone to reveal their balance as a solution for the hidden inflation problem. At a certain block height all “anonymous” coins would become invalid and an observer would be able to sum up all “transparent” coins. If the total amount is equal to or less than the emission should actually be, the¬† system can be considered “sound” until that point in time.

If however an anomaly is discovered, then the ZCash community will face a difficult decision: continue with the inflated emission or rollback to the previous checkpoint. The network would also come to a halt until the bug is found. Trust in the currency would be lost immediately. If the community decides to do a rollback, this means that all transactions between the previous checkpoint and the detection of the hidden inflation will become invalid. Some people won’t like this rollback and maybe a non-rollback ZCash fork would emerge.¬† When people use the “rollback ZCash” however, one can only consider transactions to be “fully confirmed” after such a successful “emission checkpoint” happened.¬† Exchanges, users, merchants and wallet services should be aware of this serious risk.

Inflation bugs

ZK-proofs are very difficult to understand. Recently, Zooko even admitted he doesn’t understand the math. The ZCash team has some smart people on board, but even they can not guarantee that the network is free of bugs. During the test phase, a bug was discovered that made it possible to counterfeit coins. This attack had nothing to do with the “trusted setup”, but would cause the exact same problems as described in this article. Due to the fact that the ZCash protocol is very complex code, it’s not at all guaranteed that similar bugs aren’t still present in the protocol.


You shouldn’t trust ZCash.



Warning: DASH privacy is worse than Bitcoin

Published by:

This article analyses how DarkSend works and will explain why there’s absolutely no good ¬†reason to use DASH for private transactions.


The cryptocurrency DASH (formerly known as Darkcoin, formerly known as XCoin) brands itself as a “Digital Cash”. When people promote DASH, they often claim that the PrivateSend (formerly know as DarkSend) feature makes DASH the “top contender in the realm of privacy coins”.

This recent steemit article by bravenewcoin is a perfect illustration of what I mean. There is zero critical thinking. Nobody seems to ask questions and do research. If there is no proof that these claims are correct, then it’s dangerous to use DASH in the first place. People who are not technically literate will use DASH while presuming that they are doing private transactions. They are exposed to some risky attack vectors, but think they are safe.


Let’s first look at how DASH describes the “Darksend” feature on their website:

Darksend is the feature that gives Dash users full privacy when they use it. It is an improved and extended version of the CoinJoin. In addition to the core concept of CoinJoin, we employ a series of improvements such as decentralization, strong anonymity by using a chaining approach , denominations and passive ahead­of­time mixing.

So DarkSend basically is a fork of CoinJoin. DASH added some things and claim these features are improving the privacy of the DarkSend user. We examine them one by one


1) Coinjoin basics

Darksend uses the fact that a transaction can be formed by multiple parties and made out to multiple parties to merge funds together in a way where they can’t be uncoupled thereafter. Given that all Darksend transactions are setup for users to pay themselves, the system is highly secure against theft and users coins always remain safe.


Coinjoin, as implemented in Joinmaket on Bitcoin, is a system that enables users to mix their coins in a decentralized way. As shown in the image above, users basically transact together in the same coinjoin transaction. By doing this, an outsider can’t really know which output belongs to which input.

Joinmarket is currently the only viable decentralized implementation of Coinjoin on Bitcoin. DarkSend is a different implementation of Coinjoin on the DASH network. We’ll compare these 2 implementations in this article.


2) Decentralized mixing

In Joinmarket, there is no central server to find counterparties to mix with. You just announce to the network that you want to mix and someone else can join your mixing proposal. Other implementations of Coinjoin, such as Sharedcoin by uses a central server to generate the coinjoin-transactions. It is possible that these servers log the different inputs and outputs so they can potentially deanonymize the coinjoin-users.

In DASH, the DarkSend-users connect to a masternode for mixing. This masternode enables the mixing proces in a similar way as the sharedcoin system. These masternodes can log the inputs and outputs and therefore deanonymize the users.

Note that you don’t need to be the owner of a masternode to see these logs. Most of the masternodes are hosted on cloudhosting services. If a government demands access to these logs, they will probably get it. It’s entirely possible that right now the NSA is spying on the majority of masternodes without the owners even knowing their masternodes are being spied upon.

The DASH website ignores this risk and tries to reassure us that by using “chained mixing”, you’ll be safe:

¬†At set intervals, a user‚Äôs client will request to join with other clients via a Masternode. (…) Each Darksend session can be thought of as an independent event increasing the anonymity of user‚Äôs funds. (…) To increase the quality of anonymity provided, a chaining approach is employed, which funds are sent through multiple Masternodes, one after another.

Stating that chaining mixings is more secure is just false: suppose an adversary has access to a large number of masternode logs. When someone does one mixing and then waits a day to do a second one, he’ll be more private than someone doing 6 mixings in a row. Why? If the adversary owns 2 of the 6 masternodes used in the mixing process, it will be easy to undo the mixing that happened in between due to the low liquidity in the DASH system (see next point).

DASH mixing is far from decentralized and it’s even worse than Sharedcoin: when using Sharedcoin, the user is aware that he’s using a centralized system. When using DASH, everybody pretends it’s a private decentralized system, but in reality, it isn’t.


3) Mixing liquidity

The advantage of DarkSend compared to JoinMarket, is that it’s implemented in the official DASH GUI, so it’s easily accessible. I assume the idea behind that was to encourage the use of DarkSend which would improve the liquidity in the DarkSend mixing system.

Liquidity is very important for any mixing system to function well. If only a few people are mixing, these systems are easily Sybil attacked: if some adversaries just try to mix with as much people as possible, they will be able to get a lot of info from their own mixings because they are in most cases the only counterparty of the people who want to mix.

So let’s compare¬†the¬†liquidity between DarkSend and JoinMarket:

Currently, according to, this bitcoin mixing system has 86 counterparties to mix with. This means that at any time, someone who wants to mix can choose one of those 86 people to mix with. He can even do multiple mixings (“chained mixing”) to improve his privacy: it’s possible that some of his mixing partners were adversaries, but chances are smal that all of the counterparties were.

A Sybil attack is more difficult to successfully execute when the number of counterparties grows. Bitcoin has the advantage that there is a lot of liquidity in the Bitcoin network. The market cap of Bitcoin is more than 10 billion and I estimate that the number of active bitcoin users is in the millions. If only a small percentage of those people started using CoinJoin, the liquidity in the mixing system would grow and Sybil attacks would be very hard to pull off.

It’s not possible to get exact data on how many counterparties are available in DASH DarkSend, but we know a few things: the DASH market cap is 50 million USD and I estimate the number of active users to be in the thousands. So by using DASH you already reduce the anonymity set you’re in by multiple orders of magnitude.
Due to the low liquidity on the DASH blockchain, it’s possible to attribute “chained mixings” to the same individual solely based on blockchain analysis.

But what’s even more telling is the fact that a lot of DarkSend users seem to experience a very slow mixing process. Check this subforum for their stories:¬†¬†

DASH developers tried to improve the number of mixing participants compared to JoinMarket. Joinmarket usually only has 2 participants, DASH has t least 3 people mixing together:

Currently to mix using DarkSend requires at least 3 participants.(…)However each session is limited to three clients, so an observer has a one in three chance of being able to follow a transaction.

The DASH developers also noticed that mixing is slow, so they decided to pay 5 “liquidity providers” to constantly mix their coins. This probably increased the speed of the mixing a bit since this system was implemented, but it is also a very big risk: if these 5 people collude (or are being spied upon), it will be trivial to deanonymize every DarkSend transaction that happened on the DASH blockchain. This is a very unsecure system to depend upon for your private transactions!


4) Denominations

DASH added a denomination system to the coinjoin-implementation of DarkSend:

To improve the privacy of the system as a whole we propose using common denominations of 0.1DASH, 1DASH, 10DASH AND 100DASH. In each mixing session, all users should submit the same denominations as inputs and outputs.

Statistical research is needed to confirm the claim that denominations are actually better for privacy. If it were better, then joinmarket could easily implement it. But I think there are also some risks associated with using denominations: if you want to mix 987.6 DASH, you’ll end up with 30 outputs. When you want to spend 375 DASH, you’ll regroup at least 15 of those outputs. This could potentially lead to making your previous DarkSend privacy weaker. A better approach would be to conceal the amounts in the transactions by using Confidential Transactions combined with coinjoin.


5) Passive mode

With joinmarket, you have an incentive as a market maker to propose mixings to the bitcoin network. Joinmarket has an incentive to provide liquidity. Tis makes it easier for people who want a fast mixing to just ping the network and accept a mixing by one of the market makers.

The DASH developers correctly identified that timing attacks are an issue with mixing. But the fact that they promote the “passive mode” of ¬†DarkSend as a feature is very telling: it’s turning a bug into a feature.

Darksend is limited to 1000 DASH per session and requires multiple sessions to thoroughly anonymize significant amounts of money. To make the user experience easy and make timing attacks very difficult, Darksend runs in a passive mode.

In DASH this “passive mode” is just your node waiting for other people to show up to mix with you through a masternode. There is no incentive at all to do this. It’s a necessity. It shows (again) that the DarkSend liquidity is painfully low.

DarkSend (now called PrivateSend) has some serious privacy issues. It’s risky to rely on this system and the liquidity is very low which makes it not really usable. If you need to choose between Bitcoin and DASH, it’s safer to rely on Bitcoin mixing systems and more specifically on JoinMarket.
PS: fungibility claims


DASH also claims to be a “truly fungible” coin:

By having a decentralized mixing service within the currency we gain the ability to keep the currency itself perfectly fungible. At the same time, any user is able to act as an auditor to guarantee the financial integrity of the public ledger without compromising others privacy.

There is a lot to say about this, but I’ll refer to a previous article of mine about fungibility. Basically bitcoin and DASH have the same fungibility issues. Coinjoin can’t “fix fungibility”. You can read that article here:
PPS: Instamine scam

By the way, if after reading this article you somehow still regard DASH as a legit project, there is still the instamine you can look into

Teaser: this chart shows the first 72 hours of DASH. At the moment there are about 6.5 million DASH in circulation. In the first 2 days 2 million coins were created. In the first hour more than 500000 coins were created.