Darkcoin: The cryptocurrency putting privacy first

Guy Bentley
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One of the newest cryptocurrencies has been experiencing a surge in recent days.

Created on 18 January 2014, Darkcoin has seen its price jump from $1.65 last Thursday to $2.58 today, while its market capitalisation has boomed from less than $7m to more than $11m.

This new cryptocurrency has not been been created to lower transactions costs or provide a protection against inflation.

Darkcoin has instead been invented with privacy at its heart.

Many mistakenly believe that Bitcoin provides a high level of anonymity. In reality, Bitcoin users have to go to great lengths to secure a reasonable level of privacy.

The man behind Darkcoin, developer and resident of Phoenix Arizona Evan Duffield, explained to Simone Brunozzi why he decided to invent the digital currency:

I believe the central problem with Bitcoin is that the public ledger, although a remarkable accomplishment, also allows a gross invasion of personal privacy by permanently listing all transactions the users have ever done publicly.

So far it seems to be succeeding, with over 4m Darkcoins in circulation. The factor pulling digital currency enthusiasts toward Darkcoin is that individuals can make transactions without being seen on the public blockchain. Darkcoin uses a system called Darksend to protect the identity of its users.

The most recent update to the system resulted in the creation of release candidate two (RC2), which provides users with near total anonymity. RC2 is in essence implementing a tumbler into Darkcoin. The coins are mixed to conceal their source.

Coinbrief's Dustin O'Bryant explains:

When a user, let’s call him Tim, sends darkcoins through DarkSend to another user, let’s call her Sandy, he must send 10 darkcoins, even if that amount is larger than what he would like to pay her. DarkSend then puts his coins in a pool, and pauses until two additional users initiate transactions. These new users will add their own 10 darkcoins to the pool, and DarkSend blends the 30 coins into a random assortment.

If we assume that Tim wanted to send Sandy 8 darkcoins, then at this point 8 darkcoins would be deposited into Sandy’s wallet, but those 8 coins would be a mix of coins from all 3 users that had initiated transactions. Tim’s remaining 2 coins are placed into a Random Pool Address (RPA) which was created during the transaction. This RPA is not tied to any user, thus it is impossible to connect to a specific user, but Tim can access it.

This process is also happening for the other two users, so it is impossible to identify which transaction was undertaken by a specific user. The system is similar to Dark Wallet's CoinJoin, the difference being that it uses a distributed collection of servers around its network that negotiate CoinJoin’s multiparty payments.

Duffield has praised the Dark Wallet project, pioneered by crypto-anarchists Cody Wilson and Amir Taaki, but said "it's not a completely decentralised approach".

Like Bitcoin, Darkcoin is based on the proof-of-work system but with a twist. Instead of using the Secure Hash Algorithm (SHA) 256 it uses 11 rounds of different hashing functions.

Duffield is treating Darkcoin as an open source project and plans to spend the next two years working on Darkcoin full time.