When Bitcoin first went mainstream last year, one of its major selling points was anonymity. In a world where every one of your online financial transactions could be traced back to you, Bitcoin promised to be the cash of the digital age.
Of course, it turned out this was too good to be true. Though Bitcoin, like Tor, can help obscure one's identity if other precautions are taken, researchers and law enforcement officials have found it all too easy to track the origins of Bitcoin transactions. Sure it takes a bit more legwork than tracing a credit card purchase, but it's hardly impossible.
Now, among the surge of "altcoin" currencies riding Bitcoin's coattails, comes a new digital currency aiming to provide a truly anonymous online payment option.
Darkcoin, which debuted back in January, has been gaining traction in the cryptocurrency market for the past month, increasing in value from 75 cents to nearly $7 since April. To date, the total Darkcoin economy is worth roughly $30 million.
There's no telling how much of this value comes from people actually using the currency versus speculators approaching Darkcoin as yet another ground-floor investment. However, creator Evan Duffield wants to believe its because he's crafted a superior online currency capable of true anonymity.
Like many cryptocurrency creators operating post-Bitcoin, Duffield is looking for a way to improve on some of the inherent flaws of Bitcoin. According to Wired, the 32-year-old software developer sought to perfect the way cryptocurrency transactions are tracked in order to enhance security.
“A large community believes that the way bitcoin’s blockchain is designed is a problem,” Duffield said. “Darkcoin has this anonymity aspect to it, which is attractive to a lot of people.”
From the moment the currency is mined, it creates a blockchain, which is basically a public ledger of all transactions. This transaction history is visible to anyone at anytime. It's not especially difficult for these records to be traced back to their users, which is why many Bitcoin users take advantage of laundering services to obscure the records.
Darkcoin blockchains, by contrast, are designed to obscure transactions on their own. The way it works is, every time a user makes a transaction, it's automatically combined with transactions from two other users (in Darkcoin parlance this is a "Darksend"). That way, anybody trying to examine the blockchain has a much more difficult time parsing out how the Darkcoins were spent.
How well this Darksend protocol actually works, only time can tell. Wired's Andy Greenberg suggest that Darkcoin may in fact be catching on among the Deep Web's criminal underbelly. Bitcoin first caught fire on the now-defunct Silk Road black market. It's reasonable to suspect that a more secure cryptocurrency would be feeding into the plethora of new Deep Web black markets that have cropped up since then. Still others might just be using Darkcoin as a laundering service for Bitcoin itself.
But Duffield chooses to be an ideological optimist, hoping that most Darkcoin users are people like himself, who seek online privacy for its own sake.
“I don’t see much chatter about using it for illegal things,” he said. “It’s a neat technology and people want to invest in it because it’s useful.”
Photo by zeevveez/Flickr(CC BY 2.0)