Battle of the Privacycoins: Why Dash Is Not Really That Private

Based on blockchain technology, most cryptocurrencies have an open and public ledger. While this is required for these systems to work, it comes with a significant downside: Privacy is often quite limited. Government agencies, analytics companies and other interested parties — let’s call them “spies” — have ways to analyze the public blockchains and peer-to-peer networks of cryptocurrencies like Bitcoin, to cluster addresses and tie them to IP addresses or other identifying information.

Unsatisfied with Bitcoin’s privacy features, several cryptocurrency projects have, over the years, launched with the specific goal to improve on them. And not without success. Several of these privacycoins are among the most popular cryptocurrencies on the market today.

However, as detailed in this month’s cover story, Bitcoin’s privacy features have recently seen significant improvements as well and are set to further improve over the next months and years. This miniseries will compare different privacycoins to the privacy offered by Bitcoin.

In part one: Dash.

Background

Dash (DASH) is among the most popular but also the more controversial cryptocurrencies in the space today.

Originally a codebase fork from Litecoin (which is in turn a codebase fork of Bitcoin), Dash was launched by its founder Evan Duffield in January 2014 as Xcoin. The project was quickly rebranded to Darkcoin, seemingly in reference to Dark Wallet, a now-defunct, privacy-focused Bitcoin wallet project. Darkcoin rebranded a second time in early 2015, to the current name Dash, which stands for “digital cash.” At the time of writing, Dash claims a 12th spot on the cryptocurrency market cap lists, down from a top five spot for some time in early 2017.

Much of the controversy surrounding Dash stems from the early days of the project. While the coin was not premined, it was instamined. As the cryptocurrency went live, miners created 2 million coins in a matter of days. Quite a significant amount, with a total projected supply currently scheduled for a total of 22 million, and some 8 million coins in circulation today. According to Duffield, himself one of the early miners, the instamine was an accident. But instead of fixing the problem — for example, by changing the protocol rules or relaunching — it was decided that the coin would continue despite the instamine.

Since then, Dash has turned into (what it calls) a decentralized autonomous organization, or DAO and prides itself on being the first successful example of such an organization. The DAO centers around Dash “masternodes” — DASH nodes that stake (proof of ownership) at least 1000 DASH — and should help the network in certain ways, for instance by confirming “instant transactions.” In return, these masternodes receive 45 percent of newly generated DASH.

Another 10 percent of every block reward is reserved for the Dash treasury. What happens with these funds is decided by the masternodes by vote. In practice, this money funds the Dash Core Group, effectively the company behind Dash, today headed by CEO Ryan Taylor.

Additionally, this part of the block reward funds various forms of promotion of Dash but also some external projects, including Arizona State University’s Blockchain Research Laboratory, a legal cannabis industry payments platform, and several initiatives in emerging markets.

While once specifically marketed as a privacycoin, in recent years Dash did shift the focus of its pitch. Although privacy is still prominently featured on the Dash website and promotional material, it also emphasizes ease of use and low costs, apparently geared toward mainstream adoption. As a particularly notable deviation from its privacy-focused past, Dash even established a partnership with blockchain analytics company Coinfirm. While details about this partnership and the implications of it remain somewhat unclear, it’s not hard to see how this partnership is an odd fit for a coin previously known as Darkcoin.

Which brings us to these privacy features.

Privacy

Dash actually offers one particular privacy feature called Private Send. The Private Send feature is conveniently offered in a drop-down menu of the Dash Core full node client and in other Dash wallets.

Private Send is really an implementation of CoinJoin, the privacy solution first proposed for Bitcoin by Bitcoin Core developer Gregory Maxwell. In Private Send, three users add their coins together in one big transaction, that sends the coins to freshly generated addresses belonging to the same three users. As such, the coins are effectively mixed between the three participants, breaking the blockchain trail of ownership between them. This process can be automatically repeated up to eight times, with (hopefully) different mixing participants, for extra privacy.

Like any CoinJoin solution, Private Send does require someone to construct the CoinJoin transaction. This is done using Dash’s masternode system. Dash users that wish to mix…

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