How to Protect Your Privacy While Transacting Ethereum

Handy Tips / 06.05.2020

The introduction of Bitcoin and blockchain technology paved the way for other significant inventions in the crypto space. One of the most important ones has been the Ethereum Blockchain.

Vitalik Buterin was the brains behind the Ethereum Blockchain, whose aim is to do away with internet third-parties. Vitalik introduced Ethereum in 2015, not as a remake of Bitcoin, but as an entirely different generation of blockchain technology. The technology would perform various tasks such as facilitating peer-to-peer contracts via ‘smart contracts.’

Ethereum is a public blockchain, which means that it cuts off intermediaries for any network transactions. Although Ethereum is quite popular, many crypto enthusiasts argue that public blockchains don’t offer privacy and confidentiality as private ones thanks to its unique features. Is this the case with the Ethereum blockchain? And if so, how can you protect your privacy while transacting on Ethereum? Keep reading this guide for some useful answers to the above questions.

The Ethereum Blockchain

Ethereum is one of the most popular blockchains, thanks to it being programmable. Since its launch in 2015, the blockchain has provided a foundation for a new internet generation. Through Ethereum, developers can build an internet that allows users to own their data. Any central entity doesn’t control access to open financial systems, secure money, payment transactions, and.

Ethereum has a native currency that is similar to Bitcoin in many ways. ETH is a digital currency and is decentralized. Since its launch, users have used the currency as a store of value, as collateral, to make payments. Besides, Ether powers Ethereum by paying for computational services and transaction fees.

The Ethereum blockchain is similar to Bitcoin’s in that they both store information on the transaction history in a public shared ledger. However, the most significant difference comes in that Ethereum is programmable and functions as a platform. Ethereum uses the ‘Turing-complete’ programming language. Through this language, developers can develop different programs that allow blockchain transactions and automation of specific outcomes. Therefore, users on the blockchain can create smart contracts and DApps using Ether tokens. Ethereum nodes store the most recent state of Smart contracts and the other transactions on the network.

The Pseudonymous Nature of Ethereum

Ethereum, just like bitcoin’s blockchain, is pseudonymous. This means that users can transact on the blockchain without giving details such as their names, contacts, or any identifying information. Every pseudonym (unknown user) on the blockchain owns both a public and a private key that they use to transact.

However, this is where Ethereum differs from other blockchains. Most blockchain networks use Public Key Infrastructure (PKI). PKI uses a certificate authority to connect users’ public keys to their real identities. This relation is essential to the blockchain because users require it to make transactions involving digital certificates. On Ethereum, the link between the public keys and a pseudonym’s identity only matters if the user chooses to advertise their pseudonym, e.g. while offering some public services.

Unfortunately, the smart contracts built on Ethereum present some privacy drawbacks. The most significant hindrance is that the contracts have their program code hosted on a public blockchain. Therefore, smart contracts require users on the blockchain to check and validate the programs before they are deployed. As such, program obfuscation becomes a challenge.

Because everyone on the blockchain has access to the program code, smart contracts lack confidentiality and anonymity. Confidentiality refers to the program’s ability to hide the number of digital coins in the transaction. In contrast, the latter term refers to the program’s ability to protect the senders’ and recipients’ identities.

These drawbacks present particular concerns for users on the Ethereum blockchain. Are there ways to protect your privacy while transacting?

Privacy Solutions for Transacting on Ethereum

The good news is that there are several solutions you can turn to. You don’t have to compromise your Ethereum transactions because of privacy and confidentiality concerns. Here are some of the ways that you can protect your privacy.

  • Use Bitcoinmix

Bitcoinmix is a crypto tumbler that can help you maintain your anonymity on the blockchain. Bitcoinmix mixes your digital coins to don’t leave any trace of your identity on the blockchain. It comes in handy when you are transacting on Ethereum.

Here’s how it works. Say, for example, a user on the blockchain sends you some Ether coins. You can send these coins to Bitcoinmix, which will then shuffle them with digital currencies from other users on Ethereum. The tumbler will then send you some different coins to your wallet at a small transaction fee of between 2-5%. Bitcoinmix deletes all logs after sending your new coins, so you can always be assured of your anonymity.

  • Aztec Protocol

In February of this year, Aztec launched on the Ethereum blockchain. Aztec is based on Z-cash and uses cryptography to provide high-level security. The protocol achieves this by using confidential tokens that hide the amounts for private tokens. Besides providing high-level security, the protocol also aims to reduce transaction fees on the blockchain.

The Aztec Protocol allows users to conduct private transactions in two ways. They could either use Aztec to design a token that supports anonymous transfers or create private versions of the existing tokens on Ethereum. The protocol then converts the tokens into notes that are encrypted representations of the tokens. Whenever a user sends tokens, Aztec encrypts them into notes that act as proof of correctness. The recipient’s account, therefore, cannot see the coins. The sender retains the notes as proof of the amount and the address of where the coins were sent.

Aztec plans to increase privacy on Ethereum by hiding the senders and recipients and making smart contracts entirely private in the future.

  • Hopper

Hopper is a mixer, just like Bitcoinmix.org, but functions in a slightly different way. The open-source mixer smart contract allows users on the Ethereum blockchain to make their transactions more private using an iOS device.

From your iOs device, you can alert Hopper that a payment from a specific address is incoming. You can then transfer a specific amount to the mixer, which is identical to the amount that other users send. Hopper then has a pool of similar Ether amounts, all of which have secret destinations. As more users deposit Ether tokens, your anonymity increases. You can then use the app on your device to send the funds to a different destination. You will need to provide Zero-Knowledge proof before the withdrawal is authorized.

Author’s Note

The programmable nature of Ethereum makes it one of the most sought-after blockchains that are currently available. Maintaining privacy during transactions, therefore, becomes a paramount issue. Given that developers are continually building new DApps and smart contracts on the blockchain to automate everyday tasks, it would be wise to ensure your privacy remains intact on Ethereum. Luckily, there are several options that you can choose from to help maintain your anonymity and protect your digital assets.

avatar
Wayne is a Blockchain enthusiast and expert in crypto trading. Currently, he covers trendy issues on digital currencies.