Cryptocurrencies are known for years and have been successfully used in payments around the world. The permanently growing demand leads to the evolution of technologies and new coins come out with advanced functionality. In this paper we present Cutcoin: the first implemented private cryptocurrency with Proof of Stake (PoS) consensus algorithm. We describe the motivation for development, major features and specific details of realization.
Different coins and tokens call themselves ”private” but just few of them follow a formal definition for this term. We introduce our statement of privacy and show that Cutcoin implementation of PoS protocol, including block ordering and validation, doesn’t break it. One important feature of the protocol is that the block creation time can be significantly decreased compared to PoW-based coins. This lowers transaction latency and increases overall network throughput.
Introduction
Establishment
In 2008 Satoshi Nakamoto published the manifesto ”Bitcoin: A Peer-to-Peer Electronic Cash System” [1] that supposed to be a kick off to the modern cryptography-based financial system. The paper gave a short but exhaustive recipe of how several relatively simple technologies can be combined together to obtain a qualitatively new phenomena that was called ’Bitcoin’, or cryptocurrency. They include digital signatures, distributed p2p database, or ’blockchain’, the concept of ’consensus’, or agreement between nodes in the 1 p2p network and a set of the rules of governance. Further on we will walk through the privacy aspects of different coins, the consensus algorithms pros and cons, and finally elaborate on the motivation for the new coin development.
Privacy
Comparing to fiat currencies, Bitcoin has obvious advantages: there’s no trusted party it depends on; fast and transparent transaction processing and, among others, privacy. Privacy may be a requirement due to personal reasons, but it’s also important as in the modern world the vast majority of payments made both by individuals and companies are processed in an electronic form. The corresponding information about transactions and the involved parties is confidential, however, it can be stored and accumulated by banks, authorities and other financial institutions. This data attracts attackers around the globe, sometimes they get unauthorised access and use it for fraud, fishing, etc, that evolves into financial and reputational losses [2, 3]. Traditionally, financial institutions protect clients’ data by restricting access to their informational systems. There’s also an alternative that lies behind cryptocurrency.
Some digital currencies let a person transferring the funds to stay anonymous, furthermore this guaranty is provided by the algorithmic methods.
This option looks tempting for clients, and many companies claim their coin or token is private without specifying what exactly is meant. We assume that in order to achieve hard privacy [4] a digital currency must meet several conditions:
(i) anonymity, means that the parties involved in any transaction don’t reveal any data that can help to identify them (IDs, number of participants, transferred amounts);
(ii) untraceability, or inability of coins (funds) origin tracing;
(iii) unlinkability, i.e. no any 2 transactions issued by any sender or received by any receiver can be associated (linked) by an observer;
(iv) implying of (i-iii) not only for fund transfers, but also for coinbase (mining) transactions and transactions to exchanges.
The properties (ii and iii) are difficult to achieve in practice and even harder to formally prove. However, during the years passed from the moment 2 when Bitcoin appeared on the scene, multiple cryptocurrencies have been developed and there are some attempts to solve the privacy problem in different ways and with the different degree of comprehensiveness. We refer to some of them.
Cutcoin Whitepaper
Cutcoin white paper
CUT tokens: CryptoNote Tokens (CNT-1) Whitepaper
A distributed ledger made up of privacy-by-design protection could allow for a single global database that records any state of deals, agreements, and acts as a settlement system between individuals and organizations, without compromising sensitive information about them. Such a system can be used for accounting, voting, financial markets, insurance, and more. By leveraging CryptoNote-inspired cryptocurrency CUTcoin and using redesigned
transaction processing we propose a privacy-preserving tokenization protocol.
CryptoNote
