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[Paper Pick] Privacy Preserving Proofs of Solvency for Bitcoin Exchanges

This is the first brief in a new series called Paper Pick that will occasionally allow our readers to discover published papers related to Bitcoin technology.

This week’s paper pick, published on Oct 26, 2015, is a privacy-preserving proof of solvency for bitcoin exchanges that does not disclose the exchange’s Bitcoin address, its total holdings or liabilities, or any information about its customers.

Bitcoin exchanges function like banks, securely holding their customers’ bitcoins on their behalf. Several exchanges have suffered catastrophic losses with customers permanently losing their savings. A proof of solvency demonstrates that the exchange controls sufficient reserves to settle each customer’s account. We introduce Provisions , a privacy-preserving proof of solvency whereby an exchange does not have to disclose its Bitcoin addresses; total holdings or liabilities; or any information about its cus- tomers. We also propose an extension which prevents exchanges from colluding to cover for each other’s losses. We have implemented Provisions and show that it offers practical computation times and proof sizes even for a large Bitcoin exchange with millions of customers.

If you want to share a paper to include on our weekly briefs, feel free to contact us at authors@bitcointechweekly.com

Monero Transaction Traceability

Monero is one of the leading privacy coins on the market. A recent paper called An Empirical Analysis of Traceability in the Monero Blockchain argued that it might not be as private as expected.

In this paper, we empirically evaluate two weaknesses in Monero’s mixin sampling strategy. First, about 62% of transaction inputs with one or more mixins are vulnerable to “chain-reaction” analysis — that is, the real input can be deduced by elimination. Second, Monero mixins are sampled in such a way that they can be easily distinguished from the real coins by their age distribution; in short, the real input is usually the “newest” input.

However some of the issues addressed in the paper have already been addressed by the monero dev team.

Velvet Forks
Blockchain forks have been a controversial subjects since the dawn of bitcoin, there’s two types of forks, one is called a soft fork, this adds more restrictions to the consensus on which the blocks are verified, a block that was deemed valid before the soft fork can be deemed invalid after it, while the other type of fork is called a hard forkm, and it is exactly the opposite, a hard fork loseens the restrictions on which the blocks are verified, so that a block that was deemed invalid before the hard fork can be deemed valid.
DCS Triangle Theorem

Greg Slepak posted a link to a paper called the DCS Theorem. It’s a probability proof of the DCS Triangle showing that decentralized consensus systems can have Decentralization, Consensus, or Scale, but not all three simultaneously.

He said on bitcoin-dev said:

The DCS Triangle was independently discovered by myself and Trent McConaghy.

It is a useful tool for clearing confusion about blockchain scalability and blocksize-related debates.

The DCS Theorem is a probability proof of the triangle, and it’s now on arXiv: