Bitcoin, Blockchain, Online Income

The Biggest Disadvantage Of The Bitcoin Network


Lack of privacy

Bitcoin’s  public ledger indicates how much money everyone has. Anyone can look at this ledger and see what the balance of a specific address is. These addresses are pseudonymous — but once I transact with you I can reasonably guess what addresses are yours — and then reasonably guess how much money you have! This is bad!

We need to encrypt the amounts in a transaction to make Bitcoin much more private. In an ideal world, a third party should be able to see a transaction on the network and look at a mathematical proof that the encrypted amounts are valid on the network — that is the proof tells us the user didn’t create money out of thin air —without seeing the original amounts themselves.

To add these encrypted amounts in Bitcoin, we need to add more data to each individual transaction on the network. Right now each Bitcoin transaction is ~300 bytes in size. We have this new awesome technology called Confidential Transactions that would vastly improve the privacy of Bitcoin transactions — but it requires 1.5 kilobytes of data on a transaction — nearly 5x the size of a current transaction! Because of this, confidential transactions are unlikely to make it into Bitcoin in their current form. Hopefully some cryptographers smarter than I can figure out how to optimize confidential transactions.

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