Many people are under the impression that bitcoin is anonymous. In fact, many sites quote it as an anonymous means of exchange, but that is not quite accurate. Bitcoin is in fact pseudonymous, because the public address issued to a user’s account, can be seen by everyone along with the transactions associated with it. The implication is that bitcoin users take up the identity of their public address on the Bitcoin network. In order to make a cryptocurrency completely anonymous, it must be designed in a different fashion. A great example of a way in which this can be done is the Shadow Project, which created Shadowcash.
How does Shadowcash Work?
Basically Shadowcash works through dual-key stealth addresses, using one unit of exchange which is completely anonymous and another unit of account. When a user wants to make a transaction, the currency is changed to shadow (unit of exchange) from SDC (unit of account). Then the transaction is made from a shadow to another shadow account and then it can be turned back into cash, i.e. SDC. Nodes are paid a small fee to make the transaction.
Additionally, there is a 2% annual payout to the computers that keep the coins for transactions, and there is no risk of double spending. Even when coins are destroyed and minted, there is a piece of information left that allows the network to know that the cash was sent and cannot be spent again. This allows for anonymity through the destruction of the transaction coins (units of exchange), while keeping a record of the money spent.
|No interest rates - deflationary||2% annual interest rate - inflationary|
|Coins cannot be created or destroyed. Just mined||Coins are generated and destroyed while keeping the unit of account, in order to provide anonymity|
|Transaction in theory can be completely free, but miners take small fees||Minimum transaction fee is 0.0001 SDC|
|Public decentralized distributed ledger records transactions||Decentralized privacy platform records transactions|
Advantages and Disadvantages
It is clear that for cryptocurrency users who want to leave no trace of a transaction, and do not want to use a coin mixer – like many would with bitcoin – they will probably look into Shadowcash. It protects the identity of the user completely, instead of just giving said user a “mask” to put on every time they make a transaction. This has certain implications for law enforcement agencies. It is possible to imagine what would have happened with Silk Road had it been built on the basis of Shadowcash transfers.
Beyond the usual advantages and disadvantages associated with anonymity, Shadowcash also offers an economic advantage that could prove to be key in cryptocurrency use. Shadowcash is inflationary, which means that the value of the coins being held by a user, will decline year by year at a known rate – set by the 2% ‘interest rate’. This would encourage users to spend their coins, incentivizing economic activity or consumption, which is a driver of economic growth. Additionally, the rate of inflation is predictable and stable because the interest rate is constant.
Cryptocurrency is quite a new concept, but thanks to the wide exposure Bitcoin was a subject of, more and more cryptocurrencies are being created that address the shortcomings of bitcoin. Within those, Shadowcash stands out not only because it is truly anonymous, but also because it is inflationary. Those features could help its use spread widely and quickly. It will be interesting to see what happens with this cryptocurrency.
Click here to go to the Shadow Project’s official website