Zerocoin and Bitcoin: Taking Anonymity to the Next Level
Bitcoin has been changing. Drastically. Business Insider says that<a href="http://www.businessinsider.com/bitcoin-is-sacrificing-its-soul-to-survive-2013-6"> Bitcoin is selling its soul. Bloomberg, on the other hand, continues the line that <a href="http://www.bloomberg.com/news/2013-06-04/bitcoin-s-a-revolution-not-a-convenience.html">bitcoin is a revolution bound to change the world for the better.
What has changed? Basically there are three major events going on in the bitcoin world right now:<a href="http://articles.washingtonpost.com/2013-05-15/business/39274717_1_money-laundering-monetary-policy-currency"> Mt Gox is involved in a legal scandal and Liberty Reserve and some other similar virtual currency-sh places have been shut down by the government. These events combine to form a <a href="http://articles.washingtonpost.com/2013-05-15/business/39274717_1_money-laundering-monetary-policy-currency">fear of high regulation of bitcoin. High regulation of bitcoin would largely defeat the purpose of bitcoin as some of the main purposes include the fact that it is a stateless, impossible to manipulate currency with a large degree of anonymity. Mt Gox has already tightened some requirements to comply with what laws are on the books in the US although Mt Gox is a Japan-based BTC exchange.
Which brings us to the third event. It turns out<a href="http://anonymity-in-bitcoin.blogspot.com/2011/07/bitcoin-is-not-anonymous.html"> bitcoin is not as anonymous as we thought it was. Enter <a href="http://zerocoin.org/">Zerocoin. Zerocoin is a proposed modification to the Bitcoin code. According to the linked zerocoin homepage they are expecting to submit it as an official <a href="https://en.bitcoin.it/wiki/Bitcoin_Improvement_Proposals">Bitcoin Improvement Proposal this month, June 2013. It acts as a nonstop money laundry inside the blockchain itself. It makes bitcoin fully anonymous. Check the following presentation from one of its creators which was given at the recent Bitcoin 2013 conference:
[youtube http://www.youtube.com/watch?v=A7rnE9nqhic&w=560&h=315]
So what does this imply? A true anonymous currency makes black market transactions significantly easier. Look at <a href="http://techcrunch.com/2013/06/02/calculating-the-long-term-value-of-a-bitcoin/">this calculator made by angel investor Joshua Seims. According to that calculator, if bitcoin only has a 10% chance of success and, upon success, only captures 5% of the black market and 0% of global currency or value storage, each coin would already be worth over $190. Putting my more realistic assumptions into the calculator I got an estimated worth of about $3300. However zerocoin is a needed step first. Expect the price to increase when the proposal goes through (or even when it is only approved or officially proposed because of speculation).