How Blockchain Transactions Work

So you have a wallet on one of the big sites like Coinbase and you send me a little BTC to show the love. What happens when you press send? The Bitcoin network will process that transaction for a small fee of BTC. The network will confirm the transaction multiple times and it will become part of the ledger. In theory, that list of transactions is immutable, that hasn't worked out yet in practice, it is not in the scope of this post. So, where's the lack of privacy? Let's dive deeper into a hypothetical example. 

How to Figure Out Transactions

Jamar sends Freya .002 BTC for his share of a joint purchase. The network records this transaction, which is publically available at bitcoin.com, every wallet address is there. So once Freya receives the BTC, she knows Jamar's wallet address and can search all of its transactions. Every BTC received and sent. You can even search the network by the wallet address. 

So next week, when Jamar is supposed to pay her .02 BTC for those premium concert tickets and he says he's broke, she can check the network and see he's sitting pretty on .03 BTC. Now they are hypothetical friends, so they'll work it out just fine.       

The Future of that Immutable Ledger

Some sort of digital currency will eventually be accepted as a form of payment. Imagine it, once Amazon accepts BTC or ETH for your impulse buys, they'll have your wallet address. You'll hit pay now thinking you're scoring a deal because ETH is up today and they'll start searching the ledger for all of your transactions. This will give them even more information on your spending habits, including what you're spending on their sites and not their sites. They'll be able to track your spending power, knowing can you afford more expensive items. 

A lot of folks are worried about the government's snooping on them and maybe they should, but I'm more concerned with big business at this point. 

Regenerating Wallets

Currently, there are two techniques to give you privacy on the blockchain. The first is readily available on most major sites that offer wallets like coinbase and binance. These sites will let you generate a new wallet address, usually not for every transaction but with enough frequency to be helpful, especially to the low tech user. While your wallet address changes, your interface doesn't change. So if you have .03 BTC and change wallet addresses, you maintain your transaction history. You click a button and then send cryptocurrency from a new address. You just need to do it as often as possible in order to maintain your privacy. There's is, however, a better option. 

Enter Incognito

Other than regenerating wallet addresses as often as possible, what is a user to do? Enter Incognito. These folks are at the forefront of privacy blockchain. (You can deep dive into their whitepaper if you're familiar with blockchain technologies.) They have created side-chains so that your BTC can become privacy BTC or pBTC. In Incognito, their ledger doesn't record the wallet IDs! They support a fair number of tokens as well. Fiat money is naturally private, you don't have to think about it and Incognito brings that technology to the average user.

The drawback to Incognito is that. it's like many new technologies (fax machines and email comes to mind), in that it becomes more useful when more people have them. (So today a fax machine is less useful than email because more people have email than fax machines.) This means that Incognito is private between Incognito accounts. So as more people adopt this money of privacy, it becomes a virtuous cycle.   

As an added bonus to built-in privacy, the transaction fees are significantly lower. How is this possible? As a sidechain, they are able to set their own fee structure. So while your tokens are shielded, it's also less expensive to use. They also have their own native token, PRV. It can be used to pay the transaction cost of all available tokens and most of the major cryptocurrencies can also be used to pay their own fees. 

It's some pretty impressive stuff. You get privacy and lower costs. 

Want an Incognito Account?

Incognito accounts are available via iOS or Andriod apps:  

As of this writing, they are in the development of a web app as well. Their site has lots of great tools for getting an account going. After you get the app, you can deposit tokens to your account and then use them to buy PRV or whatever else you want to do with your cryptocurrency, because now your blockchain is now private. 

It's a Brave New World

Questions, comments, concerns? I'm all ears. 

(Cover Photo by Matthew Henry on Unsplash)