Incentivising Privacy in Cryptocurrencies

TL;DR

This paper explores how incentives could be designed to encourage privacy-preserving behaviors in cryptocurrencies like Zcash, aiming to improve user adoption of privacy features and enhance overall system privacy.

Contribution

It proposes ideas for integrating incentives into cryptocurrency systems to promote privacy-preserving transactions, using Zcash as a case study.

Findings

Incentives can potentially increase privacy feature usage.

Low user adoption reduces anonymity set sizes.

Incentive mechanisms could align user behavior with privacy goals.

Abstract

Privacy was one of the key points mentioned in Nakamoto's Bitcoin whitepaper, and one of the selling points of Bitcoin in its early stages. In hindsight, however, de-anonymising Bitcoin users turned out to be more feasible than expected. Since then, privacy focused cryptocurrencies such as Zcash and Monero have surfaced. Both of these examples cannot be described as fully successful in their aims, as recent research has shown. Incentives are integral to the security of cryptocurrencies, so it is interesting to investigate whether they could also be aligned with privacy goals. A lack of privacy often results from low user counts, resulting in low anonymity sets. Could users be incentivised to use the privacy preserving implementations of the systems they use? Not only is Zcash much less used than Bitcoin (which it forked from), but most Zcash transactions are simply transparent transactions, rather than the (at least intended to be) privacy-preserving shielded transactions. This paper and poster briefly discusses how incentives could be incorporated into systems like cryptocurrencies with the aim of achieving privacy goals. We take Zcash as example, but the ideas discussed could apply to other privacy-focused cryptocurrencies. This work was presented as a poster at OPERANDI 2018, the poster can be found within this short document.