Bitcoin is the oldest of the cryptocurrencies however as all software it still goes in cyclic sequence of updates. Latest feature introduced is the Dandelion++ protocol which adds privacy to the transactions being performed. Making tracing of the origin of the transaction very hard.
Before diving into the Dandelion protocol let’s have a quick overview of how a transactions are distributed over the ledger in bitcoin.
Bitcoin currently uses the gossip protocol to send information such a transactions around the network. The protocol can be explained very easily when compared how office rumour spreads around in a company. Office employees meet at regular intervals during coffee breaks, typically meeting with random individuals from the company. At the start of the day Alice starts a rumour to Bob that Simon is having an affair with his line manager. At the next meeting, Bob tells Dave, while Alice repeats the idea to Eve. After a period of time the gossip spreads around the office like a virus and by the end of the day everyone knows that Simon is having an affair with his line manager.
What happens when Simon gets to know about the rumour. He can easily back track from the person that told him back to Alice.
If we match this analogy with networks. The I.P address of the nodes spreading the transaction can be used as a breadcrumb to identify the the originator of the transaction and therefor its location.
In bitcoin and in the other alt coins, network layer safeguards like TOR or I2P are typically used to hide the I.P addresses. However TOR has a very poor user experience and adds additional burden during an operation that requires extra care.
Solution was to introduce Bitcoin Improvement Proposal 156, Dandelion++.
Dandelion is a based on the following paper. As all the power concepts it is based on a very basic principle. Going back to our office analogy. This time Alice tells Bob about Simon having an affair with the line manager however she also instructs him not to tell anyone. Bob does the same when he tells Eve the same rumour and instructs Eve not to tell anyone. The rumour travels silently until it meets Joelle. Now Joelle is a chatterbox and starts spreading the rumour in full gossip mode.
Below the the depiction from the original paper of two phases of the Dandelion protocol. So in this scenario Simon can only back track to Joelle however he cannot go back further to find who has spread the original rumour.
Dandelion++ is a further improvement of the protocol adding the pseudorandom relay/diffusion choice during the stem-phase. In simple terms this means that randomly a node can decide to either go full gossip mode or stay private making the route to the source less predictable.
With the introduction of the protocol Bitcoin moved forward as other alt coins to provide a way fully anonymise the transactions performed on its network.
Why is this important ?
A lot of people have a misconception that cryptocurrencies are used mainly by the underworld, as it makes tracing of transitions hard. The main reason why anonymity is important is that Cryptocurrencies have to provide the same features as cash.
Hard cash is anonymous. If I buy an item from a confectionary with a 10 euro bill. There is no record that about the transaction linking it to me. People have the right for anonymity
Imagine the scenario where all our purchases, from the groceries to the medications can be easily tracked. I bet no one wants this.
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