Privacy and anonymity are widely considered to be cornerstones of the crypto landscape. However, most transactions on public blockchains are traceable to wallet addresses and identifiable by on-chain activity. Also, the increase in regulation throughout the crypto space means financial regulators have insights into how and where money flows in Web3. Furthermore, it’s difficult to find a fiat on-ramp that doesn’t require you to hand over personal information for anti-money laundering (AML) and KYC (know your customer) procedures. So, how do we transact on the blockchain without giving away our identity? Plus, how do we transact without leaving a digital trail that someone can trace back to us? This is where assets such as the Firo coin come in. Firo is a next-generation privacy coin that aims to empower users by enabling them to transact anonymously and securely.
In this article, we’re going to dive deep into the Firo coin ecosystem. We’ll explore the benefits of privacy coins and how they work. Plus, we’ll explore the Firo coin project and what makes it different from other privacy coins. Furthermore, we’ll explore some of the novel technologies that power privacy coins and the different challenges they face.
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What are Privacy Coins?
Before we explore Firo and the Firo coin, let’s first explore the concept of privacy coins. Privacy coins are crypto assets that use advanced cryptography methods to obfuscate the sender and receiver identity in a transaction, along with the wallet addresses of each party. Most crypto transactions on public blockchains such as Bitcoin and Ethereum are open for anyone to see. They are immutably recorded on the blockchain, making them transparently available to anyone. Also, anyone can trace them back to wallet addresses and link them to real-world identities, which reduces anonymity.
Privacy coins help to protect user privacy and prevent data security breaches that can expose the identities of senders and receivers. Just like regular cryptocurrencies, stablecoins rely on the distributed ledgers of blockchains. However, stablecoins usually channel transactions in a way that makes it incredibly difficult to know exactly where coins came from and where they’re going.
When identifying a wallet address and linking it to an individual, we often look at wallet balances. However, privacy coin projects use next-level cryptography to hide these balances from prying eyes. Although complete privacy is not always a certainty, some privacy coins do a decent job of maintaining user privacy and data security. That said, it’s also worth bearing in mind that privacy coins are illegal in some countries with tight capital controls.
Although there are many different types of privacy coins, several fall into one of three prominent categories. First, stealth addresses create new single-use wallet addresses for each transaction. Second, zk-SNARKs allow users to prove the validity of transactions without disclosing their details. Third, ring signatures prevent onlookers from linking a transaction signature to a wallet address.
What is Firo and the Firo Coin?
The Firo coin is a cryptocurrency project that facilitates untraceable private transactions using zero-knowledge cryptography. The goal of the project is to empower users by giving them control over their own wealth and how they transact with it. Founded by Poramin Insom in 2016, the project was later rebranded from “Zcoin” in October 2020. However, it has remained on a clear path towards promoting financial freedom using privacy-preserving Web3 technologies.
The Firo coin (FIRO) is the native asset of the Firo blockchain ecosystem. Users can burn FIRO and redeem new coins with no trade history to enable private transactions. Also, FIRO coin mining uses a relatively modest home computer setup, lowering the barrier to entry for participation. On average, the Firo blockchain confirms a block every five minutes and awards 12.5 Firo coins as block rewards. Similar to Bitcoin, the Firo coin follows a halving schedule. This includes mining rewards that are cut in half roughly every four years. This is to increase the scarcity of the asset and incentivize early adoption.
Furthermore, Firo uses a Merkle tree proof (MTP) proof-of-work (PoW)-type consensus mechanism for accessible mining. Plus, Firo can seamlessly integrate with Ethereum via RenVM. As such, this enables users to interact with decentralized applications (dapps) on Ethereum while retaining privacy.
How Does the Firo Coin Work?
Firo uses the novel Lelantus address scheme deployment to allow users to completely hide their wallet address and the amounts they transact on the Firo blockchain. Also, it unties the links between consecutive transactions to provide another layer of security by default without compromising trustlessness. Plus, Lelantus enhances the Firo token burning mechanism.
The Lelantus protocol enables Firo coin users to burn coins and take them out of circulation, breaking the links between previous and future transactions. Moreover, by removing details of transaction histories, the protocol makes it almost impossible to trace. This is achieved by using zero-knowledge proofs, which assure network validators of the validity of transactions without revealing the wallet and balance data.
Sigma is another privacy-preserving technology that allows developers to create private trustless systems using zero-knowledge proofs. Plus, the Dandelion protocol hides user IP addresses before transactions actually broadcast to the Firo network. As such, onlookers cannot determine the geographic location of a wallet address user. In addition, the Merkle tree proof (MTP) mining algorithm helps to minimize miner centralization by making anonymity a staple of every transaction on the network.
Moreover, the Firo network promotes financial freedom and privacy by enabling users to transact however they want, so long as it does not harm anybody. The project aims to scale these technologies into the world of commerce to facilitate financial privacy among businesses. The upcoming Lelantus Spark protocol will further increase user privacy while eliminating the need for users to redeem coins.
Zero-Knowledge Proofs
Cryptography utilizes zero-knowledge proofs to verify that somebody knows the answer to a question without disclosing any information other than you knowing the answer. An example of this is to prove that a wallet address holds a specific amount of a cryptocurrency without showing anyone the answer or methodology for working it out.
Many public blockchains and privacy coins benefit from zero-knowledge proofs because they allow us to verify the legitimacy of a transaction without compromising on anonymity. However, Firo uses a combination of several zero-knowledge proofs to enable users to burn their coins and redeem them at a later date with no transaction history attached. Furthermore, nobody can see which coins were burned.
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Sliding Windows
Most privacy coins work by enabling users to hide among a large group. The larger the group, the easier it is to hide and remain anonymous. However, most privacy coins use a type of proof that makes transactions more computationally intensive as this group grows. As such, many privacy coins are difficult to scale.
The forthcoming Lelantus Spark update addresses this by finding “a middle ground between robust privacy and scalability”. To illustrate the Spark update, we can see a Spark transaction as “a coin inside a large bucket with tons of other coins”. The coins in question appear to be identical. However, their values differ. Nonetheless, onlookers would be unable to distinguish which coin in the bucket is a small transaction and which represents a large sum. At present, Firo uses a maximum group of 65,000 users, though this could change in the future.
The idea of sliding windows refers to the coins that overlap between buckets. When each group reaches 65,000, a new bucket starts afresh. Moreover, instead of starting each bucket empty with no coins in it, the group needs to start with a group large enough to obscure wallet balances and addresses. Accordingly, Firo transfers 16,000 group members from the last bucket into the new one to form the beginnings of a new group.
Trusted Setups
When we talk about a trusted setup in cryptography, we refer to a type of system created as a result of generating temporary parameters that will, later on, get discarded. This works a bit like having a box that you can lock and throwing away the key. These setups are “trusted” because we have to trust the creator of the temporary parameters actually to destroy them.
Many privacy coin projects and zero-knowledge proof systems rely on trusted setups. However, Firo and Lelantus don’t. This is beneficial because it removes unnecessary points of failure from every transaction. If a trusted system comes under attack, proofs are easier to forge, and anyone can mint new coins and inflate the supply of a coin or token. Furthermore, this type of malicious behavior can be difficult to identify early and trace in privacy coin networks, as they obscure so much data. So, as the saying goes, “don’t trust, verify!”.
Are Privacy Coins Used for Illegal Activities?
As with any currency, illicit purposes can be the primary goal for some that use privacy coins. You may have heard stories in the media about cryptocurrency funding crime. However, the number of fiat currencies used for crime far exceeds that of any cryptocurrency, including all of the privacy coins put together.
Also, privacy coins can work in conjunction with laws and regulations, providing that all parties consent. Rather than trying to hide the nature of transactions from onlookers, privacy coins aim to preserve privacy. Also, they focus on “retaining the ability to give consent to our data”.
Exploring the Firo Cryptocurrency – Summary
The Firo coin provides substantially higher levels of privacy and anonymity than regular cryptocurrencies like Bitcoin. Most cryptocurrencies are pseudo-anonymous at best. Though we may not be able to trace all transactions directly to individuals, each satoshi in every Bitcoin transaction has an immutable history that can be analyzed. Accordingly, newly generated Bitcoin often sells at a significant premium as they are deemed “untainted”. The Firo coin facilitates higher levels of anonymity with greater flexibility than many established privacy coins, especially mixers, decoys, and ring signature systems.
The Firo coin team believes that cryptocurrencies should be anonymous and private. The ethos of the crypto community is one of self-sovereignty and financial freedom. As central banks and governments worldwide gain new ways to censor transactions and control how we spend our money, the Firo coin provides a user-friendly and anonymous alternative to traditional payments and crypto transactions. Plus, Firo wallet addresses cannot be blacklisted like other crypto wallets, making them resistant to censorship.
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