Very good question.
To start off Bitcoin is not ‘no longer private’ being that it was never private in the first place. Bitcoin’s blockchain is completely transparent and in fact is the most transparent and traceable currency in the entire world. Everyone can see and look back to the very first Bitcoin mined and where it, and its parts, are today.
Most people say Bitcoin is private because anyone can generate a wallet and that has inherent privacy because if there is no way to know who owns what wallet directly on chain. This is called pseudonymous. If you just generate a wallet, have someone that doesn’t know you send you bitcoin, and you spend that bitcoin in a way which isn’t possible to hook back to you; that’s pretty private. The issue however is you can mess up on all parts of that chain. And even if you didn’t really see the messup right now, blockchain are forever, so those mistakes can haunt you for your life.
The main issue with privacy on Bitcoin is getting that bitcoin in the first place. Persay I’m an employer and I pay all my employees with bitcoin. I have a single wallet and I send all my employees some funds from it. Well the employees can go back and see exactly how much I have in that wallet, see how much I sent out in comparison to how much they got and they can create an estimate of how much everyone makes per hour. This is problematic.
Another example is if I send some bitcoin to a freelancer I found online. The job was done well and I payed him. This person, who I don’t really know, then uses it to buy some drugs on the darkweb. My exchange account then gets shut down later on, because when the police took down the market they looked on the market transaction log and traced the bitcoin’s origin of this illegal transaction back to my exchange account. That is problematic.
There is multiple problems with the way transactions work on bitcoin when it comes to the privacy front. If I own a lot of bitcoin and do something which might lead people to think I have ownership of that wallet I can get kidnapped and held for ransom as another example. Sometimes people compare bitcoin to digital cash but it’s not. It’s like you have these tokens, you put on a QRcode mask (that represents your wallet) then you walk into this big mall where tons of people are giving each other these tokens. However everytime someone gives someone else a token a big ringing sound goes off and a big board shows exactly who transacted with both the QRcode masks shown for everyone to see. The moment you do anything which might have someone see under that mask well all your past transaction history is shown too.
Samurai wallet does something different by ‘mixing’ the coins. Think of a QRcode mask group. Everyone sends 100 tokens to a trusted mask group member, let’s call him big A, and big A then gets a few other of his friends, big B and big C, to send transactions of the same to varying worth back and forth many times. At the end of the day there is a big pot of tokens that big A has now. He then goes and gives all the participants 95 tokens back by giving each of the participants 19 children 5 tokens each. These children are not hooked back to the participant persay (small village setting where orgies are rampant) but QRCode mask can tell the children exactly where he wants the tokens to be sent. Being that nobody knows exactly who’s children is who’s this gives some privacy. If you only spend the 5 tokens at a single place, nobody would know exactly who went and spent that from the pool. It could be anyone apart of the pool.
I hope you can see some issues with this. One is you are giving your tokens to big A and all his friends. If big A turned into a BIG D he can take your tokens and do whatever he wants without giving it to your non-children. Or the amount of people in the pool could be so small that the privacy gain is minimal. And what if Big A doesn’t really ‘mix’ the coins well enough. It’s better than nothing but it’s still quite bad.
Ricochet and staggered send are a way to try and obscure the sending of a specific amount of funds. I won’t go into detail but really it’s not that safe. Basic blockchain analysis completely breaks the obscurity provided by those methods.
So now comes incognito. Incognito is not a mixing service. Incognito is a way to shield the transaction of many different currencies from the big board and buzzer. So QRcode Mask takes his mask off and switches it for a ninja mask. He then walks into this big mall with all these other ninja and tokens from the blue mall. Before he can get it he gives the malls bankers (custodians) his tokens and they give him a card. This card has his mall tokens represented 1 for 1 as ninja tokens. This card is not hooked up to a big screen or buzzer. He can go into the mall and tap another ninja’s card to transact these tokens. There is still a screen which shows that people are transacting and what they are transacting but not WHO is transacting. In this mall there is a liquidity pool area. It’s a place where people who have red mall tokens and blue mall tokens can put it in a pool to earn some funds, these ninjas are call liquidity providers or liquid ninjas. Other ninja’s can go into the pool area and trade their blue or red mall tokens for each other. When someone trades they put in an equal amount of blue mall tokens worth for the red mall tokens they take out. They can then transact these red mall tokens with all the other ninjas or they can go to bankers at the front of the mall and get 1 for 1 the token they have on the card.
In the ninja mall the depositing of funds is called sheilding and the withdrawaling of funds is called unshielding. Being that nobody really knows what happened in the ninja mall for all the transactions there is a lot of privacy to be had. Being that there is no requirement to exchange everything from the card when you leave the ninja mall you can get a similar effect to the big A ‘mixing’ approach without the risk of your funds being taken.
Not so sure if that makes sense, I wrote it off the top of my head, but the basic ideas are there. Even if a wallet is not tied directly to you that doesn’t mean it can’t lead to you in the future. If you receive bitcoin to a wallet generally the person who gave you that bitcoin will want to know who exactly you are. If you send bitcoin somewhere to persay buy something and you provide your postal information they can hook that address to your ownership. It’s hard, if not impossible, to transact privactly where there are so many mistakes you can do to harm your privacy. Incognito uses some cool math with good privacy features (like a distributed dex) to break the chain analysis on these transparent blockchains and protect your privacy better. It’s not perfect but in my opinion ninjas are better than samurai.
