distributed ledger

unit 4

Pseudonymity

Pseudonymity is the use of an alternative identifier that is your real name is hidden, but your activities are visible under another identifier, such as a blockchain address.

Pseudonymity in Blockchain

• Users transact using blockchain addresses instead of their real names.

• In public blockchains such as Bitcoin, transaction details are publicly visible.

• Transactions involving the same address can be linked and analysed.

• If an address is connected to a real person, their associated transactions may be traced.

Advantages

• Provides a basic level of identity privacy.

• Allows participation without publicly displaying personal details.

• Maintains transaction transparency while hiding real names.

Limitations

• Does not provide complete anonymity.

• Transaction analysis may link addresses and activities.

• External information, such as exchange identification records, may reveal the owner of an address.

Anonymity

Anonymity is the property of a system in which an individual’s identity cannot be determined from their actions. In blockchain, anonymity aims to prevent transactions from being linked to the real identities of the participants.

Anonymity means performing a transaction without revealing who you are.

Anonymity in Blockchain

• Privacy mechanisms help conceal the identities of transaction participants.

• Depending on the mechanism, sender, receiver, and transaction amount may be hidden.

• Cryptographic techniques allow transactions to be verified without revealing private information.

• Anonymity aims to make it difficult to link transactions to particular individuals.

Techniques Used

• Zero-Knowledge Proofs: Prove that a statement is true without revealing the underlying private information.

• Ring Signatures: Conceal the actual signer among a group of possible signers.

• Stealth Addresses: Use one-time destination addresses to reduce the linking of payments to a recipient.

Limitations

• Requires additional cryptographic mechanisms, which may increase computational complexity.

• Makes auditing and regulatory compliance more challenging.

• Privacy can be weakened by incorrect usage or information revealed outside the blockchain.

Difference Between Pseudonymity and Anonymity

Basis	Pseudonymity	Anonymity
Meaning	A person uses another identifier instead of their real name.	A person’s identity is hidden while performing an activity.
Representation	Users are represented by an identifier, such as a blockchain address.	Privacy techniques hide who performed the transaction.
Linking activities	Activities using the same identifier can be linked.	Linking activities to a particular person is more difficult.
Identity disclosure	Identity may be revealed if the identifier is connected to a real person.	The system aims to prevent the person’s identity from being discovered.
Privacy level	Provides limited identity privacy.	Aims to provide stronger identity privacy.
Techniques	Uses addresses or usernames instead of real names.	Uses techniques such as zero-knowledge proofs and ring signatures.
Example	Bitcoin uses addresses, but its transactions are public.	Zcash shielded transactions use privacy techniques to conceal transaction information.

Succinct Non-Interactive Argument of Knowledge(SNARK)

SNARK is a cryptographic technique that allows one person to prove that a statement is true using a small proof, without repeated communication with the person checking it.

Meaning of Each Word

Term	Meaning
Succinct	The proof is small and quick to verify.
Non-Interactive	Repeated communication between the prover and verifier is not required.
Argument	A false statement is computationally difficult to prove successfully.
Knowledge	The proof shows that the prover knows the information required to support the statement.

Main Participants

• Prover: Creates the proof.

• Verifier: Checks whether the proof is valid.

SNARK and zk-SNARK

When a SNARK also provides the zero-knowledge property, it is called a zk-SNARK.

zsnark for anonymity preservation (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge)

zk-SNARK is a cryptographic technique that proves a statement is true without revealing the secret information used to prove it. It helps preserve anonymity in blockchain by verifying transactions without publicly revealing private transaction details.

How It Preserves Anonymity

In a public blockchain, visible transaction details can help others track users. zk-SNARKs allow the network to check transaction rules while keeping sensitive information hidden.

Depending on the system, they can protect:

• Sender information: Who is sending the funds.

• Receiver information: Who is receiving the funds.

• Transaction amount: How much is being transferred.

Main Features

Feature	Explanation
Zero knowledge	Secret information is not revealed by the proof.
Succinct	The proof is small and quick to verify.
Non-interactive	Repeated communication between prover and verifier is not required.
Argument of knowledge	Shows that the prover knows the information needed to support the statement.

Pairing on Elliptic Curves

A pairing takes two elliptic-curve points as inputs and produces a mathematical value. It allows certain relationships between secret values to be checked without directly revealing those values.

Main Properties

2. Non-degeneracy

The pairing does not produce the identity element for every pair of inputs. Therefore, it can provide useful information for cryptographic checks.

3. Efficient Computation

The pairing must be practical to calculate using an algorithm.

How It Is Used

1. Numbers are represented using elliptic-curve points.

2. A pairing is calculated for selected points.

3. The result is compared with another pairing result.

4. This comparison helps verify a mathematical relationship.

Zcash

Zcash is a cryptocurrency that uses zero-knowledge proofs to protect transaction information while allowing the network to verify that transactions are valid. Its native coin is called ZEC.

Types of Transactions

Type	Explanation
Transparent transactions	Sending and receiving addresses and transaction amounts are publicly visible, similar to Bitcoin.
Shielded transactions	Transactions between shielded addresses hide the sender, receiver, and amount from the public.

Role of zk-SNARKs

zk-SNARKs allow Zcash to prove that:

• The sender is authorised to spend the funds.

• Input and output amounts follow the required balance rules.

• Private transaction information can remain hidden during verification.

Financial Services Using Blockchain

Financial services are services related to money, such as payments, banking, lending, investment, and accounting. Blockchain supports these services by maintaining a shared and tamper-resistant record of transactions.

Applications in Financial Services

1. Accounting and Audit

Blockchain maintains a shared record of financial transactions. Accountants and auditors can use these records to check payments and identify errors.

Example: A company and its supplier can check the same record to confirm whether an invoice has been paid.

• Reduces differences between records maintained by different organisations.

• Makes unauthorised changes easier to detect.

• Helps auditors trace transaction history.

2. Global Payments

Blockchain allows money to be transferred across countries. It can reduce the need for intermediaries and make payments faster and less expensive.

Example: A person working abroad sends money to their family through a blockchain-based payment system.

• Can reduce the number of intermediaries.

• May reduce settlement time and transaction costs.

• Allows payments to be tracked.

3. Programmable Money

Programmable money follows rules written in a computer program. Smart contracts can automatically release payments when the required conditions are met.

Example: Payment is released to a seller after the delivery of goods is confirmed.

• Payments can occur automatically when conditions are met.

• Reduces manual processing.

• Supports conditional payments.

4. Trade Finance

Blockchain helps buyers, sellers, and banks share and verify trade records. It can reduce paperwork, delays, and the use of fake documents.

Example: A bank checks shipping documents through a shared ledger before releasing payment.

• Provides a shared record of trade documents.

• Helps banks, buyers, and sellers track transactions.

• Can reduce duplicate paperwork and document fraud.

5. Tokenization of Assets

Tokenization means representing ownership or rights in an asset as digital tokens on a blockchain. It can divide ownership into smaller shares.

Example: Ownership of a property is divided into digital tokens, allowing several people to own a share of it.

• Can divide ownership into smaller shares.

• Helps record and transfer ownership.

• May make assets accessible to more investors.

Citizen Identification Using Blockchain

Citizen identification is the process of verifying a person’s identity using details such as their name, date of birth, and identification number. Blockchain can support this process by maintaining a shared and tamper-resistant record of identity proofs.

Applications

• Government services: Verifying identity when applying for certificates, pensions, or benefits.

• Banking: Supporting customer identity verification during account opening.

• Education: Checking student identities and educational credentials.

• Healthcare: Verifying patient identities before allowing access to medical records.

Voting Using Blockchain

Blockchain-based voting is a system in which votes are recorded on a distributed ledger. It provides a tamper-resistant record that can help verify the voting process and election results.

Working

1. Voter registration: The election authority verifies eligible voters.

2. Voting access: Each registered voter receives a secure method to cast a vote.

3. Vote casting: The voter selects a candidate and submits the vote.

4. Verification: The system checks voter eligibility and prevents repeated voting.

5. Recording: The protected vote is recorded on the blockchain.

6. Counting: Valid votes are counted to produce the result.

Healthcare: Electronic Health Records Using Blockchain

An Electronic Health Record (EHR) is a digital record of a patient’s medical information. Blockchain can help maintain a secure and tamper-resistant record of access to and updates in these records.

Working

• Record creation: A hospital creates or updates the patient’s medical record.

• Secure storage: The medical information is stored in a secure database, usually outside the blockchain.

• Blockchain entry: A digital fingerprint, called a hash, and a reference to the record are added to the blockchain.

• Access permission: Patients or authorised authorities control who can access the information.

• Verification: Doctors can use the blockchain entry to check whether the record has been changed.

• Activity tracking: Access and updates can be recorded for future checking.

Supply Chain Management Using Blockchain

Supply chain management is the process of managing the movement of goods, information, and payments from suppliers to customers. Blockchain supports this process by maintaining a shared and tamper-resistant record of supply chain activities.

Advantages

• Traceability: Helps track a product’s source and movement.

• Transparency: Authorised participants can view shared records.

• Fraud detection: Helps identify suspicious records and supports checks for counterfeit products.

• Less paperwork: Reduces repeated documentation and record checking.

• Faster problem identification: Helps locate affected batches during a product recall.

• Automation: Smart contracts can automate payments after conditions are met.

Limitations

• Incorrect or false information may still be entered.

• Blockchain records alone cannot confirm the physical condition or authenticity of goods.

• Connecting existing systems can be costly.

• Effective tracking requires participation from all relevant organisations.