CryptoNote Whitepaper - Application Layer Protocol

CryptoNote Whitepaper - Application Layer Protocol

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Introduction
“Bitcoin” has been a successful implementation of the concept of p2p electronic cash. Both professionals and the general public have come to appreciate the convenient combination of public transactions and proof-of-work as a trust model. Today, the user base of electronic cash is growing at a steady pace; customers are attracted to low fees and the anonymity provided by electronic cash and merchants value its predicted and decentralized emission. Bitcoin has effectively proved that electronic cash can be as simple as paper money and as convenient as credit cards.

Unfortunately, Bitcoin suffers from several deficiencies. For example, the system’s distributed nature is inflexible, preventing the implementation of new features until almost all of the net- work users update their clients. Some critical flaws that cannot be fixed rapidly deter Bitcoin’s widespread propagation. In such inflexible models, it is more efficient to roll-out a new project rather than perpetually fix the original project.

In this paper, we study and propose solutions to the main deficiencies of Bitcoin. We believe that a system taking into account the solutions we propose will lead to a healthy competition among different electronic cash systems. We also propose our own electronic cash, “CryptoNote”, a name emphasizing the next breakthrough in electronic cash.

CryptoNote Features
  • Untraceable Payments - CryptoNote provides users with a completely anonymous payment scheme. CryptoNote implements the ring signature technology which allows you to sign a message on behalf of a group. The signature only proves the message was created by someone from the group, but all the possible signers are indistinguishable from each other.
  • Unlinkable Transactions - Even if outgoing transactions are untraceable, everyone may still be able to see the payments you have received and thus determine your income. However, by using a variation of the Diffie-Hellman exchange protocol, a receiver has multiple unique one-time addresses derived from his single public key. After funds are sent to these addresses they can only be redeemed by the receiver; and it would be impossible to cross-link these payments.
  • Double Spending Proof - Nobody is able to spend the same money twice — even if all his signatures are anonymous. Every signature contains a key image — a kind of fingerprint of the secret key. It is based on a one-way cryptographic function; this implies that given only the key image it is impossible to restore the corresponding secret key. These key images are used to prevent double-spending.
  • Blockchain Analysis Resistance - Non-repeating one-time addresses and mixed keys in ring signatures make the whole blockchain resistant to analysis. Each future transaction will only increase the entropy and create additional obstacles for an analyst.
  • Egalitarian Proof of Work - The proof of work mechanism acts as a voting system. Thus, it is crucial that during the voting process all the participants have equal voting privileges. CryptoNote brings this equality with its egalitarian proof of work, utilizing built-in CPU instructions, which are very hard and too expensive to implement in special purpose devices, but perfectly suitable for ordinary PCs.
  • Adaptive Parameters - A decentralized payment system must not depend on a single person's decisions, even if this person is a developer. CryptoNote has no hard-coded constants; magic numbers in the code are designed to be re-calculated based on the previous state of the network. Thus, they always change adaptively and independently, allowing the network to develop on its own.
Conclusion
We have investigated the major flaws in Bitcoin and proposed some possible solutions. These advantageous features and our ongoing development make new electronic cash system CryptoNote a serious rival to Bitcoin, outclassing all its forks.

Nobel prize laureate Friedrich Hayek in his famous work proves that the existence of concurrent independent currencies has a huge positive effect. Each currency issuer (or developer in our case) is trying to attract users by improving his product. Currency is like a commodity: it can have unique benefits and shortcomings and the most convenient and trusted currency has the greatest demand. Suppose we had a currency excelling Bitcoin: it means that Bitcoin would develop faster and become better. The biggest support as an open source project would come from its own users, who are interested in it.

We do not consider CryptoNote as a full replacement to Bitcoin. On the contrary, having two (or more) strong and convenient currencies is better than having just one. Running two and more different projects in parallel is the natural flow of electronic cash economics.

CryptoNoteCoin is the reference implementation and a showcase of CryptoNote technology. It was designed to have zero commercial value as its genesis block is replaced every 2 months. 
The sole purpose of CryptoNoteCoin is an insight it provides regarding functionality of CryptoNote technology. For those willing to start their own CryptoNote-based coins, CryptoNoteCoin is a great option to explore and learn all the important details in order to launch an upcoming coin smoothly.

CryptoNote Currencies
  1. CryptoNoteCoin - CryptoNoteCoin is the reference implementation and a showcase of CryptoNote technology. It was designed to have zero commercial value as its genesis block is replaced every 2 months. The sole purpose of CryptoNoteCoin is an insight it provides regarding functionality of CryptoNote technology. For those willing to start their own CryptoNote-based coins, CryptoNoteCoin is a great option to explore and learn all the important details in order to launch an upcoming coin smoothly.
  2. Bytecoin (BCN) - Bytecoin is the first CryptoNote-based currency, which has reached mass adoption successfully. Bytecoin also possesses one of the largest ecosystems. Bytecoin has been originally created in close cooperation with CryptoNote team. It is the first implementation of CryptoNote technology, with the release dating back to July 2012. Up to this date Bytecoin developers has been making significant contributions to the development of CryptoNote technology.
  3. Boolberry (BBR) - Boolberry is an important CryptoNote experiment with a few adjustments. It utilizes Wild Keccak hash function instead of CryptoNight, which optimizes the size of the blockchain by pruning the ring-signatures. Boolberry offers a guaranteed level of anonymity for unlinkable outputs, address aliasing and the ability to send network alerts.
  4. Dashcoin (DSH) - Dashcoin is a cryptocurrency started on July 5, 2014. Dashcoin is a fork of Bytecoin and it also utilizes CryptoNote algorithm. The goal of Dashcoin is to automatically create a perfect mirror image of Bytecoin, the first CryptoNote based cryptocurrency, at any given moment of time. The only difference is the supply amount.
  5. DigitalNote (XDN) - DigitalNote is formerly known as DarkNote and duckNote. DigitalNote utilizes CryptoNote technology along with a number of important updates, such as untraceable encrypted messaging system, multi-signatures and blockchain based deposits. XDN team has ambitious plans – they are experimenting with Proof-of-Activity, alias system and many more features to come.
  6. DarkNetCoin (DNC) - DarkNetCoin is the general currency of DarkNetSpace, a platform for anonymous applications such as p2p exchange, on-chain shop, lotto, gambling and bets. It uses Wild Keccak hash function instead of CryptoNight. Starting with the 4550th block 1% of block reward is donated to CryptoNote team and 9% to DarkNetSpace team.
  7. Fantomcoin (FCN) - Fantomcoin is the first CryptoNote currency with merged mining support. Users who mine Fantomcoin are also able to mine other CryptoNote-based coins without additional hash power. This feature allows user to receive not only FCNs but also any other CryptoNote-based currency. As the result, Fantomcoin encourages fair distribution and stabilization of the cryptocurrency market through diversification.
  8. Monero (XMR) - Monero (previously known as Bitmonero) is one of the first CryptoNote coins. It utilizes the same values every CryptoNote coin does – privacy, decentralization and fungibility. Monero development is community-driven, based on donations and with a focus on decentralization and scalability.
  9. Pebblecoin (XPB) - Pebblecoin is a CryptoNote-based coin with certain adjustments. XPB implemented a mining algorithm called Boulderhash that requires 13 GB RAM. This has been the successful attempt to block botnet-controlled computers from mining. XPB has a distinct emission curve: the standard block reward of 300 coins remains unchanged for the whole period of XPB mining.
  10. Quazarcoin (QCN) - Quazarcoin is a CryptoNote-based coin, which has been launched as a result of community discussions. It has a flatter emission curve and fair, open launch to attract the wider community. QCN's developers focus on usability aspects of the currency. Its main contribution is the popularization of CryptoNote technology.
  11. AEON - AEON (Anonymous Electronic On-line CoiN) is a Monero fork and also a privacy focused coin that is aimed towards open-source community to deliver fast and secure payment method while being simple enough to be used by anyone. AEON has started as an experiment but then found its supporters and now AEON is fully functional CryptoNote currency.
Other CryptoNotes
  • DoctorByte (DB)
  • Infinium-8 (INF8)
  • MonetaVerde (MCN)
  • Dosh (DOSH)
  • Magnatoj
  • RedWind (RD)
  • Tavos (XTV)
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