Bytecoin has an appropriately sordid history for a Cryptocurrency that prides itself on privacy and anonymous transactions. It began life in 2012 – not 2014, as the developers originally and fraudulently claimed – as the first cryptocurrency based on the now ubiquitous CryptoNote application layer. Wholly independent from the similarly named Bitcoin, Bytecoin aimed to return cryptocurrency to its cryptic roots, providing users a truly anonymous peer-to-peer currency.
Nowadays, Bytecoin can be found on most major exchanges. But the prehistory of this proto-privacy coin contains a microcosm of the industry as a whole. Therefore, it might give clues as to the direction cryptocurrency will take in the future.
The Prehistory of Bytecoin
To talk about the origins of Bytecoin, we first have to talk about the origins of its much more famous and wealthy cousin, Bitcoin. In the white paper authored by the still-unknown entity Satoshi Nakamoto in 2008, Bitcoin is laid out as a populist alternative to the traditional system of using trusted third parties, like banks, to move money from person to person. Indeed, this new Bitcoin was designed to be a purely peer-to-peer system, eschewing trusted third parties for rules written directly into the code. In theory, at least, Bitcoin could be transferred fairly anonymously from one person to another, with only the blockchain and the folks involved knowing about it.
This conjures up images of cypherpunks trading revolutionary secrets and building neo-hippie communes, linked together by love and peace and many, many wires.
The reality was quite a bit different. Bitcoin’s original huge use case was as the currency of choice for the Silk Road online black market. Here, Bitcoin could be traded anonymously – at least, in theory – for drugs, weapons, and other illegal fare.
The ultimate failure of Silk Road (and its successors) and the U.S. government’s confiscation of millions of dollars in Bitcoin revealed that the allegedly untraceable Bitcoin wasn’t so untraceable after all. With a little bit of sleuthing, it was possible to link Bitcoin addresses and payments to online identities. Those online identities could then be linked to the real folks behind the screen, leading to arrests and confiscations.
CryptoNote was an attempt to address these privacy coins within Bitcoin. The 2013 CryptoNote white paper explicitly compared itself to Bitcoin, presenting itself as the pro-privacy alternative due to its use of multiple signatures instead of Bitcoin’s simpler ledger system.
Under significant amounts of complicated coding, the problem comes down to Bitcoin’s linkable addresses. CryptoNote directly solves this problem.
“Classic Bitcoin addresses, once being published, become unambiguous identifiers for incoming payments, linking them together and tying to the recipient’s pseudonyms. If someone wants to receive an ‘untied’ transaction, he should convey his address to the sender by a private channel. If he wants to receive different transactions which cannot be proven to belong to the same owner he should generate all the different addresses and never publish them in his own pseudonym,”
The CryptoNote developers explained.
“We propose a solution allowing a user to publish a single address and receive unconditional unlinkable payments. The destination of each CryptoNote output (by default) is a public key, derived from recipient’s address and sender’s random data. The main advantage against Bitcoin is that every destination key is unique by default (unless the sender uses the same data for each of his transactions to the same recipient). Hence, there is no such issue as ‘address reuse’ by design, and no observer can determine if any transactions were sent to a specific address or link two addresses together.”
The Birth of Bytecoin
Bytecoin was the first cryptocurrency to adopt the CryptoNote standard, immediately presenting itself as the pro-privacy Bitcoin alternative.
Early Bytecoin developer Harry Ullman told CCN in an interview – conducted via email, of course, to preserve his privacy – that Bitcoin’s algorithm was tweaked using CryptoNote as a base to create CryptoNight. The ultimate goal was completely unlinkable transactions.
“[Bitcoin’s] blockchain is a ledger open to anyone, which makes any payment traceable and linkable,” Ullman said. “However, we believe that financial privacy is an important feature of electronic cash. Your transactions history should not be accessible to third parties, no matter if it’s government or marketers. To address this issue Bytecoin has made sophisticated adjustments to the original cryptocurrency design. We were first to introduce both ring signature and one-time private keys.”
The Real Birth of Bytecoin
Here’s where things get sticky. There is disagreement in the privacy coin community as to exactly when Bytecoin was created and by whom and what the developers’ ultimate goals were. This is complicated by the very nature of Bytecoin as a privacy-focused coin.
The Bytecoin blockchain allegedly began in 2012, during which time more than 80 percent of the coin was pre-mined – 151 billion of 184 billion possible coins.
How is this possible, given that the CryptoNote white paper was only published in October 2013?
There are several possibilities…
The Bytecoin blockchain could have been falsified, or the CryptoNote developers could have formed Bytecoin in secret, pre-mined it, and then released the open-source technology to the rest of the world with a hefty head start in 2014.
“The blockchain was not publicly observable or observed for those two years,” fluffyponyza wrote. “We have no reason to believe it is true, and even if it was true it still means that ~151 billion of the 184 billion BCN (82%) were mined prior to its public release.”
The developer added that there are more questions surrounding who exactly wrote what, when, and why.
“Had the BCN network started in November (2013) nobody would be questioning it. Rather, it stands to reason, by all accounts, that the individual(s) behind the CryptoNote whitepaper either wrote the initial code and gave it to the Bytecoin developer(s) who then ran with this, falsified a blockchain (trivial), and released it publicly in March after blockchain falsification was complete,”
“The BCN mining code shipped purposely crippled, presumably as a way of making the falsified blockchain seem legitimate. Not just weird or written by a cryptographer who doesn’t know how to optimise, but purposely crippled for slow mining…Did nobody care to optimise the hashing code in two years, not even to improve the amount of time it takes to download and verify a blockchain from scratch? I find that unlikely.”
Bytecoin, Today and Tomorrow
As of February 2019, Bytecoin carries a per-coin price of $0.000586 with a total market cap of just over $107 million. Its most famous competitor, Monero, is priced at $43.74 with a market cap of nearly $733 million.
This tells a story, and it’s surprisingly not about Bytecoin’s somewhat shady past or Monero’s recent dominance. It describes a market where coins aimed at transferring money anonymously command sums measured in millions and even billions of dollars. Whether the controversy surrounding Bytecoin is deserved remains an open question. However, it’s clear that privacy coins have carved out a significant niche in the crypto world, and their influence is only going to continue to grow.
- Bitcoin: A Peer-to-Peer Electronic Cash System, Bitcoin.org