As a privacy-focused, decentralized, open source cryptocurrency, PIVX or Private Instant Verified Transaction is the first to implement Zerocoin Protocol.
PIVX uses Zerocoin Protocol for a more secure peer-to-peer transaction anonymity. Zerocoin uses Zero-Knowledge proof which enables a user (prover) to prove to another user (verifier) that a transaction is true without publicly providing any information aside from the fact that the money was indeed sent or received. In other words, this is a way for a user to prove to someone that he/she knows something without revealing any details about it.
To explain more about Zero-Knowledge proof, let us take the following example:
- Suppose we have two rooms ( I and X ) and each room has its own door. The two rooms also share a door which can only be opened with a code.
- Peter has the code and he wants to prove to Vincent that he has it without revealing to him the code. So Peter enters a room without Vincent's knowledge of which room he entered. Let us say Peter entered the “I” room.
- Now, Vincent who is outside the rooms will try to prove if Peter has the code. Vincent will shout his guess on which room Peter is present.
- If Vincent shouts “I”, Peter will open the door from room “I”, otherwise Peter will have to use his code to open the center door to open the door from room “X”.
If the whole process is done only once, Vincent will never be able to prove that Peter has the code but if done multiple times, say 20 or more rounds, Vincent will be able to tell that Peter indeed has the code. That is how Zero-Knowledge proof works.
On the other hand, let us say Peter does not really have the code or he is an impostor. Peter will only have 50% chance to open the door of the room that Vincent requests. If done 20 times, there will be a great probability that Peter will fail.
Also, this protocol will make every end-to-end transaction completely untraceable. Which means that your friends, family, co-workers or business partners will never know what you bought or for how much. Unlike Bitcoin, it is not possible to trace the history of any given payment thus anyone can not data mine and recover any information to identify patterns and users in the transactions.
Using Zerocoin protocol, non-anonymous coins – as in this case PIVX - will be converted to anonymous coins or Zerocoins. Users can then send these Zerocoins to other users and can split or merge the coins they own in any way that preserves the total value. Zerocoins can also be converted back to non-anonymous coins, though in principle this is not necessary since all transactions can be made in terms of Zerocoins.
PIVX is the first of its kind as a Proof of stake coin to use the Zerocoin protocol. As Bitcoin being not able to provide total anonymity, this private zero-knowledge transactions will provide PIVX an edge over Bitcoin and other Altcoins in giving more anonymity to peer-to-peer transactions.