Zerocoin is a project to fix a major weakness in Bitcoin: the lack of privacy guarantees we take for granted in using credit cards and cash.
“Zerocash: Decentralized Anonymous Payments from Bitcoin
Eli Ben-Sasson, Alessandro Chiesa, Christina Garman, Matthew Green, Ian Miers, Eran Tromer, Madars Virza
…Although payments are conducted between pseudonyms, Bitcoin cannot offer strong privacy guarantees: payment transactions are recorded in a public decentralized ledger, from which much information can be deduced. Zerocoin (Miers et al., IEEE S&P 2013) tackles some of these privacy issues by unlinking transactions from the payment’s origin. Yet it still reveals payment destinations and amounts, and is limited in functionality.
In this paper, we construct a full-fledged ledger-based digital currency with strong privacy guarantees. Our results leverage recent advances in zero-knowledge Succinct Non-interactive ARguments of Knowledge (zk-SNARKs).
We formulate and construct decentralized anonymous payment schemes (DAP schemes). A DAP scheme lets users pay each other directly and privately: the corresponding transaction hides the payment’s origin, destination, and amount. We provide formal definitions and proofs of the construction’s security.
We then build Zerocash, a practical instantiation of our DAP scheme construction. In Zerocash, transactions are less than 1 kB and take under 6 ms to verify — orders of magnitude more efficient than the less-anonymous Zerocoin and competitive with plain Bitcoin….”