With the privacy (or lack thereof) of Bitcoin and other cryptocurrency payments once again coming to the fore CloakCoin (one of the original, first wave of privacy-centric digital currencies) has announced the upcoming release of v2.0.1.0 of its software. Going under the code name ‘Phoenix’, the new wallet will be available to the public from 18th February 2017.

After the launch of Zcash, another anonymous cryptocurrency payment system, generating so much hype recently, and a wave of headlines about the privacy on Bitcoin users being compromised, it seems to be a timely release.

This new version of Cloak introduces the re-branding of the coin’s anonymous payment system from PoSA (Proof of Stake Anonymous) to ‘Enigma’, along with a raft of enhancements and new features to make the coin more user-friendly, efficient and effective.

CloakShield & Enigma: Ensuring maximum privacy in Cloakcoin

Enigma offers Cloakcoin users the ability to make their payments completely anonymous for a 1.8% fee. This is made possible through an innovative off-blockchain coin mixer with end-to-end encryption.

A system called ‘CloakShield’ encrypts data traveling between nodes on the Cloak network. This allows for the creation of private communication channels between nodes (users’ wallets) which cannot be deciphered by anybody else. It makes use of ‘onion routing’ to ensure that data is only visible to its intended recipient. Effectively, this is equivalent to running your wallet through the famous TOR privacy network but without the need for separate software; and since no data is needed from outside the network there is no need for ‘exit nodes’, which are perhaps the main point of weakness for the privacy protection offered by TOR itself.

Enigma uses these end-to-end encrypted communication channels to create transactions using outputs from the wallets of multiple participants in addition to the actual sender and recipient, effectively obscuring who is actually sending money to whom. A user wanting to send a private transaction communicates with other nodes and selects participants from the pool of offers. The entire process is fully encrypted to prevent any observer from knowing who is participating, and only the fact that you have sent a payment for a certain number of coins will be visible on the public blockchain, not who you are sending those coins to. This creates a kind of off-blockchain mixing service baked into the protocol and available to use directly from the CloakCoin wallet.

Coin mixing is the same technique currently employed by Bitcoin users who want enhanced privacy. Unlike most popular Bitcoin mixers, however, Enigma is fully decentralized – therefore removing the need to trust a mixing service and enhancing the privacy and security it offers. The combination of Enigma with CloakShield encryption also offers additional privacy protection compared to a regular mixers, as the developers explained to me: “the onion routing negates the worry of timing attacks too, as timings are now variable due to the time taken to onion route.” Timing attacks are a method through which the anonymity of some coin mixing transactions can be broken.

No ‘masternodes’, of the kind you find in Dash (which also has a built-in decentralized mixer), are used in this process – all nodes remain equal. This eliminates the problem of Sybil attacks which may potentially be an issue for decentralized mixers using masternodes, especially when the majority of masternodes become concentrated on the servers of a small number of popular hosting providers whose logs could be compromised by government warrants or even hackers. It also means that anybody with a Cloak wallet containing some coins can offer themselves up as a participant in this anonymization process and earn a portion of the fee paid by the sender. You can set what percentage of your balance you want to make available for this and broadcast your desire to participate from your wallet. Because Cloak also uses a PoS consensus protocol, in which users earn 6% interest for holding coins in their wallet, there should be no shortage of available participants – therefore reducing the problem of liquidity which some coin mixers suffer from.

The Cloak 2.0 Upgrade

I managed to get my hands on an advance copy of the v2.0.1.0 wallet currently going through testing prior to its upcoming release so that I could try it out.

The first thing that is immediately obvious during the install is the blockchain downloader – a new feature added with this release. Installing a new cryptocurrency wallet can be a real drag, with a long and frustrating wait between downloading the software and actually getting it synced with the network and ready to use. That is not the case here. Despite being a well established coin with a few years of transactions under its belt, this whole process is lightning fast: it took just a couple of minutes in total. To me this is a big bonus for new users, especially those with less experience using cryptocurrency, as it feels exactly the same as downloading and using any other piece of software – something which often isn’t the case with cyrptocurrency.

Sending a private transaction using Enigma was also surprisingly fast and user-friendly. The only thing you need to do differently from a normal payment is to tick the Enigma box, select how many ‘cloakers’ (mixing participants) you want to include between 3 and 25 and a ‘timeout’ level between 1 and 5 minutes. My test transaction seemed to find participants for mixing pretty much straight away, broadcasting the transaction and getting it a fully confirmed payment at the other end within minutes. This is a nice contrast to Zcash, which may have even more privacy – with transaction amounts hidden from public view as well who you are sending too – but which can also take quite a while to send a private payment and which is currently not user-friendly in the slightest.

Participation in other people’s Enigma transactions in return for a share of the fee is enabled by default with 50% of your balance. Since these transaction lock up your balance, you can change the amount, as well as toggle this feature on and off, from the options screen.

In addition to the blockchain downloader and the re-branding from ‘PoSA’ to ‘Enigma’, other new additions for this version include an automatic wallet backup system accessible from the file menu, faster block loading, improved PoS validation, refactoring of the CloakShield code to reduce traffic and increase reliability, improved input selection for Enigma and an Enigma message system, a new UI option to copy transaction IDs from the history page, and a switch to LevelDB database format.

The Future for CloakCoin

Two big developments are on the horizon for CloakCoin in the future: an Electrum version of the wallet which will open up the possibility for lite wallets and a mobile wallet, plus the potential elimination of fees for private transactions:

“If you’re going to talk about the future… the electrum wallet is really big news as it opens up lots of new possibilities, such as lite wallets and open bazaar type extras…
We should mention we’re working on a new PoS algorithm that will make Enigma free to use, while still rewarding nodes that help to cloak transactions for users.”
There is a high degree of sensitivity to cost among many consumers when looking at financial products. This can be seen in many of today’s most popular anonymous coins, which have a low uptake of more costly private transactions even though their userbase professes to place a significant priority on privacy. So although the new wallets may be exciting the developers, it is the possibility of free anonymous transactions which still reward participating ‘cloakers’ through the PoS system that really excites me.