What is Darkcoin? Bitcoin's Secretive Cousin Explained

When bitcoin burst into mainstream consciousness last year, the surrounding hype proclaimed a decentralised currency that was untraceable. The name cryptocurrency suggested an anonymous and secure method of payment that signalled a paradigm shift in the way online payments could be made.

As it turned out, this wasn't exactly true. While it was still more difficult to track than credit card payments, it proved to be far from impossible for government agencies or law enforcement officials to follow the transactions of bitcoin or other altcoins.

Every single bitcoin transaction is in fact logged on an online accounting ledger known as the blockchain, a complete history of the currency's movements available to anyone at any time.

Early advocates have since questioned whether bitcoin is fundamentally lacking in what a cryptocurrency should truly be.

"Anybody who thinks bitcoin makes it easier to do transactions that aren't tracked by the government is 100 percent wrong," software pioneer Marc Andreessen recently told the Washington Post.

"I think actually law enforcement and intelligence agencies are going to wind up being pro-bitcoin, and libertarians are going to wind up being anti-bitcoin."

Darkcoin rises

Buoyed by the potential of bitcoin but frustrated by its lack of anonymity, two developers set out to create a digital version of cash, facilitating private transactions and fulfilling everything that bitcoin is not able to be.

What Software developers Evan Duffield and Kyle Hagan came up with was darkcoin - the world's first anonymous cryptocurrency.

"When making payments with bitcoin it's like leaving your checking account open in your browser and everyone on the internet is able to see what you bought," says Duffield. "It's really a shame the original development didn't aim to prioritize the user's privacy."

Launched in January to little fanfare, darkcoin went relatively unnoticed for the first few months of its existence. In recent weeks, however, darkcoin's rise has been anything but stealthy.

The value of darkcoin has shot up from less than a dollar one month ago to over $10 today, pushing its market capitalisation up towards $50 million and making it the world's fourth largest cryptocurrency - behind bitcoin, litecoin and peercoin and ahead of dogecoin.

Some believe that part of this meteoric rise has come as a result of a 'pump and dump', whereby speculators artificially inflate the price of a digital currency by it up before selling it on quickly for a fast profit.

Supporters, however, believe the cryptocurrency's growth will be sustained due to the unique privacy benefits it offers.

"The only coin that has a future, and I'm not just saying that to be annoying, is darkcoin," reddit user and darkcoin enthusiast TanteStefana said. "This coin is well thought out, well planned, and has an excellent team of developers lead by Evan Duffield."

Secret to success

Built upon the foundations of bitcoin, darkcoin adds an extra layer of secrecy to transactions through its unique DarkSend feature that is capable of obscuring financial records.

"The innovation is in the mixing of inputs and outputs going through the DarkSend system," darkcoin's website explains. "A user's payment is automatically split into smaller demoninations and pooled with the split-up payments of other users. Anyone viewing the blockchain will see payments being made but they won't be able to see who paid who."

Such a private protocol means that darkcoin's recent growth may well be attributed to darker forces, namely the criminal underbelly of the web. Few online marketplaces outside of the dark web currently accept darkcoin, and those that do include BitcoinSeedStore - a cannabis seed store that is not too far from the legal edge itself.

Kristov Atlas, a security consultant and darkcoin fan, believes that criminals may be using darkcoin to launder millions of dollars worth of bitcoin, referring to it as a "private on-ramp and off-ramp into bitcoin".

Such claims are dismissed by Duffield, who believes the success of darkcoin lies beyond the black market.

"I don't see much chatter about using it for illegal things," he says. "It's a neat technology and people want to invest in it because it's useful."