BITCOIN INCOGNITO

W H I T E P A P E R

First edition by: Cari Brosious, MBA and Basil Kapsalis, MEngSecond edition edits/updates by Atomic Orchard, MA, MIEST

May 27, 2019

Abstract

Bitcoin Incognito (XBI) is a cryptocurrency that takes Satoshi Nakamoto’s original vision for Bitcoin and adds to the concept in a way that makes it both more environmentally conscious and private for its users. Bitcoin In-cognito being Proof-of-Stake with Masternodes means that users are able to mint coins without using any more energy than a personal computer. Masternodes also make for fast, secure transactions and are inherently re-sistant to 51% attacks. Bitcoin Incognito uses Zerocoin protocol to ensure that users will not be subjected to privacy invading analytics. The addition of the upcoming new features such as Incognitonet and the Bitcoin Ano-nymizer will also give additional privacy features which further can be ex-tended to the benefit of holders of the original Bitcoin.

The Environmentally Conscious and Private BitcoinWhitepaper 2.0

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1. Introduction…………………………………………… 3

2. The Trouble with Bitcoin……………………………… 4

3. The Solution for Excessive Energy Consumption…… 7

4. The Solution for Privacy and Safety Concerns……... 10

5. The Incognito Masternode Pool……………………... 12

6. Distribution…………………………………………… 13

7. The Right 7. The Right To Privacy Statement..…………….…… …14

8. The Bitcoin Anonymizer……………………………… 16

9. Incognitonet……………………………………………17

10. The Ecosystem.……………………..…………………18

11. Conclusion…………………….…………………….. 19

12. References……………......……….………………… 20

C O N T E N T S

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When Satoshi Nakamoto wrote his original whitepaper for Bitcoin in 20081 he started a revolution that is still in its infancy. In the years since it has become more and more obvious that there were both some un-foreseen circumstances in the original design and some vulnerabilities that were not originally intended. Though still early in the game, block-chain has the capability to change the world in many ways for the bet-terment of society. The most obvious way is to free private citizens from fiat currency that is under control of government entities that may not necessarily have their best interests at heart. Bitcoin was a great start, but it turned out to be lacking in the area of environmental consciousness (the unforeseen circumstance), and in privacy (unin-tended vulnerability). Bitcoin Incognito aims to fix both of these prob-lems while building on Nakamoto’s original idea. In addition, it has become clear in the ensuing years that community involvement is one of the most beneficial aspects of any cryptocurrency project, i.e. the more community involvement, the more successful a project will be. Bitcoin Incognito had a rough start with less than honest developers who abandoned the project, but the community saw value in keeping it alive and towards that end a new governance was begun. This gover-nance is community driven and democratic, recognizing that all com-munity members want to help make Bitcoin Incognito a successful project.

1. Introduction

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Satoshi Nakamoto is the pseudonym for the anonymous creator of Bit-coin. All cryptocurrency as we know it started with his vision as it was laid out in the original whitepaper in 20081. The invention was for an electronic payment system based on cryptographic proof which is how the term cryptocurrency was coined. The creation of a “blockchain” was the method by which it would work.

Blockchain is a global network of computers that work together to process transactions on an electronic ledger. Each computer is called a node. When a transaction occurs, it is transmitted throughout the blockchain so that the individual nodes can confirm that it is not a fraudulent transaction. Each transaction requires a certain number of these confirmations to be accepted. Blocks of transactions that are created during a certain time period are bundled together to be added toto the ledger. Each block requires a difficult math problem, or hash, to be solved before it is added to the ledger. Individual nodes compete to be the first to solve this hash so that they can earn the transaction fees associated with it. This process is called mining, or Proof-of-Work, and it is where the first bit of trouble crops up.

In the original whitepaper, Satoshi Nakamoto acknowledged that it would be possible for a single user to defraud this system if they were able to control 51% of the nodes for a period of time. This type of fraud is now known as a 51% attack. It seems that Nakamoto had far more faith in humanity at large than is appropriate, for his original thoughts on this prospect were that: “If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose betweenbetween using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validi-ty of his own wealth1.” The reality is that there have proven to be plenty of people who do not react as expected, and instead have no qualms about defrauding other users out of as many coins as they can. The good news for us is that this type of attack is really only feasible on Proof-of-Work coins, as it would be prohibitively expensive to control more than half of the nodes when the system is Proof-of-Stake or

2. The Trouble with Bitcoin

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There is another problem that is specific to Proof-of-Work coins and this is one that Satoshi Nakamoto apparently did not foresee. As mining difficulty got higher due to the number of miners working and the scarcity of coins, it forced individuals to need to find ways to in-crease their hashing power exponentially. This generally involves ob-taining large amounts of hardware and having them run continuously. Originally this mining could be done with a personal computer, but nownow it requires specialized mining rigs that in some cases can fill an entire warehouse. There is also a large amount of heat released by these rigs, which can damage the hardware, so they require additional energy to keep them cooled. This results in a massive expenditure of energy that spans the globe and has the potential to damage the envi-ronment. In November 2017, the amount of energy2 consumed by Bit-coin mining annually was estimated to be 29.05TWh. This is 0.13% of the total energy consumption globally. That is more than the entire con-sumption of the country of Ireland. If this energy consumption contin-ues on the same path, Bitcoin mining would consume all of the world’s electricity by February of 2020. Think about that, it is less than two years away!

Bitcoin was designed in part to protect user’s personal privacy. It was theorized that since there was no identity connected to an individual wallet, each transaction could not be traced to a particular person. This is fine in theory but in actual practice it turns out it doesn’t work as well3. The Bitcoin ledger is open source and available for anyone to see, including prying government eyes. If someone wanted to track a par-ticular payment, they could track it to an individual wallet and in turn tracktrack other payments to or from that wallet. This means it only takes one instance where a name is attached to a transaction from that wallet to reveal the identity of the entire wallet. Think about it, how many times have you paid for something online and not considered that issue? What about when you used one of those exchanges that re-quired KYC?

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Bitcoin has its uses, and it doesn’t appear to be going away any time soon, but being the first doesn’t always mean you are the best. This has been especially true with technology which seems to grow and change at an almost alarming rate. Developers of new cryptocurrency projects have found new ways to deal with the shortcomings of Bit-coin, and there may still be more and newer innovations ahead. Bitcoin Incognito aims to be a project that will stay on top of these innova-tions.

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What leads to excessive energy consumption in other Crypto Curren-cies?

The current estimate for Bitcoin’s energy consumption is 71 TWh per year4, sufficient to power 6.5m typical US households. This high level of energy consumption is driven by two closely linked factors inherent to Bitcoin’s and other Proof of Work Cryptocurrencies implementations:

1) The nature of the proof of work algorithm and increasing difficulty: In order to keep the rate of block generation constant, Bitcoin adjusts the level of difficulty of the hashing algorithm based on the overall net-work hash rate. Miners respond to this and to intense competition from other miners by deploying ever increasingly powerful hardware. This has seen miners progress initially from CPUs, onto GPUs and now more commonly custom ASICS. This has increased the typical power ratingrating for mining nodes from perhaps 600W for a reasonably powerful server, then with an additional 250W per additional GPU. And now ASIC mining nodes are often rated for 1300W. Whilst on paper these higher rated ASIC miners are technically more efficient, doing more work for the given energy consumption, overall, they draw more power and are deployed in ever larger numbers to meet the competi-tion.

2) The way that Bitcoin reaches consensus: The major power inefficien-cy with Bitcoin, which is also at the root of the arms race, is associated with the way it reaches consensus. A new block is created on Bitcoin’s Blockchain approximately every 10 minutes, with the reward going to the first miner to produce a valid new block that can be verified by the other miners. This process means once a winner is found, all the previ-ous work of all the other miners on that block is discarded. It has also beenbeen known for some miners to send out fake blocks for verification order to waste the resources of their competitors. This intense compe-tition for the block reward leads to massive duplication of effort and drives the arms race identified above.

3. The Solution for Excessive Energy Consumption

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How Bitcoin Incognito solves this challenge

BitcoinBitcoin Incognito takes a different approach, one that is designed to offer greatly enhance energy performance, whilst offering the rigor-ous security afforded to Bitcoin holders. XBI uses a consensus mecha-nism to ensure the integrity of its BlockChain, but instead of using an expensive proof of work algorithm to distribute the block reward to miners based on a winner per block, it instead uses Proof of Stake to reward for the community for both staking coins and for running Masternodes.Masternodes.

To run a MasterNode, it is necessary to stake coins against a wallet ad-dress linked to the MasterNode key and with proof of the deposit through the transaction hash and index. The stake required per MasterNode is constant across the network and is set at 3,000 XBI. This means community members with more coins are directly incentiv-ised to run more MasterNodes if they wish to increase their share of the overall reward. This offers fairness and proportionality in relation to both the overall stake held by the member and the amount of re-source they offer to the network.

This fairness of this mechanism eliminates the competitive and increas-ingly inefficient arms race present in other coins, whilst incentivising the running of master nodes to help build and secure the network. Of course, like any Crypto Currencies, XBI does require Hashing, and this is based on the Xevan algorithm which uses a unique combination of dual X17 algorithms with a 128 bit headers. Xevan can be performed effi-ciently on standard PC servers, and so the cost of entry for new en-trants is low, which helps increase the vitality of the XBI network and community.

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Over the life of XBI, the balance of the reward scheme will shift both in terms of the number of coins and the ratio of reward between the Masternode and the Staked Coins. This is summarized in the table below:

Block TimelineRevised Block Data Post Fork

Block RewardIn % MN/SPreminePoW Phase

75 / 25 | 22.5 / 7.580 / 20 | 16 / 485 / 15 | 8.5 / 1.585 / 15 | 8.5 / 1.585 / 15 | 4.25 / 0.7585 / 15 | 1.7 / 0.3

Total

Coins Per Block

10,500 (Premine)13020101052

0 - 200201 - 5,000

5,001 - 25,00025,001 - 139,76025,001 - 139,760

139,761 - 1,009,7602,077,881 - 3,057,580

Total Blocks3,057,5802004,80020,000114,760870,000870,0001,068,120979,7003,057,580

Coins Mined/BlockMax 21,000,00021,000,0004,800600,0002,295,2008,700,0008,700,0005,340,6001,959,40021,000,000

XBI Circulationper block period2,100,0002,104,8002,704,8005,000,00013,700,00013,700,00019,040,60021,000,00021,000,000

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Bitcoin Incognito uses Zerocoin protocol5 to ensure privacy for its users. Zerocoin protocol achieves anonymity through cryptographic operations applied to the Zerocoin minting process and separately to Zerocoin spend transactions.

ByBy minting a Zerocoin from XBI, a user generates a random serial number that is then encrypted and then converts this into Zerocoin through use of a second random number. The Zerocoin is then added to a cryptographic accumulator in the Masternode pool and at the same time, an amount of XBI equal in value to the denomina-tion of the Zerocoin is added to a Zerocoin escrow pool.

To redeem the Zerocoin back into XBI (preferably to a new public ad-dress) the owner of the coin needs to prove two things via a ze-ro-knowledge proof. A zero-knowledge proof is a technique by which one party can prove to another that a given statement is true, without conveying any additional information. The first proof is that they know a coin that belongs to the set of all other minted Zero-coins without revealing which coin it is. In practice, this is done simply by use of a one-way accumulator that does not reveal the members of the set. The second is that the person knows the random number that along with the serial number corresponds to a Zerocoin.

4. The Solution for Privacy and Safety Concerns

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ExpenditureExpenditure of Zerocoins is supported by posting the proof and serial number as a Zerocoin spend transaction, this allows confirmation that the proof and the serial number have not been spent previously. After verification, the transaction is posted to the blockchain, and an amount of XBI equal to the Zerocoin denomination is transferred from the Zerocoin escrow pool. Anonymity in the transaction is assured be-cause the minted coin is not linked to the serial number used to redeem the coin.redeem the coin.

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Masternode Voting via Superblocks

We are also proud to announce that Bitcoin Incognito will soon implement a Masternode-based governance system. This will see the introduction of a Dash-like feature known as “Superblocks”, the Bitcoin Incognito version of this will not be the same as with Dash, but for now we will use that term superblocks for convenience.

TheseThese budget allocating blocks will be triggered by the community pass-ing proposals, this will be done through the Masternodes will be able to make proposals and vote on proposals put forwaerd from other Master-nodes. Masternode holders will be able to make a wide range of propos-als, from budget allocations through to rewarding members of the com-munity or team. If a sufficient number of Masternodes support for pro-posal and express their support by voting “Yes” on a proposal, it will go to review before the Core Team who will decide if it is possible to be turned into reality. This will directly allow our Masternode holders and our com-munity to participate in the decision making process and help shape the future of our project.

The budget for the proposals will be allocated from the superblocks ac-companying each passed proposal.

Verfiable Coin Count

One key advantage of the Zerocoin protocol is that the total number of coins in existence can be seen via the blockchain ex-plorer tool, evenwhile holders remain anonymous.

This avoids the issues that have arisen with other privacy coins where it has been possible for invisble coins to be generated and in effect dilute holder value.

5. Governance and Masternode Pool

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Maximum Supply:21,000,000 XBI (100%)Current Supply:~8,800,000 XBI (42%)Development Fund:902,000 XBI (4.3%)

The Bitcoin Incognito project is a community takeover, and thus coins are already in distribution. XBI is already available on exchanges for purchase from other individuals at the market price. Like the original Bitcoin, the maximum supply will be 21 million coins. There is an exist-ing Development Fund which will be used for Incognito Task Force op-erations, bounties, exchange fees, and project upkeep.

6. Distribution

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Arguing that you don't care about the right to privacy because you have nothing to hide is no different than saying you don't care about free speech because you have nothing to say.”–Edward Snowden Many people value their personal privacy as it applies to their financial Many people value their personal privacy as it applies to their financial transactions and what data may be saved, sold, or revealed about them. In spite of propaganda to the otherwise, there are many reasons for this that have nothing to do with illegal acts. Maybe they don’t want anyone to know that they are still paying for pornography (real-ly?). Maybe they would like to purchase a surprise gift for a loved one and don’t want them to be able to snoop and figure it out. Maybe they are a crypto anarchist. Maybe they don’t want anyone to know that at are a crypto anarchist. Maybe they don’t want anyone to know that at 42 years of age they are still adding to their My Little Pony collection. Who knows? The point is, whatever the reason, people have a right to control what information is publicly known about themselves. Even the UN has recognized that privacy is an inherent civil right. Fif-ty-two years ago this month the UN General Assembly ratified the In-ternational Covenant on Civil and Political Rights. Article 17 in this docu-ment makes these important points: 1. No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honour and reputation.2. Everyone has the right to the protection of the law against such in-terference or attacks.

One only has to peruse a news outlet today to find a plethora of exam-ples of this right being broken by government entities. The really scary thing is that two of the countries that are supposedly champions of civil rights are the worst offenders. Don’t believe me? This Map of Sur-veillance Societies Around the World shows that some of the worst of-fenders are the USA, UK, Russia, and China.

7. Right To Privacy Statement

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Surely everyone is aware of the recent Facebook data mining debacles which have caused many users to abandon their accounts. The prob-lem is that thinking Facebook is the only personal privacy invader is short sighted. The reality is that by tracking IP’s, any entity, govern-ment or otherwise, can follow the movements of anyone across the in-ternet to figure out exactly what they have been up to. Some people have attempted to subvert these efforts using Virtual Private Networks (VPN’s), the Tor network, or other tools, but not everyone has the technical knowledge to use them, plus, this would require no slip ups in terms of consistency. This leaves the vast majority of individuals open to unreasonable intrusion into their private lives.

Speaking of unreasonable intrusion, since the 9/11 tragedy in the US, its citizens have been subjected to some of the scariest violations of their civil rights that have been seen to date. Officially known as the “Presi-dent’s Surveillance Program”, the NSA’s spying on US citizens is leg-endary (https://www.eff.org/nsa-spying/how-it-works). Want to know how they have done this? By getting the cooperation of all of the major telecommunication companies in the country (without so much as a searchsearch warrant). This allowed them access to all of the call and text re-cords of every citizen of the USA. Since these companies also generally control internet access, well, guess what? A whistleblower by the name of Mark Klein revealed the existence of a secret room full of government installed surveillance equipment at an AT&T facility located in San Francisco, California. He provided eyewit-ness testimony and documents that detailed how this surveillance works. When you use the internet, your data is routed through the telecommunications companies’ facilities before traveling on to its in-tended recipient. The government simply installed “fiber-optic split-ters” in junction points in these facilities which make exact copies of the data passing through them and routes it straight to the govern-ment’s systems. The NSA has been storing and sifting through this in-formation at many data centers scattered throughout the US. So, have you ever done anything embarrassing on the internet? Think about it, I’ll wait...

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The Bitcoin Incognito Bitcoin anonymizer is a dual layered network model that allows the Bitcoin transaction record chains to be broken up for an individual user/wallet thereby allowing the original and previ-ous transaction history to be completely obscured.

This is achieved by allowing Bitcoin (BTC) users wishing to obfuscate their transaction history to deposit Bitcoin in one of a number of escrow wallets held securely at the outer layer of the Incognito Net-work. These coins can then be exchanged for new clean Bitcoin re-ceived from other peer escrow wallets on the outer layer of the net-work.

The financial balance of the overall system is maintained by balancing adjustment payments within the second layer (inner layer) Bitcoin In-cognito (XBI) network.

Within this context, the XBI network will firstly generate its own Bit-coin income, as the network itself, operating as a Digital Autonomous Organisation (DAO) will charge a transaction fee for ithe Bitcoins it processes.

Secondly balancing payments in XBI (as new XBI are generated) will also be made to escrow wallets that have used up all their BTC. These XBI may then be potentially sold to support the acquisition of new Bit-coin to support further transactions from that escrow wallet.

Overtime the value of XBI with the network should tend to the value of the value of Bitcoin passing through the network. This may initially re-quire many more XBI within the network than BTC, but with XBI equal-ly as scarce as BTC (both 21m cap), this ratio will naturally adjust over-time as the value of XBI rises closer to that of BTC.

8. The Bitcoin Incognito Bitcoin Anonymizer

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We present Incognitonet, a circuit-based low-latency anonymous com-munication service which is tightly coupled to the Bitcoin Incognito Secure Payment Network.

Incognitonet builds on the current generation Onion Routing system, but addresses limitations in the design by providing a secured core routing service with guaranteed anonymity thus preventing the entry of bad actors who might otherwise execute man in in the middle at-tacks.

Incognitonet runs over the top of the public Internet, and requires no special privileges or kernel modification, and needs only minimal syn-chronization between nodes, giving a balanced tradeoff between ano-nymity, usability, and efficiency.

TTraditional Onion Routing is a distributed overlay network designed to anonymize TCP-based applications such as web browsing, SSH and in-stant messaging. Clients choose a path through the network and build a circuit, in which each node (onion router) in the path knows its prede-cessor and successor, but no other nodes in the circuit. Traffic flows down the circuit in fixed-size cells, which are unwrapped by a symmet-ric key at each node (like the layers of an onion) and relayed downstream.

In the original Onion Routing design, a single hostile node could record traffic and later compromise successive nodes in the circuit and force them to decrypt it. Our design offers Perfect forward secrecy by using a single multiply encrypted data structure (an onion) to layout each cir-cuit. Like the more recent implementation of Tor, Incognitonet uses an incremental or telescoping path-building design, where the initiator negotiates session keys with each successive hop in the circuit.

Once these keys are deleted, subsequently compromised nodes cannot decrypt old traffic.

9. Incognitonet

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We believe that all encompassing solutions are the future of Block-chain and fintech as a whole. Following this principle, we are building a robust ecosystem consisting of privacy oriented products and services where all the needs of our users will be met. This ecosystem will func-tion on a “pay-to-play” basis, whereas users will have to spend the XBI tokens to gain access to or use any of these services.

Over the course of XBI development, we intend to create, among others, a Bitcoin shuffler / anonymizer, which will function on a basis of splitting Bitcoin transactions into hundreds or thousands of pieces to make them virtually untraceable and therefore anonymous in a way, encrypted email, communications, torrents, and dozens of other priva-cy-centered possibilities. This will establish the foundation for sound and continuous demand for our tokens while the overall simplicity of thethe platform will boost worldwide real life adoption and present a preferable alternative to the currently existing products and services of similar purpose which are too complicated.

Our goal is to fill in the void in the market caused by the lack of a one stop solution to all of these problems and the fact that users are forced to visit dozens of different websites to perform actions which often re-quire the ability to act fast and swift. We also believe this will boost the adoption among younger generations and everyone else who values simplicity and effectiveness without sacrificing any quality of the prod-ucts and services themselves.

10. The Ecosystem

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Bitcoin Incognito set out to create a coin which was an answer to the shortcomings of the original Bitcoin. Toward that end, it started out with the same maximum supply, but changed the technology to be more energy conscious and to increase privacy for its users. In addi-tion we are now bringing forward new innovative technologies such as Incongnitonet and the Bitcoin Anonimizer that will provide value for both users of Bitcoin Incognito and to the original Bitcoin.

The Bitcoin Incognito team is devoted to maintaining a project that stays on top of available technology. To ensure this, there may be up-dates to protocols and additional features or uses added as the proj-ect moves forward. As a community coin, suggestions in this area are welcome and will be considered, and in the future will be selected via the voting mechanism offered by what we will temporaily refer to as Superblocks.

11. Conclusion

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1. Satoshi Nakamoto. Bitcoin: A peer-to-peer electronic cash system. 2008. URL:https://bitcoin.org/bitcoin.pdf

2. Power Compare. Bitcoin mining now consuming more electricity than 159 countries including Ireland & most countries in Africa. 2017. URL:https://powercompare.co.uk/bitcoin/

3.3. MIT Technology Review. Bitcoin transactions aren’t as anonymous as everyone hoped. 2017. URL:https://www.technologyreview.com/s/608716/bitcoin-transac-tions-arent-as-anonymous-as-everyone-hoped/

4. Digiconomist. Bitcoin energy consumption index. 2018. URL:https://digiconomist.net/bitcoin-energy-consumption

5. Zcoin. Privacy enhancing technology, Zerocoin protocol. 2017. URL:https://zcoin.io/tech/

12. References

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