Darkcoin, the Shadowy Cousin of Bitcoin, Is Booming

Illustration: WIRED

Someone out there likes anonymous money.

In only a month, the little-known bitcoin alternative known as Darkcoin has rocketed nearly tenfold in valuefrom around 75 cents a coin to almost seven dollars. Its selling point: Darkcoin offers far greater anonymity than bitcoin, mixing up users transactions so that its incredibly difficult to trace a payment to a person. And though few have yet to accept that more-anonymous coin for actual goods and services, the promise of Darkcoins privacy features seems to have sparked a miniature boom. Its one of the fastest growing among the wave of cryptocurrencies thats followed bitcoins success, with the total value of its combined coins topping out at nearly $30 million.

Darkcoin, supporters argue, serves a real privacy need. Despite its reputation for being more anonymous than traditional money, the bitcoin network actually allows anyone to see every transaction on a public accounting ledger known as the blockchain. Users often have to take extra steps, like mixing their coins in a laundry service, to prevent those addresses from being tied to their identity by any government or corporation that wants to snoop.

Darkcoin adds an extra layer of privacy by automatically combining any transaction its users make with those of two other usersa feature it calls Darksendso that anyone analyzing the blockchain has a harder time figuring out where a particular users money ended up. A large community believes that the way bitcoins blockchain is designed is a problem, says Evan Duffield, the 32-year old Arizona-based software developer who launched Darkcoin in January. Darkcoin has this anonymity aspect to it, which is attractive to a lot of people.

Darkcoins exchange rate with the dollar and market cap over the last month. Credit: Coinmarketcap.com

Darkcoins uncanny growth, of course, may also be fueled by speculators who see an opportunity to jump on a hot commodity. And given how wildly its appreciated in its short life, theres no guarantee it wont crash just as fast.

But Darkcoins price increases may also be linked to real changes in its features, says Kristov Atlas, a bitcoin consultant and Darkcoin fan. He argues that its value comes in part from its unique properties as a payment system, not just as an investment vehicle. The currencys first big price jump occurred in late April, for instance, when its Darksend privacy trick was initially switched on for real transactions. Its not purely a speculative bubble, Atlas says. Theres some solid indications the market price is currently based on the fundamental value of the coin.

Darkcoins price may in fact be manipulated by investors, says Allen Price, a trader in the bitcoin alternatives known as altcoins. But he says its already outlasted his expectation that its price growth was caused by a pump-and-dump scam. I had sort of smugly stood to the side waiting for the big, inevitable crash with an I told you so ready, says Price. But no crash ever really came, and its been kind of an ongoing success for investors.

Much of the currencys more recent price increase, says Duffield, may stem from its system of financially rewarding users whose machines serve as the coordinators of its Darksend transactions. Anyone can become make their computer into one of those coordinators, which Duffield calls master nodes, by proving that theyve paid a thousand darkcoins. In exchange, they reap ten percent of all new coins added to the Darkcoin network, which are distributed among the master nodes as an incentive for their work. Duffield says Darkcoiners seeking those rewards created 170 master nodes in the last month, tying up 170,000 darkcoins, a number that significantly decreased the currencys supply and has likely helped raise its price.

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Darkcoin, the Shadowy Cousin of Bitcoin, Is Booming