Using bitcoin while protecting one's own privacy is a challenge, with no perfect solution currently offered in the market. Shinobi provides bitcoin users with much stronger privacy protection than ever before.
How Privacy is Undermined on the Bitcoin Blockchain
Bitcoin is a wonderful innovation that enables transactions to take place without relying on specific entities. However, its open and decentralized nature opens it up to various challenges in terms of privacy protection.
Every bitcoin has its transaction record disclosed to the public. Everyone on the network - not just the original owner of the coin - can identify when it was mined, and how/when it has ended up on the most recent address, etc. When one sends/receives bitcoin, its history will be updated with the new transaction data.
Additionally, a sender can track subsequent additions to the coin's transaction history. If someone has tied a person's real identity to their bitcoin address, they would be able to discover how many bitcoins the person owns, their transaction history, and potentially, the nature of those transactions.
Alice works at a coffee shop and receives her salary in bitcoin from Bob, the cafe owner. Alice has let Bob know her bitcoin address so he could send bitcoin to her, and as a result, he knows the address is hers. Here, Alice is thinking about buying Bob a surprise present - a clothe she found at Bob's favorite clothing store - with the bitcoin she's earned, and would like to keep her purchase a secret. Bob has bought some clothes at the store using bitcoin in the past, so he recognizes the store's bitcoin address. If Alice bought clothes there with bitcoin, Bob would be able to see that she has used bitcoin at the store, which undermines the whole purpose of Alice surprising Bob with a gift.
Of course, one has the right to keep how they spend their money private in all aspects of their financial life - whether they are saving, going for a trip, or spending money for more private purposes that they would rather others not know about.
In addition, it is important that the amount of bitcoin one owns remain private to ensure secure ownership of bitcoin as an asset. If one's bitcoin holdings are relatively large, someone might take note and decide to threaten that person to send bitcoin to their address. You can learn more about how this type of attack works in the following article: How to Protect Your Bitcoin from $5 Wrench Attacks
CoinJoin: Traditional Privacy Solution for Bitcoin
CoinJoin has been used as a way to protect privacy against the kinds of issues we have described above. It is a mechanism by which users take their coins and mix them together before redistributing them to the network.
CoinJoin allows for securing privacy in terms of the new transaction history that will be added to an existing coin.
In other words, Alice can now obfuscate the trace of her bitcoin by shuffling it with other users' bitcoin, with Bob unable to keep track of the bitcoin he has paid to her.
However, CoinJoin leaves a trace to the coin that basically says, "the transaction has been sent through CoinJoin." This means that the "attempt to protect privacy" will be recorded on the blockchain, making CoinJoin unsuited for those users who like to keep private the fact that they have tried to secure their privacy in the first place.
With CoinJoin, Alice could keep her having purchased a cloth at Bob's favorite clothing store unknown to him, but he would still be able to see her preference to keep that particular transaction private.
How Shinobi Protects User's Privacy
Shinobi provides a gateway - Shinobi Gateway - through which one can transfer bitcoin between the public Bitcoin blockchain and the private blockchain provided by Secret Network.
Specifically, Shinobi Gateway leverages the following key features to offer unique and robust privacy protection.
SBTC Private Transactions
When bitcoin is sent through Shinobi Gateway to Secret Network, it gets converted into Secret Bitcoin (SBTC), a token with strong privacy features built on Secret Network. Since the network is secure and private, one can send, receive, and hold the token privately.
Put another way, going through Shinobi Gateway and entering Secret Network enables one to operate in complete privacy.
Private Gateway Traffic
As you recall, in CoinJoin the fact that a person has used the mechanism will itself become out in the open, with that person's attempt to protect their privacy known to the public.
On the other hand, Shinobi Gateway keeps private not just the data within the system - the gateway also keeps "bitcoin having passed through it" (i.e., the fact that BTC was converted into SBTC and vice versa) hidden from public eyes.
Additionally, Shinobi Gateway takes one's bitcoin along with others' and shuffles them together, just like in CoinJoin. Once sent to the gateway and then taken outside of it, one's bitcoin will have had its transaction history completely changed, ensuring privacy of the token after it was converted back into a "different" bitcoin through the gateway.
Even if one were to convert BTC into SBTC (or vice versa) and send it to someone else, the person who has initially sent the converter the BTC has no way to know when it has changed hands or whether you are retaining ownership at all.
When Alice Meets Shinobi
Alice has decided to give Shinobi a go instead of CoinJoin - she sent her salary in BTC to Shinobi Gateway to convert it into SBTC, before having it sent past the gateway to obtain BTC. Now she has succeeded in abandoning ownership of the original bitcoin sent from Bob without him recognizing it, with the exact same amount of bitcoin that has a completely different transaction history sitting pretty in her wallet!