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Privacy-Enhancing Technology

The UTXO Model

When you think about how your bank does the accounting for your bank account, it is pretty intuitive. You hold a certain amount of funds in your account, which has an account number. If you receive an incoming transaction, the amount is added to your balance. If you spend money, then the amount you spend gets subtracted from your balance. With cryptocurrencies, the accounting works a little different.

The blockchain does not create an “account” for you to maintain a balance. There is no final balance stored on the ledger. The blockchain only stores individual transactions, and to check your balance, there is an additional step involved. For this step, you are going to use your wallet, which does this automatically whenever you open it and it shows you your balance, or you can do it manually using the block explorer. What happens in the background when you use either of these tools is that they search the ledger for all transactions that involve your address(es). The wallet (or explorer) then adds all incoming transactions together and subtracts all outgoing transactions to derive your current balance.

Balance construction from UTXOsBalance construction from UTXOs

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Zero-Knowledge Proofs

Zero-Knowledge Proofs (zk-Proofs) were known long before blockchain technology emerged, but with distributed ledgers, a whole new set of possible use-cases came around.
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Blockchain Elements

A hash function is a mathematical function with a few special properties, but like any other function, it does one job. The hash function takes an input and produces an output (also called hash value, hash digest or a hash).
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Why Privacy

According to Wikipedia, “The nothing to hide argument states that government surveillance programs do not threaten privacy unless they uncover illegal activities and that if they do uncover illegal activities, the person committing these activities does not have the right to keep them private. Hence, a person who favours this argument may state “I’ve got nothing to hide” and therefore does not express opposition to government surveillance. An individual using this argument may say that a person should not worry about government or surveillance if he/she has “nothing to hide.”
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