What Is Bytecoin?
Bytecoin is an untraceable cryptocurrency that uses CryptoNote ring signatures to provide anonymous transactions. As a primarily peer-to-peer (p2p) payment system, Bytecoin has many of the same use-cases as Bitcoin.
Created in 2012, Bytecoin is one of the earliest developed cryptocurrencies. Until recently, the team behind the coin has kept themselves anonymous. Now, though, they’ve opened up multiple communication channels, removed some layers of anonymity, and even built several local communities.
The coin has a deep history with Monero, another popular privacy coin and fork of Bytecoin.
How Does Bytecoin Work?
With a similar functioning coin, the Bytecoin team is working to improve on many of the issues that have surfaced within Bitcoin – specifically the one’s surrounding privacy. Beyond that, the team is hoping to make the coin more scalable and flexible to the ever-changing financial atmosphere.
Bitcoin transactions are on a public ledger giving you the ability to easily track transfers between wallets. The only way to keep your transaction anonymous is by using a trusted third-party tumbler to mix transactions. Although there are plans to improve Bitcoin’s privacy functionality, they seem to still be a ways away.
Bytecoin in based on CryptoNote to keep your transactions untraceable and unlinkable. Each transaction uses a one-time public key even if there are multiple transactions with the same recipient. Inherently, this eliminates the problem of address re-use and decreases the traceability of transactions.
To eliminate the linkability between transactions and transaction participants, Bytecoin utilizes one-time ring signatures. In a ring signature, your signature to send funds mixes with other possible accounts on the network.
You’re in control of your ring signature’s level of anonymity. As you include more inputs, your transaction becomes more obscure, but you also have to pay higher transaction fees.
Bitcoin’s PoW consensus algorithm heavily favors miners that use powerful GPU and ASIC machines over those trying to mine with CPUs. This causes the network to centralize around the more powerful miners.
Bytecoin attempts to close the gap between these two classes of miners with a new algorithm, Egalitarian Proof-of-Work (PoW).
Egalitarian PoW uses a version of skrypt, a proof of work function similar to the hashcash function used by Bitcoin. The difference between the two is that skrypt isn’t memory bound. Because of this, you can cheaply produce highly efficient CPU mining rigs. GPUs will always be about 10 times more effective, though.
The skrypt function helps to balance the power dynamic because expensive GPUs can only be linearly better than their CPU counterparts – not exponentially as they previously have been.
Bitcoin’s mining rewards are halved about every 4 years. In the past, this has caused a sharp decline in the network hashrate immediately after it occurred. With a lower hashrate, the network is more susceptible to malicious activity like double-spending attacks.
Bytecoin decreases the block reward with each block. This allows for a smoother decrease in block rewards than the piecewise function that Bitcoin uses.
The reward follows the equation:
BaseReward = (MSupply – A) / 218
MSupply is equal to (2^64) – 1 atomic unit, the smallest divisible unit of BCN. A is the number of coins that were previously generated.
Unfortunately, because Bytecoin has existed for so long, it may not be as worthwhile to mine as other PoW coins. Over 99% of the coins are already in circulation.
Bitcoin has several hard-coded constants in its source code that you can’t easily change. In a constantly changing world where it’s nearly impossible to predict the future needs of the system, this poses a problem. We’ve already seen an example of this in the great block size debate.
The Bytecoin team has specified three parameters that they’ve added flexibility to:
- Size limits
- Excess size penalty
The mining difficulty changes with each Bytecoin block as the network hashrate increases and decreases. This keeps a constant block rate even when the system traffic spikes or has a sharp drop in the number of miners.
Every Bytecoin user is able to vote for the size of the blockchain, and each miner sets his/her own soft-limit for the size of the blocks that they mine. The hard limit of block sizes is set at twice the median of all previous blocks. These limits leave room for the blocks to grow, if necessary, as the network grows.
Transaction sizes aren’t limited as long as you’re willing to pay the fee associated with them.
To prevent miners from creating block sizes that are too large and bloat the blockchain, Bytecoin introduces an excess size penalty. The penalty decreases the block reward of large blocks with the following equation:
NewReward = BaseReward * ( ( Block size / MN ) – 1 ) ^ 2
Where MN is the median block size of the previous blocks. Not the simplest equation, but it does the job.
Bytecoin Team & Progress
The Bytecoin project has been fairly fractured since its inception in July 2012. Previously, several isolated teams worked on the project without seemingly communicating with each other. This led to numerous forks and versions of the coin.
In July 2017, the team decided to change their image and provide more transparency to the community. The team still remains pseudo-anonymous by only providing names and headshots on their webpage – no bios or social media links. But, it’s tough to expect more from a project that’s focused on privacy.
UPDATE: The website no longer lists any team members. However, it does include a contact page with several means of communication including the email and name of the community manager.
At the beginning of 2018, the team was busy at work refactoring their code and released a new public API in March 2018. Continuing to hit their project milestones, the team also entered the Asian market in Q1 of 2018. It appears as if entrance into the Middle East and African markets have been slightly delayed.