DEFINITION of 'Dark Wallet'

An open source bitcoin platform designed for the sole purpose of protecting users’ privacy. Dark Wallet is a digital wallet that enables data anonymization by obfuscating bitcoin transactions carried out in the online market space.

Dark Wallet was created by Cody Wilson and Amir Taaki. 

BREAKING DOWN 'Dark Wallet'

The advent and increase in the use of bitcoin has sent regulators scurrying to crack down on the subsequent increase in money laundering and black market activities funded by the digital currency. Of note was the 2013 FBI shutdown of Silk Road, an online marketplace popular for its trade in illegal drugs using bitcoin. (See: Why Governments Are Afraid of Bitcoin.)

The problem with bitcoin however, is its high level of transparency visible in transactions conducted online. Every transaction made is usually recorded in a digital public ledger known as a blockchain. As a result, balances and full transaction history can be traced to the bitcoin addresses of users. Users in this case, especially dark web or underground users, who want to remain anonymous, opt for platforms like Dark Wallet.

Dark Wallet is an underground site that needs to be installed in either Chrome or Firefox browser. Once the steps for installation are complete, a new digital wallet will be created with a wallet seed or key, i.e. a password needed to access the wallet. The wallet comes equipped with three pockets – spending, business, and savings – and with no limit to the number of pockets you can create. Each pocket has its own stealth address from which bitcoin transactions can be made.

Dark Wallet offers anonymity and privacy to its users in two ways: stealth addresses and coin mixing.

Stealth Addresses: A user receiving payment from a transaction using the dark wallet application will have a new address generated for the funds to be deposited in. By encrypting the transaction, not even the payer will be able to pull up or track the payee’s address. Most importantly, the payment is hidden from unsolicited parties trying to look into both users’ transaction histories.

Coin Mixing (or CoinJoin): This is a non-traceable feat achieved by mixing or combining a user’s transaction with that of a random user who happens to be making a transaction in the same moment. If the coins were joined with enough bitcoin users in the system, tracing transactions from the ledger would prove to be difficult. Consider the following transactions made at the same time: A purchases an item from B, C purchases an item from D, and E purchases an item from F. The general blockchain ledger, in all its transparency, would record three transactions for each address.

Dark Wallet, however, only records one single transaction by joining them together. The ledger would show that bitcoins were paid from the addresses of A, C, and E to those of B, D, and F. By masking the deals made by all parties, a tracker can’t, with full certainty, determine who sent bitcoins to whom. Coin Mixing is also done when a user is transferring coins from one of his pockets to another. Wilson and Taaki have expressed interest in increasing the number of users whose transactions could join one of these pools; generally, expansions of coin mixing are seen as among the clearest paths to increased anonymity in cryptocurrency trading. 

By encrypting online transactions, critics have raised legitimate concerns that Dark Wallet will open a major door to many illegal and heinous activities including terrorism funding, money laundering, drug trafficking, and child pornography. But legitimate businesses wary of unwelcome government surveillance and data hacks believe Dark Wallet to be a welcome tool for tackling growing issues surrounding data privacy and anonymity.

The first alpha version of DarkWallet was released in May of 2014 and the platform went through a number of updates before an eighth alpha version was released in January, 2015. There have been no further updates and the project doesn't seem to be under further development; however, a number of similar, highly-anonymized competitor wallets have emerged in the years since. 

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