Researchers at Johns Hopkins University are proposing a cryptographic extension to bitcoin that could enable fully anonymous transactions on the network. The extension, called Zerocoin, works – as NewScientist explains it – by “allowing bitcoin users to leave their coins floating on the network for someone else to redeem, on the condition that they can redeem the same amount of bitcoin, similarly left floating on the network, at an arbitrary time in the future.”
“Anyone can put bitcoins in, and anyone else can take one out,” Johns Hopkins researcher Matt Green says. “The anonymity comes from the fact that there will be a lot of people doing this. It makes a pool of hidden coins from which anyone can withdraw.”