This comment does seem fairly harsh for something advertised as "a toy." Why would you expect a toy to be state of the art? When I see that phrase, I think of something that is a personal learning experience, might have an interesting idea or two but is not expected to replace anything that already exists.
I expect a toy example to be theoretically sound, but using shortcuts to get a practical realization.
For all the fancy cryptography this uses, I don't see how it provides any more security properties than a central actor having a databases of balances and requiring a cryptographic signature (like RSA, ECDSA etc) to authorize transactions. I don't see an extension path either.
Since the zero-knowledge proof is interactive, I am unsure how the central tracker could even be audited not to spoof transactions.
Read the readme again. The interactive ZKP does not reveal classified information about the actual transaction to the tracker, which is required to authorize it.
In theory, yes, a tracker could be malicious. It could even simply delete its record of all the coins and then refuse all transactions. Or change every coin so it cannot be spent. Actually the one thing it couldn't do is spoof transactions, because it doesn't know the secret key of a single coin it tracks. So it would have to make up a new coin, which would be easily detectable by other trackers because there must be a public consensus on how new coins are created (i.e., their public keys must be prime). So you would, once again, have to compromise every single tracker to spoof a transaction. Then you are right that there is no way to audit, but then you have bigger problems anyway (like people stealing money from exchanges) even before you get there.
Which brings me to the /real/ problem with my implementation, the coins are not worth nearly as much as bitcoin or zerocoin yet :P.
Alice has a secret key. She wants to prove this to Tom the tracker. He issues her a number of challenges until he is convinced she has the key.
Suspicious Simon now wonders if Alice actually had they key. Maybe she didn't and Tom gave her easy challenges? How can Simon be sure Alice has the key?
