Privacy coins are cryptocurrencies that preserve anonymity by obscuring money flow across their networks. Join us as we walk you through the history of privacy in crypto.
Coins with privacy in crypto constructed on their blockchains have a strong following in the greater cryptocurrency community, even as governments and exchanges try to curb their adoption.
Bitcoin’s pseudonymity was formerly a significant selling point for new users.
However, that anonymity has eroded over time as government regulators, blockchain analytics businesses, and others began to monitor the Bitcoin public blockchain.
To restore equilibrium, numerous developers and organizations strive to increase Bitcoin privacy and make adopting tactics such as CoinJoins and coin burns easier.
However, coins with privacy in crypto built on their blockchains, such as Monero’s XMR, continue to have a strong presence in the greater cryptocurrency ecosystem, even as governments and exchanges try to curb their adoption.
A History of Privacy in Crypto
Bitcoin was introduced as an alternative monetary system to government-controlled currencies.
Unfortunately, because of its pseudonymous nature, some crypto proponents believe it lacks the required privacy safeguards to adequately protect its users, particularly in authoritarian nations that prohibit or suppress the usage of cryptocurrencies.
In some ways, Bitcoin provides less anonymity than fiat currency because it is a public blockchain, meaning anyone with enough resources to perform chain analysis might discover the true identity behind a public address.
Some contentious privacy coins like Monero and Dash rose to prominence to address this issue by allowing users to send and receive money secretly.
Many additional coins with privacy in crypto have subsequently appeared along their journey. But which coin is the most private?
Today, there are so many privacy-focused currencies in the crypto market that it’s challenging to determine which would meet our demands.
It should be noted that privacy coins are increasingly being targeted by global anti-money laundering (AML) regulators due to their capacity to promote money laundering (ML) and terrorism funding (TF), and as a result, many exchanges have delisted them.
When dealing with coins that have privacy in crypto, always exercise caution and observe all applicable local regulations.
Understanding Coins With Privacy in Crypto
Privacy coins are a type of cryptocurrency that enables private and anonymous blockchain transactions by concealing their origins and destinations.
Some strategies employed in these anonymous cryptocurrencies include concealing a user’s genuine wallet balance and address and combining numerous transactions to avoid chain analysis.
In the spirit of openness, Bitcoin and other non-privacy blockchains allow anybody to observe public addresses and transactions on their network, making it easy to follow someone’s inputs and withdrawals.
However, coins with privacy in crypto address two different issues: anonymity and untraceability.
Anonymity conceals the identity of a transaction, and untraceability makes it nearly impossible for third parties to follow the trail of transactions using services like blockchain analysis.
How Coins With Privacy in Crypto Work
Take away the privacy-preserving mechanism; privacy coins are pretty much the same as coins as Bitcoin. They are based on blockchains or decentralized ledgers.
A network of anonymous validators manages them—however, superior privacy measures set privacy coins apart from the rest of the group.
Zcash and Monero are the largest coins with privacy in crypto by market capitalization.
Moving ahead, let us see some of the top privacy coins.
Top Coins that Have Privacy in Crypto
Some of the most popular coins that have privacy in crypto include;
- Monero
- Dash
- Zcash
Monero
Monero (XMR) is widely regarded as the best anonymous cryptocurrency on the market since it employs a robust suite of privacy features such as RingCT, stealth addresses, and Ring signatures to encourage complete anonymity.
Monero’s privacy is so extraordinary that the US Internal Revenue Service (IRS) set a $625,000 incentive for anyone who could breach its anonymity mechanism.
Users must supply more than simply the Monero transaction ID (hash) to check or prove a payment has been made.
Instead, you’ll need the Monero transaction ID, private transaction key (a one-time key produced automatically), and recipient’s public address.
With these three pieces of information, interested parties can check using the Monero GUI wallet.
Monero vs Bitcoin
Aside from using the PoW consensus process, the two are vastly different because Bitcoin is a pseudonymous cryptocurrency. Still, Monero is one of the most private cryptocurrency coins in existence.
Bitcoin mining mostly requires ASICs (application-specific integrated circuits), whereas Monero opposes the usage of ASICs, leaving miners with only CPU mining as a choice.
Also, the dominant cryptocurrency uses the SHA-256 hashing method, whereas the XMR-powered privacy coin system uses RandomX.
Also, the Bitcoin network has a set block size, but Monero uses a configurable block size, which is ideal for occasional transaction volume increases.
Despite this, according to a study, more criminals choose BTC over XMR because it is easier to convert and provides more crypto-to-fiat off-ramps.
Dash
Dash is an anonymous cryptocurrency that originated as a fork of Bitcoin in 2014. The pioneering privacy coin was initially known as XCoin but was later renamed DarkCoin and Dash.
Dash includes optional anonymity features such as PrivateSend, which employs the CoinJoin technique to conceal accurate transaction inputs.
The Dash Core Group (DCG) oversees the development of cryptocurrency and claims that Dash prioritizes usability and user security.
Dash, like a Bitcoin fork, is not natively anonymous. Additionally, Ryan Taylor, CEO of DashPay, believes Dash is not an anonymity-enhanced cryptocurrency (AEC).
As a Bitcoin fork, transaction details such as wallet balances and addresses are publicly viewable on the blockchain unless a user selects the PrivateSend option.
Dash vs Bitcoin
The primary distinction between Dash and Bitcoin is their consensus algorithms.
For example, while both inherently use proof-of-work (PoW), Dash adds an extra layer that hosts master nodes powered by a proof-of-stake (PoS) method.
As a result of its faster transaction speeds and lower transaction costs, Dash may be regarded as the best privacy currency in terms of usability.
Dash employs the InstantSend function, a useful method that permits near-instant transactions.
Bitcoin falls short in terms of privacy compared to Dash, an anonymous cryptocurrency that openly allows its users to choose whether or not to open their transactions to public observation.
Zcash
Firstly, Zcash employs the zk-SNARKs functionality, whereas Monero includes stealth addresses, ring confidential, and ring transactions. Zcash provides optional privacy, whereas Monero transactions are anonymous by default.
Zcash allows users to choose which transactions to hide and which to make public, making it a versatile and anonymous cryptocurrency.
Monero developers, on the other hand, fear that making privacy optional will reduce the private network’s anonymity.
Zcash vs. Bitcoin
Zcash is a Bitcoin clone with additional features, including configurable privacy. Another distinction between Zcash and Bitcoin is the allocation of mining incentives.
For example, although Bitcoin miners receive all the incentives, Zcash previously took a different strategy.
To clarify, 10% of mining incentives used to go to the Electric Coin Company and were distributed among the company’s shareholders to finance future advancements.
However, a halving in November 2020 eliminated the “Founders Reward.” Miners now earn 80% of block rewards, with the remaining 20% distributed to the new Major Grants Funds, ECC, and the Zcash Foundation.
Are Coins With Privacy in Crypto Legal?
Yes and no. The legality of privacy coins varies among different governments.
For example, in South Korea, the government restricts the trading of private coins on the country’s crypto exchanges to limit money laundering.
However, authorities that haven’t prohibited private coins haven’t endorsed them either, which implies their operation utilizes a grey area in a country’s legislation.
For instance, the United States government has gone a different tack on anonymous cryptocurrency, aiming to develop tools to remove the shroud on transactions made on private networks.
Private transactions utilizing coins with privacy in crypto do not inherently promote negative behaviors such as money laundering and terrorism financing.
Some users respect their financial privacy and express their fundamental rights, although the number of government agencies clamping down on untraceable digital currencies is gradually rising.
Interestingly, many well-known persons like Naval Ravikant, Elon Musk, and Edward Snowden continue to advocate for privacy-focused apps.
Watching what actions and suggestions global authorities like the Financial Action Task Force (FATF) bring to privacy coins is vital.
While coins with privacy in crypto are not outlawed yet, they are making life challenging for both countries and exchanges subject to information-sharing requirements owing to rules like the FATF Travel Rule.
Final Thoughts
Cryptography, a core feature of cryptocurrency, is a set of methods and techniques for ensuring safe communication in the presence of outsiders.
As a result, privacy coins play an essential role in the crypto ecosystem, even though their untraceability raises concerns about criminal activity.
Unfortunately, despite estimates that only a tiny percentage of cryptocurrency is used for money laundering, terrorism financing, and other illegal activities, governments worldwide continue to give untraceable and anonymous currencies an unwelcoming stance.
While Monero continues to have the most robust privacy capabilities, Zcash and Dash allow the execution of public transactions using coins with privacy in crypto.