Privacy is not an option but a fundamental right. It has been one of the major exploited freedoms of the modern political era. The unpredictable interference of the government and centralized authorities is why privacy is necessary for the unmonitored storage or transfer of value.
Based on a decentralized peer-to-peer network – Bitcoin [BTC] was intended to be a payment method for peer-to-peer transactions. Initially, its low fees, near-instant transactions, and anonymous transfers accelerated its usage. The fact that BTC also allowed transactions to be pseudonymous was one of its main calling cards.
Although BTC started off as a digital currency which could be used for anonymous transactions, it has now switched to a trackable space. In a way that forensic tools are now able to identify sources and identities behind transactions on the bitcoin blockchain.
Which is why purchasing cryptocurrencies from exchanges that store your personal details for KYC purposes can trace transactions to and from your associated crypto wallet address.
To tackle this not-so-private feature of bitcoin, private cryptocurrencies have emerged in the crypto landscape. Some major projects that are trying to focus on privacy in the sphere of crypto assets are Monero, Zcash, DASH, PivX, Cloakcoin and more.
Let’s understand how privacy coins work and which ones make it to the list of best private coins for anonymous transactions.
Blockchain-based cryptocurrencies offer anonymity only to an extent for users as they operate under pseudonyms. Irrespective of the unidentified userbase the framework does not provide enough privacy. Cryptocurrency transactions are easily traced back to users if the project is not built keeping security and privacy as their priority. Here’s where privacy coins play their role by introducing incognito transactions.
In privacy based coins/tokens, addresses of the sender and the receiver along with the transaction amounts are private on the ledger. This means that balances for wallets are also private and cannot be viewed publicly. The method used to make transactions and identities private varies from coin to coin.
Here’s my personal study on the top 3 coins that are great at keeping transactions anonymous.
Monero is one of the popular privacy coins in the market. Its privacy features do not allow any personal information of the user to be viewed publicly. The cryptographic nature, solves the security-related issues of payments and is the major reason for its widespread adoption on the darknet.
Monero processes transactions privately using a method called as ‘Ring Confidential Transactions’. The integration of this technique into cryptocurrencies is a milestone for the Monero community. Individuals and institutions who receive or send XMR can keep their net worth hidden and no information of theirs will be displayed on the Monero blockchain.
According to the Monero Whitepaper, this is what their transaction model looks like:
Monero Whitepaper || Photo Credits: Monero
Monero stands out because of its CryptoNote implementation, a transactional process that has been in the industry since 2001 and has received significant peer-review around its functionality.
Some of the features that makes Monero a notable privacy coin is its Ring signature, Stealth addresses, Limited supply, Public view-key, and built-in Scalability.
Zcash makes it to the list of most trusted privacy coins. It is, however, important to note that Zcash does not provide the privacy feature by default. It has a special feature which is known as ‘Z address’ that is used for anonymous transactions.
Zcash Whitepaper || Photo Credits: Zcash
Currently, the Zcash Protocol provides two types of addresses, one being the transparent: T-addr and the other being shielded address: z-addr. Transparent addresses are like public addresses of Bitcoin and have similar functioning. All the transactions made interact with a ‘Transparent Value Pool’ [TVP]. This is the pool that reveals data publicly and can be viewed on the blockchain.
The primary feature Zcash utilises to keep its transactions private is Zk-SNARKS [Zero-knowledge Succinct Non-Interactive Argument of Knowledge]. zk-SNARKS monitor the private transactions processed through Zcash, it checks if the addresses exist and that the sender of the funds has enough balance to settle the transaction.
After the monitoring, the transacted amount of funds are “burned”. It is then replaced for a figurative IOU [I owe you] statement, which further creates new coins for the recipient. This entire transaction is encrypted and is not trackable under any circumstance.
Dash is inspired by Satoshi’s idea for Bitcoin with a blend of Proof-of-Stake consensus and MasterNodes. The Dash network uses DASH as its native cryptocurrency which offers private and instant transactions as one of its features. Functionalities that keeps Dash as a unique project are Masternodes, PrivateSend, InstantSend and Decentralized Governance by Blockchain [DGBB].
The computation of nodes are the backbone of the blockchain industry, Bitcoin, Ethereum and most of the cryptocurrencies rely on its functioning. The nodes Dash utilizes is one of the vital players of Dash’s ecosystem, the architecture of the Dash network involves the use of a series of master nodes.
The feature that bolsters Dash’s privacy is a better-developed version of CoinJoin which is an anonymization method for transacting funds.
CoinJoin || Source: Wikipedia
This feature increases user privacy by combining multiple payments from multiple spenders into one unified transaction, which then makes it more difficult for third parties to accurately determine which spender paid which recipient.
Conclusion: Some investors find it reasonable to keep their investments, expenses, as well as, portfolio values trackable while some investors may be sceptical of publicizing their virtual net worth. It is necessary to understand that privacy coins even though are majorly used for illegal dark web activities still hold value as a virtual currency. This particular value can be used for ethical untraceable transactions too. In cryptocurrencies, owners hold the option of making transactions public or keeping them private for whatsoever reason they may have.
Disclaimer note: The views expressed here are the author’s own and do not necessarily represent the views of TheFirstBlock