Privacy coins that solve Bitcoin’s lack of anonymity form an important class in the crypto ecosystem.


Privacy and was initially one of the most appealing aspects of Bitcoin. But many people aren’t aware that Bitcoin does not provide complete anonymity, it is only pseudonymous. Although BTC addresses don’t need to link up with an identity, all transactions are still recorded and available for anyone to view on the public ledger. This means that wallet balances and all the details of incoming and outgoing transactions are public knowledge.

While this might not be an issue for most people, it can create problems – both on an individual level, making one vulnerable to hacking or unwanted auditing, and for businesses – where it might reveal profit/loss and create unwanted exposure. Although privacy coins are often associated with tax avoidance and the darkweb, for many privacy is just another part of personal of freedom – and so there is a great demand for it.

This is why privacy coins that solve Bitcoin’s lack of anonymity form an important class in the crypto ecosystem. These three coins are at the top of their game when it comes to untraceable transactions:

Monero – The Gold Standard of Privacy Coin

Monero was built around the idea of privacy, and all Monero transactions are private by default. It is the privacy coin with the largest market cap, and the largest trading volume.

As a fork of bytecoin, Monero is based on something called the Cryptonote protocol, which means that the only publicly available knowledge on a transaction is that a change in balance occured. To achieve this Cryptonote uses dummy accounts and fake transactions to mix up the signal when you make a transaction.

The only people who know the origin, destination, and exact amount of the transaction are the senders and receivers – or the owner of the ‘secret view’ key, which allows a third party to view transaction details.

This technology also makes Monero truly fungible. Which is crucial for privacy coins as it means regardless of the previous transactions that unit of Monero was involved in – its history cannot be known. This is unlike bitcoin, which could be traced back to a potentially illegal transaction and blacklisted. As soon as you send Monero from an exchange to your wallet, the funds can no longer be traced.

Dash – The Optional Privacy Coin

Dash (formerly known as DarkCoin) is a fork of bitcoin focused on offering faster and more private transactions.

To achieve this it uses the ‘Private send’ feature, based on the coinjoin protocol. When you make a want to private payment it finds other people who want to make a payment and processes them together. This means that when you make a private payment, it is jumbled up with other payments until the inputs and outputs are indistinguishable and the exact direction of money movement can’t be known.

Although the transaction is still technically public, it is sitting with countless other transactions in a huge pile: This grants very slim chances of successfully tracing a single transaction

Dash has much more going for it than just private transactions, and despite some use of this feature its growth has been mainly driven by instantly confirmed transactions and a smooth user interface. The team aim to make private, fast transactions so simple that ‘even your grandmother would use it.’

ZCash – The New Kid on the Block

ZCash is a fork of bitcoin with additional anonymity features, it uses ‘shielded transactions’ to hide the transactors and amount transferred. The coin enables you to make two types of transactions:

Z transactions are those which have the option of being protected by a zero-knowledge proof called zk-SNARKs. These are a novel form of zero-knowledge cryptography which allows transactions to be fully encrypted on the blockchain, yet still be verified by the network’s consensus rules. Private transactors can also ‘unshield’ their coins to selectively disclose the payment for auditing purposes – like complying with tax regulations.

T transactions – are “transparent” and more similar to bitcoin transactions.

The ZKsnark technology has also caught the attention of Ethereum, who included this cryptographic tool in the Byzantium upgrade, and have since verified private Ethereum transactions on the testnet.

However Zcash has also received criticism for its centralised model of mining and governance, which means the network is more susceptible to an abuse of power by a small number of individuals.

Conclusion

It is arguable which of these coins provides the most privacy, and it largely depends on the needs of the specific transaction. However one thing is for sure, with the growing attention Bitcoin and cryptocurrencies are attracting from governments and banks the future of privacy coins looks brighter than ever.


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