When the concept of cryptocurrencies was introduced with Bitcoin, privacy seemed to be one of the main selling points of this new financial technology.
It was widely believed that transactions conducted through Bitcoin were not just anonymous but untraceable as well. This translated into a wider adoption of the cryptocurrency by those who valued liberty and privacy.
These early adopters had libertarian roots and did not want to share their financial information or identities with public authorities.
However, it was soon made clear that Bitcoin transactions, through their public keys, are actually trackable right back to their owners, if people know where to look.
This fact becomes even more relevant when an entity actively starts looking at a specific individual’s transactions.
The information of the user becomes clearer if the individual is using a wallet on a centralized exchange like Coinbase, to conduct transactions.
The transparency of the Bitcoin blockchain lays bare, information that some would prefer to be left concealed.
Furthermore, regulatory bodies and governments continue to emphasize the minimization of anonymity in the industry of cryptocurrencies as a whole.
This was evidenced by the recent actions of the South Korean and Japanese governments. South Korea required banned cryptocurrency traders from using anonymous accounts.
In Japan, increasing regulatory pressure by Japanese authorities led Coincheck to drop privacy coins like Monero, Dash, and Zcash.
To stay compliant, many cryptocurrency exchanges now adhere to Know Your Customer
and Anti Money Laundering laws, requiring users to provide various forms of identification as a part of their registration process.
Therefore, whenever a customer transfers a newly bought cryptocurrency such as Bitcoin to their own address, it is not difficult for the authorities to track who the public address belongs to and where the cryptocurrency went in the first place.
While this method is reportedly mostly used by the Internal Revenue Service (IRS) to track tax evasion practices, the fact that this shatters the notion of privacy always associated with every cryptocurrency is highly significant.
Due to these stringent measures and their subsequent repercussions, individuals who value their privacy, turn towards cryptocurrencies designed with privacy and confidentiality in mind.
These special cryptocurrencies are widely referred to as “privacy coins” due to their focus on this aspect. While the industry is gradually seeing an increase in options being offered within this particular segment, only a few of these privacy coins remain true to their intended purpose.
Today, we are going to discuss three of such private cryptocurrencies, which, through their varied functionalities bring the elusive privacy to their customers in a very effective manner.
Monero is perhaps the best privacy coin on the market. This is not only so because of its functionalities, but also because of its history.
Monero, brings a tried and true approach to the table, as it has been around since 2014.
Monero is based on the protocol of Bytecoin, which itself was considered as the first ever privacy coin.
Monero improved on the functionality of Bytecoin and through various updates over the past few years, has made its overall transaction information to be practically impenetrable. Monero uses Cryptonote in its algorithm.
Monero does not only mask recipient addresses using one time addresses for each transaction but also provides effective solutions to mask sender information as well as any information regarding the amount being sent.
Monero ensures that it can provide its customers with the peace of mind of performing untraceable transactions.
The privacy coin does so, by incorporating features such as Ring Signatures, Stealth Addresses, and RingCT. These features are considered as some of the best solutions when designing for privacy and security.
This privacy coin makes it to where all transactions are always marked private with the option of being semi-transparent upon the choice of the customer.
Monero ensures that it can provide its customers with the peace of mind of performing untraceable transactions, where all of such transactions are always marked as private with the option of being semi-transparent if the customer chooses to do so.
In addition to its strict security integrations, Monero performs fast and cost-effective transactions, making it ideal for carrying out day to day transactions with the core feature of anonymity.
Despite being relatively new to the privacy coin segment, Zcash has proven itself to be quite the solution for its target market, since its inception in 2016.
Developed from the Zerocoin protocol, and improved by the Zcash team, the cryptocurrency now offers its own privacy solution by the name of “zk-SNARKS”.
An integration which uses non-interactive zero-knowledge proofs that require no interaction between the transaction prover and verifier.
By obscuring all relevant information through this functionality, Zcash provides effective privacy-centric solutions to its current and potential user base.
The platform, which markets itself as the “HTTPS layer for blockchain” also uses two addresses for each individual. Where they can use their public address for transactions that are not meant to be confidential and a private address for discrete transactions.
The aforementioned functionality comes in handy because transactions posted through the Zcash blockchain, are optionally private, which means that customers have to select the option to make them confidential, otherwise they go through as regular transactions.
However, the Zcash team plans to update this functionality to make all transactions on the Zcash blockchain private by default to contend with the likes of Monero.
The third coin on this list is Navcoin.
Navcoin is built on the Bitcoin Core codebase, but it has improved the codebase by adding its own privacy options. Navcoin is based on the RSA protocol, making it different from Monero’s Cryptonote and Zcash’s zk-SNARKS.
Navcoin has been in operation since 2014 and is also known for providing faster block times. These block times can be as low as 30 seconds, which is relatively fast. The block time for Monero is 2 minutes, and 2 minutes and 30 seconds for Zcash.
The cryptocurrency brings privacy options in the form of features such as Asymmetric Encryption. In Asymmetric Encryption, it uses public keys to encrypt information but private keys to decrypt them, adding a layer of security between the availability of data to another party.
The transactions on Navcoin are optimally private, meaning that private transactions are processed through the NavTech subchain.
This integration ensures that transactions have broken any traceable links between the address on the main chain and the subchain itself.
The network also plans to upgrade its offerings, making all transactions private, by default.
Privacy coins fulfill a very important use case
Privacy coins are imperative to cryptocurrency users because they keep their information from being disclosed to third parties.
As the cryptocurrency industry is gearing up to face stricter regulations that could end anonymity, at least on the cryptocurrency trading front, the use of these privacy coins can only grow over time.