The Rise of Privacy Coins
The most well-known cryptocurrencies, such as Bitcoin and Ethereum, have immutable and transparent blockchains that allow BTC and ETH transactions to be visible to anyone in the world. It is also possible in some incidences to trace a person’s identity off-screen by investigating the sending and receiving addresses for those transactions. This has led to a rise in popularity of the cryptocurrencies dubbed privacy coins.
What are Privacy Coins?
Privacy coins are a class of cryptocurrency that conceal user identity and all of the information that is normally present in other typical crypto transactions, such as a record of the recipient’s or sender’s addresses, their wallet, and the amount transacted. Due to the high degree of anonymity involved with this type of technology, Privacy Coins have become an extremely contentious topic in the mainstream media.
Privacy coins were brought into the mainstream when rumors first emerged that the wife of a Norwegian millionaire had been abducted and was being held at ransom for almost $10 million, to be paid in a cryptocurrency known as Monero. Many political figures and government officials fear the rise of privacy coins as they may become a new and highly successful medium for criminal activity. However, for thousands of others living in economic instability, privacy coins provide an alternative to traditional currency, which is often at the mercy of capital control measures, which can sometimes restrict the flow of money to quite an extreme degree. Many people wish to maintain the view that the right to privacy is fundamental, and financial privacy and the ability to transact with anonymity is central to the ideological origins of crypto. Privacy coins include Dash, Verge, PIVX, Hush, and, more notably, Zcash and Monero. In this article, we will be discussing the latter two.
Zcash is described as a privacy-protecting digital currency. With Zcash, a user is able to efficiently and safely make transactions and deposits in private with low fees. Users can share transaction addresses and information selectively for auditing or regulatory compliance purposes when they wish to. The science on which the digital currency rests is known as zero-knowledge proofs, specifically called zk-SNARKs (zero-knowledge succinct non-interactive arguments of knowledge). These proofs conceal information about parties and the amount of digital currency involved in transactions while still allowing transaction data be validated. Zcash is an open-source protocol created by a security-specialized engineering team, and is based on Bitcoin Core’s battle-tested codebase. The Zcash protocol itself has undergone security audits and peer reviews from third parties, and was found to be safe in the sense that there were no security issues which allowed for remote code execution or theft of privacy/funds.
Originally launched in April 2014 as BitMonero, Monero (XMR) is a fork of Bytecoin. It is a leading cryptocurrency that enables private and censorship-resistant transactions. Monero transactions are fast, inexpensive, and far-reaching around the globe. When using Monero, a user does not have to be concerned with being at risk of fraudulent chargebacks or experiencing multi-day holding periods.
Monero uses strong cryptography and the CryptoNote open-source protocol, which aims to solve problems identified in the original Bitcoin protocol, such as transaction traceability and irregular emission. Monero transactions conceal data such as sending and receiving addresses, as well as the amount involved in the transaction, making those kinds of transactions completely confidential and untraceable. Every transaction is preprogrammed to automatically obfuscate sending and receiving addresses and amounts when transactions are made. This is done by mixing multiple transactions together to make it appear as though the transaction comes from multiple wallets — including those that are currently offline. Monero is different to Zcash in that a user has a choice between two kinds of transactions, which can either be transparent or normal, or private and shielded.
Risks Associated with Privacy Coins
Both ‘complete anonymity’ and ‘complete transparency’ pose veritable risks to the safety of governments, ordinary citizens, and businesses. Data pertaining to trade secrets, client lists, and business suppliers are at risk of falling prey to hackers, but for some, it is worthwhile to burden that risk if it means that there will be minimal third party intervention in their financial activity. It is too early to say whether the early popularity of Privacy Coins such as Monero and Zcash will prevail, but it is a space to keep a close eye on.
What do you think about Privacy Coins? Join the conversation on our Telegram group: https://t.me/equosio