One of the major strengths of cryptocurrencies is the degree of anonymity they provide. Many cryptocurrency enthusiasts feel that many popular cryptocurrencies such as Bitcoin lack true privacy.
What are the private digital currencies?
Private cryptocurrencies obscure information about their users, including identities and transaction information. Contrary to popular belief, the popular cryptocurrency Bitcoin is not anonymous. It is in fact one of the most transparent ways to send money as all transaction records are stored in a public blockchain that can be viewed by everyone.
It’s true that people won’t be able to see your name, but they can see your public address.
Privacy coins hide any information that could link an individual to a transaction, and while all privacy coins aim to provide this level of privacy, some differ in their degree of anonymity.
How private coins provide privacy:
- there are those who focus on anonymity by concealing and mixing identity;
- others focus on denial of traceability to prevent people or computer systems from tracking transactions.
CoinJoin
One very popular option for cryptocurrency anonymity is coin mixer or CoinJoin. It is a program that combines multiple transactions to create a single transaction. Then, it breaks down that individual transaction to send the relevant amounts to each recipient. In other words, the cryptocurrency each recipient gets will be from a group of senders instead of one. Currency mixers are not completely anonymous, but they are more complex to track and separate transactions.
Who uses privacy coins?
A common criticism of privacy coins is that they are attractive tools for criminals. Critics argue that privacy coins make it easier to fund terrorism, launder money, or manage money for other illegal activities. However, there are many reasons why someone would simply want to keep their transactions private.
Private coins and legal regulations
Privacy laws for cryptocurrencies vary by country, as they do for any other cryptocurrency. Some states ban it outright, while others leave it in a legal gray area. South Korea and Japan, for example, have decided to make it illegal to use and possess privacy coins. In the US, private coins are technically legal, but regulators are working on ways to exploit information kept in the dark. However, if you are trying to buy private coins from popular US exchanges like Coinbase, you will find yourself in the spotlight.
Most popular privacy coins:
- Beam: this currency makes transactions addressless.
- Dash: it gives users the option of whether they want the transaction to be public or private.
- Monero: it relies on stealth addresses and ring signatures to hide everything from sender and recipient addresses to the entire transaction amount.
- Verge: it aims for privacy over I2P and TOR, as these protocols encrypt data. After encryption, TOR sends the communications to a distributed network run by volunteers. This combination completely hides IP addresses for untraceable transactions.
- Zcash: it relies on the zk-SNARKs protocol to hide personal and confidential data, such as cryptocurrency addresses and transaction amount.
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