This article is our ultimate guide to privacy coins, and outlines some of the best privacy coins on the market right now.
One of the most appealing features of cryptocurrency is its ability to create a decentralized monetary system. This is in stark contrast to the current system, which is assumed by big banks and centralized governments. The thinking here is that the financial platform should be transparent and free, which can be done through the power of cryptographic technologies.
Of course, the technology that makes this a reality is called blockchain. Its encryption capabilities create higher degrees of privacy and security, which is both a good and bad thing. For instance, anonymity and privacy are two very appealing features for hackers, criminals, and those
Unfortunately, this became the prevailing argument against Bitcoin and cryptocurrencies in general. However, it’s important to keep in mind that wanting anonymity and privacy should not automatically label you a criminal. It only means that you want control over your own privacy. Cryptocurrencies offer a method through which users can exercise their privacy rights.
The Nature of Blockchain
Because of the permanency associated with blockchain, if your true identity is connected to a wallet address at any point, your entire history of transactions is available to the public.
This is such a concern, that there are large companies which dedicate resources to public blockchain analysis. The purpose of these resources is to find and track tax evaders or those involved with other criminal activities.
Other cryptocurrencies want to solve this problem. They aim to create more secure levels of identity protection and privacy based on the sensitivity of the transaction type. For example, Bitcoin tries to keep blockchain integrity by making every address and transaction visible to everyone.
This type of integrity is the inherent trustless philosophy which resides within all cryptocurrencies.
The problem is that visibility has a cost: user privacy. Even though many cryptocurrencies have the ability to hide the identity of an individual, their holdings stored on the blockchain are not completely anonymous. However, when you lose your anonymity, your entire transaction history is visible.
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Bitcoin – along with other cryptocurrencies – offer a pseudo-anonymity that keeps them from having a fundamental feature which fiat currencies possess: fungibility.
What is Fungibility?
In simple economics, a unit which is fungible is an asset that is interchangeable. For example, the fungibility of the U.S. dollar means that a dollar is a dollar. Physical cash gives people the opportunity to perform transactions with a modicum of privacy.
Trading by using cash gives users the ability to hide information which they may not want the rest of the world to know about. That doesn’t necessarily mean that they want privacy for nefarious reasons. It could be something as a gift for your spouse you don’t want appearing on your bank statement.
Fungibility means people can have protection from unwanted scrutiny. If someone makes a donation to a controversial cause, they may not want others to know about it. This could something as simple as donating to one political party versus another, or donating to a group that family and friends don’t agree with.
Conversely, Bitcoin, and other digital currencies like it, are open to becoming tainted based on its transaction history. So if a Bitcoin becomes associated with a drug dealer using it to launder sales, those coins are forever associated with that transaction. This makes the coin worth less than other untainted ones.
The idea that a currency can be worth less based on its past use may sound absurd, after all, do you care where that $100 bill came from? However, there are reports that CoinDesk and other exchanges have started to implement policies which are cracking down on accepting coins with questionable histories.
Privacy Coin Benefits
The primary purpose of a privacy coin is to restore fungibility. This would put cryptocurrencies on the same footing as cash. With sophisticated algorithms, these digital currencies mix transactions together so that they are too expensive or impossible to track.
The result is that if you want to use a private coin for a transaction, you’ll have the same anonymity and privacy that cash provides.
There are more benefits than just fungibility that privacy coins give. These digital coins offer a benefit that is unique to the blockchain as well. While Coinbase and similar cryptocurrency marketplaces become more focused on the history of certain coins, privacy-based coins will never have this problem. They simply cannot become “tainted” in the first place.
Privacy Coin Drawbacks
Of course, there are drawbacks and suspicions associated with privacy coins as well. Regulators and officials often have a poor perspective of privacy coins. This is especially true in Asian countries.
Many exchanges located on the continent of Asia have completely stopped trading in privacy coins like Monero, Dash, and Zcash. Due to the amount of time it takes to handle digital currencies which allow for anonymity, these exchanges feel it makes sense to use their resources in other areas.
Similarly, Europe as noticed an emergence in organized crime as criminals make use of privacy coins online. Many digital currencies are starting to show up in underground markets. These include Zcash and Monero, which are more appealing to criminals who wish to operate with more anonymity than other coins provide.
Best Privacy Coins
Now that we’ve covered some of the reasons people may or may not agree with privacy coins, along with some of their benefits and drawbacks, let’s visit some of the more popular ones available on many exchanges.
If you’re looking for complete privacy with a cryptocurrency, then Monero is what you want. It is without a doubt one of, if not the best cryptocurrency for keeping transactions private.
In a typical blockchain, users can always see the amount of currency that is moving. However, that is not the case when using Monero. This digital currency is so protective of user anonymity, that you are unable to view how much is transferring between users.
Alphabay is a perfect example. Arguably the world’s largest dark web market was shut down by the United States in July of 2017. The US government determined that the owner of Alphaba had Monero assets. The problem was determining how much.
Unfortunately, law enforcement agencies were unable to ascertain just how much Monero was in play due to its complete and total privacy. Other cryptocurrencies were easily seized or frozen, however, the amount of Monero the owner of Alphabay has is still a mystery.
Monero employes complex cryptographic methodologies such as Kovri, RingCT, Ring Signatures, and Stealth Addresses. All of these serve to protect the privacy of anyone who chooses to use Monero. Additionally, the coin was not pre-mined during its ICO, which creates another level of security to this digital currency.
The downside, however, is that transaction sizes are mammoth. Primarily due to the complex cryptographic algorithms, Monero transactions are much larger than Bitcoin’s. Therefore, each Monero transaction takes much longer than users experience with other cryptocurrencies. Some users aren’t willing to put up with it.
On the other hand, there are still plenty of users who don’t mind waiting a little longer so that they have their security and privacy. When users begin to realize the importance of privacy and anonymity, there is a strong possibility this coin could see serious growth.
More than likely you’ve heard of Dash. This cryptocurrency exploded in 2017 and claims that it is a completely private digital currency. Even with this statement, there is one very important reason to include Dash on a list of privacy coins: PrivateSend.
Dash uses what is a basic privacy feature with its coins, but refers to it as PrivateSend. This feature is a basic form of a coin mixing algorithm which is managed by the master node on the Dash network.
The challenge with this type of privacy is that if enough time is spent analyzing the transaction, the receiver and sender can be determined through metadata information. From a purely technical perspective, this kind of implementation does offer users some level of privacy and anonymity. However, users should keep in mind that it is limited.
It’s important that users remember that Dash doesn’t offer the privacy and security features that other high-end cryptocurrencies provide. What it does not mean is that Dash is not a solid digital currency. The overarching theme with Dash privacy is that it has room for improvement.
Other aspects of Dash make future of the cryptocurrency quite promising. Unfortunately, its largest area of potential happens to be in anonymity. This is especially true considering how widely used and popular Dash is.
One of the most overlooked and underrated coins that offer complete anonymity is NAV Coin. This is primarily due to the face that even though the digital currency is simple and precise the coin has some challenges with decentralization.
Most other cryptocurrencies that make a priority of anonymity use cryptography. NAV Coin, however, uses very complicated techniques which focus on obfuscation. Add on top of this an additional sub-blockchain used to grant users their privacy, which runs parallel to the primary blockchain.
Using these types of techniques for anonymity make textual and binary data complete unrecognizable, not to mention difficult to decode. This is where NAV Coin uses servers, which aren’t distributed. Therefore, the cryptocurrency is not completely decentralized, which means it could become compromised if there are attacks on its servers.
The NAV team is, however, working tirelessly to determine a method through which the NAV servers can be used in the full node. This would establish a fully validated block which would give NAV coin both the decentralization and distributed technologies needed to become a private and secure cryptocurrency.
Another digital currency making noise in the world of anonymity and privacy in Zcash. The cryptocurrency offers its zk-SNARK protocol. This zero-knowledge proofs protocol aims to make Zcash more private and secure.
However, the zk-SNARK protocol comes with a very large problem. Any user who wants to have total privacy will need to have 4GB of RAM at the minimum. This has the potential to create a very large barrier to Zcash becoming a highly used cryptocurrency for privacy and anonymity.
Fortunately, Zcash is focusing heavily on making improvements to its zk-SNARK protocol. Once it does, Zcash will instantly become one of the most private and secure digital currencies available on the market. For the time being, keep an eye on Zcash and its zk-SNARK protocol.
Following in the same vein as Zcash, Komodo is an additional digital currency which uses the zk-SNARK protocol to help make it completely anonymous. Komodo is not a very well-known cryptocurrency which forked from Zcash.
However, Komodo chose to implement an improved proof algorithm to provide better security for its users. This made the coin an even more privacy-centered option than before. Unfortunately, Komodo has discovered many of the same challenges that Zcash has. Using the zk-SNARK protocol means users must have the necessary RAM.
Just like Zcash though, the Komodo team is working hard to find a realistic solution to this problem as quickly as possible. The privacy goals for Komodo are focused on decentralization as well as the ability to perform cross-blockchain trading.
While there is work to be done to make Komodo a more secure and private coin, it is a coin worth tracking. The development team has some large challenges ahead as it tackles difficult areas. However, if they are successful, you may be hearing more about Komodo.
PIVX is a coin which uses the Zerocoin protocol. This protocol gives PIVX an edge over other cryptocurrencies when it comes to privacy and security. This coin is the first to make use of proof of stake in its platform.
Simply put, the Zerocoin protocol provides custom enhancements. These enhancements improve the blockchain transactions through what PIVX calls “unlinkability.” This means it is impossible to establish a link with an entity.
PIVX accomplishes this by mixing services. These services use the proofs as a way to cut out the link between the receiver and the sender of PIVX. Therefore, you have effectively been given complete and total anonymity.
As a result, each and every coin which goes through the PIVX platform is free from transaction history. Therefore, PIVX is 100% fungible. While PIVX is still a fairly new platform and its implementation of Zerocoin will see challenges along the way, it is still a solid cryptocurrency for privacy.
Zcoin is another cryptocurrency employing the Zerocoin protocol to achieve privacy and anonymity for its users. The Zerocoin protocol is an awesome method through cryptography which grants the cryptocurrency itself more security.
While the Zcoin project is unique and interesting, especially when compares to other digital currencies, there are a few items which make it less appealing. For example, Zcoin uses what it calls its “Trusted Setup.”
This setup was put in place at the beginning of the project. Essentially, users have to select a certain group of people which set parameters in a certain way. This is to ensure that everything is fair for everyone who participates in the Zcoin project.
The drawback here is that if anyone within the group wants to corrupt the project, then the potential arises for that person to have the ability to print Zcoins out of thin air. Additionally, there would be no accountability for said person.
Fortunately, Zcoin agrees that this is a significant drawback to the project which can create unnecessary issues and headaches. The development team plans to remove the Trusted Setup functionality in the near future. Once that happens, Zcoin will become a very private and secure digital currency.
Horizen was formally known as ZenCash is yet another cryptocurrency that uses the zk-SNARK protocol. Another fork of Zcash, Horizen employs this protocol to provide anonymity to its users. The coin also uses the Trusted Setup similar to the one that Zcoin has in place. Of course, this means that Horizen will need to eliminate this feature in the future.
Just you’ll find with Komodo and Zcash, Horizen users have to meet the requirement for a minimum amount of dedicated RAM. This is needed in order to send transactions which are completely private. Even though 64-bit operating systems have pulled this requirement down to 3.2 gigabytes, it’s still something that will need the proper attention in the future.
Horizen , however, isn’t focusing their development efforts on these issues. Instead, they are targeting a way to construct wallets which are always running on secure nodes. This, in turn, allows users to gain anonymity through their own private nodes.
While the idea is intriguing and has merit, keeping a server node up full-time is somewhat of a challenge. As this type of technology continues to expand and grow, this might be something that is simpler to accomplish.
Last, but not least on our list of anonymous cryptocurrencies, is Verge. This unique cryptocurrency achieves anonymity in an unusual way. Instead of using cryptography to achieve privacy, Verge uses the I2P and Tor networks to gain complete security.
Verge, previously DogeCoinDark, launched in 2014. The thinking behind the coin was to establish a currency which was based on Dogecoin, but with additional security features. The cryptocurrency rebranded itself as Verge in 2016.
By making use of the anonymity-centric I2P and Tor networks, Verge can offer shielding from web tracking and cookies. Therefore, it becomes very difficult for transactions to be linked with users. The blockchain stays public since Verge developers are of the belief that its users still need to be able to access it. This gives them the ability to validate and verify sent and received transactions.
The Importance of Privacy
Of course, the existence of all these privacy coins begs the question, why is privacy important? The answer to this question is both simple and elaborate. Those that want privacy don’t always have something they want to hide or for some nefarious purpose.
First and foremost, privacy is all about freedom. Privacy belongs in the same family with other freedoms such as freedom of speech and thought. One of the great things about privacy is that it allows us the ability to have control and autonomy over our own lives. It’s difficult to have privacy as others make decisions for use without our awareness.
Another important part of privacy, and perhaps the reason for the existence of privacy coins, is trust. Privacy coins want to create an alternative to the centralization of government-backed currencies. Hackers can corrupt and manipulate current systems to take advantage of those not familiar with its loopholes.
Technology provides privacy to users, but in many ways can strip it away, too. Digital currencies want to provide protection, anonymity, and security to its users. Paying for something without being tracked doesn’t mean you’re up to no good. It simply means you want to have control over the privacy of your transactions.
The potential of fungibility makes many privacy coins an enticing option. This is even more so in a community shaped by the ideals of crypto-anarchists and like-minded individuals. Giving users the ability to make private and anonymous transactions lets law-abiding cryptocurrency holders perform tasks just as though they were using cash.
Of course, the promise of anonymity makes these digital currencies appealing to criminals as well. It can be difficult to move cash in large quantities, however, moving a lot of cryptocurrency is as simple as clicking on the “Send” button. Privacy coin adoption isn’t widespread yet, but that doesn’t mean law enforcement and regulators don’t have reasons to worry.
Ultimately, it will be up to those entrenched in the crypto communicate to ease the fears of regulators and those hoping to manage privacy coins. Some countries have already banned privacy coins, which shows that there is still a lot of work to do in this area.
However, the fact that New York accepts ZCash trading means that there are areas in which privacy coins can survive and thrive. These coins don’t have to be relegated to criminals but can be used by those who simply want to use their cryptocurrency in much the same manner they use their cash.