In the rapidly evolving landscape of cryptos, where innovation knows no bounds, a fascinating subset has emerged, commanding attention and raising intriguing questions: Crypto privacy coins. As the name suggests, these cryptos offer a distinct level of privacy and anonymity, setting them apart from mainstream cryptos like Bitcoin and Ethereum. But what exactly are privacy coins, and are they legal in India?

Let’s find out in this blog and have a brief overview of crypto privacy coins.

What are Privacy Coins?

By hiding the source and destination of each transaction, a class of crypto known as privacy coins allows for private and anonymous blockchain transactions. These anonymous Cryptos use various techniques, such as masking the balance and address of the user’s crypto wallet and merging several transactions to prevent chain analysis.

Talking about transparency, it is quite simple to follow someone’s deposits and withdrawals, as Bitcoin and other non-privacy blockchains allow anybody to view public addresses and transactions on their network.

However, Privacy Coins have different aspects of anonymity and untraceability. While anonymity hides the identity behind a transaction, untraceability makes it nearly impossible for third parties to follow the trail of transactions using tools like blockchain analysis.

How Do Privacy Coins Work?

By blending various methods, Privacy Coins grant users anonymity and privacy. While these methods can effectively shield your identity and transaction history on the blockchain, it’s important to remember they’re not foolproof and might not ensure complete anonymity. Consequently, it’s wise to use Privacy Coins for legitimate reasons, as improper usage could still lead law authorities to identify you.

The first technique Privacy Coins commonly employs is “Mixing.” This involves disrupting the connection between the sender and receiver of a transaction by employing a third-party service (often called a “mixer,” like Tornado Cash). Instead of sending a cryptocurrency directly to another user, you route it through the mixing service, which operates through smart contracts. The mixing service uses various tactics to break the link between the sender and receiver, such as blending the coins with those in its own pools of money or using multiple intermediary addresses. As a result, pinpointing the original sender or receiver of the transaction becomes quite challenging.

Another popular method among Privacy Coins is the use of “Stealth addresses.” These are one-time addresses generated for each transaction. The transaction recipient creates a stealth address, which is independent and unlinked from their regular address. This stealth address can receive any type of coin, making it difficult for anyone to trace the transaction back to the recipient.

Besides mixing and stealth addresses, privacy platforms can leverage techniques like “ring signatures” and “zero-knowledge proofs” to ensure user anonymity. Ring signatures make it tough to identify which user within a group executed a specific transaction by allowing multiple users to share an address. While keeping your identity and transaction details hidden, zero-knowledge proofs enable you to prove the truth of a statement without revealing any additional information about it.

Are Privacy Coins Legal in India?

In the intricate world of cryptocurrencies, privacy coins have emerged as a thought-provoking subset, offering heightened anonymity and transaction confidentiality. However, their legality in India remains an enigmatic subject. India’s perspective on cryptocurrencies has been under the spotlight due to a potential cryptocurrency law that might allow only a few cryptocurrencies to operate within the country. This raises intriguing questions about the future status of privacy coins.

The distinction between “private cryptocurrencies” and “privacy coins” is crucial in understanding the Indian context. While “private cryptocurrencies” refer to any non-government-issued digital currency that can be used for transactions, “privacy coins” are specifically designed to provide advanced transaction privacy. Reports suggest that despite concerns about the cryptocurrency bill, popular cryptocurrencies like Bitcoin and Ethereum might not face a complete ban in India. However, the treatment of privacy coins remains uncertain. Legal experts delve into the potential regulatory challenges as the balance between financial privacy and preventing illicit activities becomes pivotal in determining the legal status of privacy coins in India. As discussions unfold and regulatory clarity takes shape, the future of privacy coins in India remains a topic of intrigue, with the delicate equilibrium between innovation and regulation at the forefront.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.