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Some Cryptos had privacy protection in mind when they were created. The open internet continues to publish digital transaction ledgers, making them accessible to all, but a Privacy Coin can hide the owner and balance of each wallet on the blockchain.
In this blog, we’ll throw some light on Privacy Coins, how they work, and the top 3 Private Coins you should know about.
What are Privacy Coins?
A group of Cryptos known as Privacy Coins enable anonymous and private blockchain transactions by hiding the source and destination of each transaction. These anonymous Cryptos employ a variety of strategies, including masking a user’s real wallet balance and address and combining numerous transactions to avoid chain analysis.
In the spirit of transparency, it is quite easy to track someone’s deposits and withdrawals, as Bitcoin and other non-privacy blockchains make it possible for anyone to see public addresses and transactions on their network.
However, anonymity and untraceability are two different aspects of Privacy Coins. While untraceability makes it virtually impossible for third parties to trace the trail of transactions using services like blockchain analysis, anonymity hides the identity behind a transaction.
How do Privacy Coins work?
Combining multiple techniques, Privacy Coins offer users anonymity and privacy. Although these techniques can successfully hide your identity and on-chain footprints, it is important to keep in mind that they are not foolproof and may not completely guarantee anonymity. As a result, it’s best to use Privacy Coins for the right reasons since if you use them wrongly; law authorities can still identify you.
“Mixing” is the first technique that Privacy Coins frequently use. It involves breaking the transaction chain between the sender and recipient of a transaction by employing a third-party service (a “mixer,” such as Tornado Cash). Instead of sending a Crypto like Bitcoin to another user directly, you send it through the mixing service powered by smart contracts. In order to break the connection between the sender and the recipient, the mixing service employs various strategies, including shuffling the coins with those in its own liquidity pools or using multiple intermediary addresses. Because of this, it is challenging for anyone to identify the transaction’s original sender or recipient.
“Stealth addresses” are another popular technique for Privacy Coins. A one-time address that is generated for each transaction is used in this process. The transaction recipient creates the stealth address, which is independent and not linked to their address. The stealth address can then receive any coin, making it challenging for anyone to track the transaction back to the recipient.
In addition to mixing and stealth addresses, privacy platforms can also use techniques like ring signatures and zero-knowledge proofs to provide users anonymity. Ring signatures make it difficult to identify which user in a group carried out a particular transaction by allowing them to share an address. While concealing your identity and the details of your transaction, zero-knowledge proofs enable you to prove the legitimacy of a statement without disclosing any extra information about it.
Top 3 Privacy Coins
#1 Monero (XMR)
Monero provides a high level of transaction and user privacy. While Monero and Bitcoin are decentralized peer-to-peer Cryptos, Monero is more anonymous or privacy-oriented than Bitcoin. The anonymization attribute of Monero has contributed significantly to its growing popularity in the Crypto community. Every Bitcoin user receives a public address, also known as a key, that is specific to them.
Even though the sender is aware of the recipient’s public address, using Monero does not grant access to a window view of the recipient’s holdings. Transactions made with Monero cannot be linked to or tracked. Coins sent to a recipient are redirected through a unique address created at random for the transaction. Check the prices of Monero in the USDT market here.
#2 Zcash (ZEC)
Zcash is another private Crypto available in India. When a group of researchers decided they wanted to develop a Crypto comparable to Bitcoin but with some extra features, ZCash was born in 2016. They created a Bitcoin blockchain split that has improved user security and anonymity. Zerocash, which the scientists initially created as Zerocoin, was introduced not long after. The Crypto was eventually called ZCash.
ZCash does not remove information about transactions. Instead, it encrypts it to prevent tracking. The security protocol zk-SNARK increases user security and anonymity while keeping the ZCash blockchain encrypted. You can check the prices of Zcash in the INR market here.
#3 Dash (DASH)
Dash, introduced in 2014, was formerly known as Xcoin. It was initially built with the intention of protecting user anonymity and privacy. The company has now recast its goals, albeit it still includes robust encryption capabilities. With the ability to be used as cash, a credit card, or through PayPal, Dash now wants to be a tool for everyday transactions. An open-source project called Dash has a decentralized payment network built in.
“Masternodes,” a subset of Dash’s users, is in charge of running the network. The validation and verification of transactions are made more accessible by master nodes. Each master node has a beginning stake in their respective systems equal to 1,000 DASH. Additionally, it addresses the issue of transactions’ scalability. This is because the quantity of nodes needed to authorize a transaction is decreased to a tolerable level. Masternodes are in charge of authorizing transactions from the miner network and providing the Dash network services like payment and privacy. You can look into the prices of Dash here.
Bottom line: Future outlook of Privacy Coins
At its fundamental level, cryptography is a collection of processes and techniques designed to enable private and secured communication even when third parties are present. Therefore, despite the fact that their untraceable nature sparks debates about illicit deals, Privacy Coins are a crucial component of the Crypto ecosystem.
Despite reports suggesting that only a very small portion of Crypto is used for money laundering, funding terrorism, and other illegal activities, governments worldwide still overlook Privacy Coins.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.