The State of Privacy Coins

On July 2, 2019, Mosaic was given the opportunity to present the findings of the State of Privacy Coins to Coinbase’s institutional investors. Today, I am pleased to share the results of this study, which I led for a month.

As far as the methodology, the State of Privacy Coins report is composed of two studies respectively emanating from a public Internet survey and a dark web survey:

• The first one is called Privacy Coins Survey 2019. The purpose of this study was to discover the different archetypes of privacy coins users and understand their perceptions and behaviors with privacy coins on the Public Internet. So in order to gather as much traction and information as possible, this survey was shared on different social media platforms such as Twitter, LinkedIn, and Bitcointalk and group chats for privacy coins. In total, we were able to get 236 participants who responded anonymously to this survey but the majority of them agreed to give us their gender, age, and locations.
• The second study, called the Darknet Study, was focused on the use cases and user behaviors with privacy coins on the dark web. Therefore, using the Tor Browser, we dived into 44 marketplaces accepting privacy coins and we anonymously contacted users on 50 message boards.

So you might ask yourself, why a report on privacy coins?

First of all, from our observations, the view of the cryptocurrency industry, in general, is siloed in different groups and places, generally revolving around specific cryptocurrencies on different social media platforms. And unfortunately, as the information and discussions are scattered, this results in a biased view and understanding of the industry and its categories like privacy coins.

Secondly, since the purpose of privacy coins is to obfuscate every financial activity along with people’s identity, the type of information we were able to gather from participants such as their gender, age, and locations — is unique because it cannot be found anywhere else on the Internet.

However, as a relatively small number of participants responded to the surveys, the results do not represent the entire privacy coin community. We are also aware that the findings are potentially biased toward certain privacy coins. For instance, the Zcash Foundation genuinely shared the first survey on Twitter, which likely skewed the results in favor of Zcash. But nonetheless, this report is a first step to get a better picture of the adoption cycle of privacy coins. And we intend to publish similar research for various cryptoasset categories going forward.

Before kicking things off, we would like to express our appreciation to all the participants for making the time. And for your information, this report is not a deep dive into individual privacy coins nor any kind of endorsement but is rather category-level research.

Now let’s get to the actual results:

• The next three slides will answer the question of who are the users of privacy privacy coins from the public survey. Even though 17% of the participants preferred not to reveal their gender, the majority of the users is represented by men. While women represented only 5% of the individuals.

Source: Mosaic.io /Design Courtesy: Eli Ndinga

• Most of the participants were born between 1980 and 1993, in other words, they are between 26 and 39 years old.

• 67% of them told us that they reside either in North America or Europe. Not surprisingly, 32% of the users come from the United States. However, privacy coins do not seem to gain in popularity in the Eastern part of the world as in China.

• In the next 7 slides, we will delve into the nuts and bolts of privacy coin ownership and the buyer decision-making process. 67% of the respondents said their first privacy coin acquisition to be either Zcash or Monero — 42% and 25% respectively.

• Moreover, the majority of privacy coin users are newcomers. 46% of the participants said they purchased their privacy coins on exchanges between a year and 2 years ago, in other words, sometime between 2017 and 2018. While a minority of them bought their first privacy coin more than 5 years ago.

• Usually, market participants own either one or two privacy coins. 42% of the respondents told us they own only one privacy coin while 25% have two privacy coins in their cryptoasset portfolio. Interestingly, 11% of the users own more than 5 privacy-preserving cryptoassets.

• Now you might ask yourself what privacy coins do they usually own, right? So the majority of the participants indicated to own either Zcash or Monero or Zcoin or all of them for those who own more than 2 privacy coins.

We then asked individuals if they were comfortable to give us an estimation of what percentage do privacy coins represent in their cryptoasset portfolio.

• 53% said privacy coins take over between 50% and 100% of their cryptoasset net worth. Interestingly, in contradiction to the Bitcoin community, maximalism in the privacy coin category is not a dominant philosophy. In fact, 17% of the participants only own privacy coins and no other cryptoassets such as Bitcoin or Ether.

• As part of the decision-making process, we wondered how they first learned about privacy coins. So Initially, we thought word of mouth would be the primary method however only 6% of the respondents mentioned word of mouth — in other words learning from friends and family. Interestingly social media such as Twitter and YouTube, and cryptocurrency data providers such as CoinMarketCap seem to have taken over word of mouth.

• Fast forward to the decision-making process, the reasons as to why participants decided to invest are quite diverse and distributed among the responses we received. 25% said they invested because of the underlying technology of a specific privacy coin, 11% decided to bet on a competent and capable team. And a minority wanted to pour money into the next or a better Bitcoin.

In the next few slides, you will discover the different use cases of privacy coins first as mediums of exchange both on the Internet we all have access to, and on the dark web. We will then dive into whether privacy coins are used as stores of value and finally touch on the mining activity.

• On the public Internet, less than the majority of the participants said they buy goods and services with privacy coins. If so, they usually purchase furniture, gift cards, clothing or pay for web hosting services or do charitable donations.

• Monero and Zcash are equally the most preferred privacy coins as mediums of exchange, followed by PART the privacy coin of Particl.io, a peer to peer marketplace. In terms of frequency, the majority of the participants buy goods or pay for services either monthly or yearly or weekly and quarterly.

• 98% of the dark web merchant sites accept Bitcoin, but interestingly, Monero is the second most accepted cryptoassets on only 10 marketplaces. However, Zcash is lagging behind with only 2 supported merchant sites.

• 75% of the responses from marketplaces’ customers and vendors on 50 message boards mentioned Monero as the most reliable private payment method on the dark web.

• There is a consensus reached when it comes to using privacy coins as stores value, therefore store of value seems to be at the moment the superior use case. 89% of the respondents said to use privacy-preserving cryptoassets as alternatives to gold, fiat currency or Bitcoin. Zcash and Monero sit again on the front seats. But one of the surprises of this study is PART, the privacy coin of Particl.io, 10% of the participants view PART as a good store of value because its Sybil-resistance mechanism relies on Staking rather Proof-of-work as in Bitcoin.

• 35% of the respondents said they are using privacy coins as stores of value in the quest of an alternative to Bitcoin. While others mentioned the benefits privacy features when it comes to finding an alternative to their wealth safe.

• Our research team was then curious to know the frequency at which people purchase more privacy coins. 61% of the participants told us that they accumulate more privacy coins either once every quarter or every month or once a year. Additionally, the majority said Bitcoin is the most preferred method of payment on exchanges, while fiat currencies such as the US Dollars or Euro represented only 33% of the responses.

• As far as the mining activity with privacy coins — the results show that this is not a predominant activity among users. Only a third of the participants are miners, and 40% of them are mining Zcash. Surprisingly, none of the respondents are Monero miners.

And finally we will wrap up the State of Privacy Coins presentation on the obstacles to adoption and the grades users gave to privacy coins in terms of user experience and utility.

• In regards to obstacles, opinions diverge and are quite distributed. 18% think the main factor hindering adoption is the complex user experience with wallets and exchanges. Others put the blame on the lack of easy to access education on privacy coins whereas some mentioned the insufficient real-world demand from users.

• Last but not least, even though some consider the user experience (UX) to be a major roadblock to adoption, overall the average UX grade is 7.2/10 across privacy coins. However, the recently launched privacy coin, Grin is lagging behind with 4/10.