Privacy coins: Examining Monero and Zcash
Privacy is a major concern in the digital age. With the increasing amount of personal information being shared online, it’s no wonder that people are looking for ways to protect their privacy and keep their data secure. This is where privacy coins are trying to make a play.
In this blog post, we will take a closer look at two popular privacy coins — Monero and Zcash. We will examine their features, advantages, and potential drawbacks, to help you make an informed decision about the need for a privacy coin and if so which might be right for you.
Monero: The King of Privacy Coins
Monero is often hailed as the king of privacy coins. It was launched in 2014 and is built on a technology called CryptoNote, which ensures that all transactions are private and untraceable. Monero uses ring signatures to obfuscate the sender’s identity. This means that when a transaction is made, it is signed by a group of users, making it impossible to determine who actually initiated the transaction. It also employs stealth addresses, which generate a unique one-time address for each transaction. This ensures that the recipient’s address remains hidden, adding an extra layer of privacy. It uses Ring Confidential Transactions (RingCT), a feature that hides the transaction amount. This means that even though the transaction is recorded on the blockchain, the actual amount transferred remains confidential.
Advantages
Strong privacy: Monero’s privacy features are considered to be among the best in the industry. It provides users with a high level of anonymity and ensures that their transactions cannot be traced.
Active development community: Monero has a dedicated team of developers who are constantly working on improving the privacy features and overall functionality of the coin.
Wide acceptance: Monero is accepted by a growing number of merchants and online platforms, making it a practical choice for those who value their privacy.
Drawbacks of Monero
Scalability: Monero’s privacy features come at a cost. The technology used to ensure privacy also makes the blockchain larger and slower, which can affect scalability.
Decentralisation: In order to keep its mining ASIC resistant, Monero keeps changing its algorithm which leads to being quite difficult not just technically but also operationally to mine Monero. This leads to centralisation and it makes it easier to censor the network if the powers that be really want to.
Another aspect of centralisation is the huge influence the developers have on the network. The many decisions to hard fork the network constantly in order to prevent the development of ASICS capable of mining Monero, were taken by the developer community without the agreement of the remaining users of the network.
Transparency: One of the advantages of Monero is also one of its drawbacks. Ring Confidential Transactions (RingCT), that hides the sender, recipient, and amount of each transaction also makes it impossible to audit the current balances and new coins issued. Basically no one really knows how many coins are there in circulation and as such no one should be comfortable holding the coin for the long term.
Regulatory concerns: Due to its high level of privacy, Monero has faced scrutiny from regulators who worry about its potential use in illegal activities. This could potentially impact its future adoption. It’s a fact that Monero dethroned Bitcoin when it comes to the dark web markets.
Zcash: Privacy with a Choice
Zcash is another popular privacy coin that was launched in 2016. It offers users the option to make either transparent or shielded transactions, giving them more control over their privacy.
Zcash uses a cryptographic technique called zero-knowledge proofs or zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) to verify transactions without revealing any sensitive information. This allows users to prove that a transaction is valid without disclosing the sender, recipient, or transaction amount. Unlike Monero, Zcash allows users to choose whether they want their transactions to be transparent or shielded. This gives users the flexibility to decide when and where they want to prioritize privacy.
Advantages of Zcash
Flexibility: Zcash offers users the ability to choose between transparent and shielded transactions, giving them more control over their privacy preferences.
Strong privacy: Zcash’s zero-knowledge proofs provide a high level of privacy and ensure that transactions cannot be traced back to the sender or recipient.
Regulatory compliance: Zcash has implemented features that allow for regulatory compliance, making it more appealing to businesses and institutions.
Transparency: Because Zcash uses zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge), it means that its transactions can be private, but the total number of coins in existence can still be verified.
Drawbacks of Zcash
Complexity: Zcash’s privacy features can be more complex to understand and use compared to other cryptocurrencies. This could potentially deter some users who are looking for a simpler solution.
Limited acceptance: While Zcash is gaining traction, it is still not as widely accepted as other cryptocurrencies. This could limit its usability in certain situations.
Issuance: The Zcash foundation receives a % of all new coins mined and that % increases with the passage of time whilst it decreases the % that miners receive.
Conclusion
Both Monero and Zcash offer strong privacy features and are popular choices for those who value their privacy. Monero provides a high level of anonymity and is widely accepted, while Zcash offers users more flexibility in terms of privacy preferences. Ultimately, the choice between the two will depend on your specific needs and preferences.
Our opinion is that everyone should educate themselves on how to use Bitcoin privately rather than using these types of privacy coins, but that’s just our view. We will write about using Bitcoin privately in a future blog.
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