Are cryptocurrencies anonymous?
In a society where our privacy is constantly under threat, lack of privacy in process of purchase of cryptocurrencies is not an exception. Therefore, one of the most important aspects of cryptocurrency is the privacy of the transaction. Many perceived Bitcoin as an anonymous currency or payment mode in its early years. It was believed to be one of the great promises of this technology — anonymity. The transactions are recorded and made public, but they are linked only with an electronic address. It means that you can preserve your privacy as long as the pseudonym is not linked to you.
In fact, many blockchains only disguise users’ identities while leaving behind a public record of all transactions that have occurred on the blockchain. The data in the ledger often includes how many tokens a user has received or sent in historical transactions, as well as the balance of any cryptocurrency that they have within their wallet.
Therefore, there is a solution to the privacy issue — private coins. Privacy coins (private altcoins)are the safest way for users to make blockchain transactions without their financial details being exposed to the public. These platforms typically have several privacy-centric functions, like stealth addresses or private transactions, which can be used to hide user information on blockchains.
Although private coins are often portrayed as controversial, they are widely used by the privacy enthusiasts. Enhanced privacy and anonymity is an attraction for criminals and those engaged in illegal activities, as you probably already noticed, this became the main narrative against bitcoin and cryptocurrencies in general. Of course, embracing privacy and anonymity doesn’t mean you are engaged in illegal activities, it just simply means that you’re redeeming your rights to have absolute control over your privacy. The main idea of private coins retrieves your innate rights to rights privacy. To understand the core of private cons we will explain few private coins in great detail.
Monero
Monero allows its users to have a firm command over the privacy of their data by keeping transaction information completely anonymous within the blockchain. It is cryptographically private by default, utilizing several privacy features — most prominently being stealth addresses, ring confidential transactions, and a ring signature.
Monero uses a network of stealth addresses, one-time use address that is created for every transaction, in order to allow users to disconnect themselves from the blockchain. The private coin users also have a public address that are published on the blockchain, but most of their transactions will be passed through unique stealth addresses.
Ring Confidential Transactions (also called RingCT) works by creating cryptographic proof that can show that the input and output amounts are equal, without revealing any of the actual numbers. This feature hides the amount of each transaction on Monero’s network.
Monero is offering a high grade of privacy, it is impossible to link any transaction back to any one user in the network. Only the sender is able to generate and send the spend key, and only the actual recipient will be able to detect the key and spend the funds linked to it. To ensure that, Monero uses ring signature, that is a digital signature that is created by bringing a group of signers together. The digital signature brings multiple signers (usually 5) into each transaction.
With these inherently straightforward and easy to understand features, Monero has managed to remain relevant in the crypto space while offering users a completely untraceable cryptocurrency platform. It was launched in 2014, and since then it has grown to become one of the most stable and secure privacy coins released to date. Monero platform is the product of a Bitcoin fork but, unlike Bitcoin, it was created with several features that ensures anonymity.
Zcash
Zcash uses a different approach to be truly anonymous. Zcash started as a fork of the bitcoin blockchain on October 28, 2016. Earlier it was called the Zerocoin protocol before it was transformed into the Zerocash system and then finally, Zcash.
The primary privacy feature that Zcash uses is zero-knowledge Succinct Non-Interactive Argument of Knowledge proofs (zk-SNARKs). Zk-SNARKs enables traders to reveal the number of coins they have to another individual without fear of any additional information being leaked. The cryptography behind zk-SNARKs allows for all transaction data to be private and encrypted. The process of creating a transaction with zero-knowledge proofs (zk-SNARKs) is slow and costly — requiring that you run a full node that demands up to 4GB of RAM until the transaction is sent.
Zcash, by its design, has optional anonymity and privacy features. It is important to note that using privacy features is optional, as users can choose between public and private addresses.
Dash
Dash is a bit different from the previously mentioned coins. Dash functions similar to Bitcoin, in that the blockchain is transparent by default while offering optional privacy by way of mixing. But in addition to Bitcoin’s core features, Dash also includes the option for instant and private transactions.
Dash is not cryptographically private, it promises privacy through mixing, utilizing a modified version of CoinJoin. CoinJoin is an anonymization method for Bitcoin transactions. Using this method transactions are attached together in order to make a joint payments. But unlike traditional joint payments, the value that was exchanged by each party and the place that the payment ended up being completely undiscoverable by third parties.
Dash in your digital wallet consists of disparate inputs that serve as separate, discreet coins. It breaks these transaction inputs down into standard denominations and mixes them with the inputs of two other people without your coins ever leaving your wallet. Masternodes are introduced to the network for the purpose of validating transactions on the second tier of the service, which facilitates private and instant transactions as well as governance features. In order to run a masternode, a user must have at least 1,000 tokens in their wallet.
Privacy coins are a niche group of cryptocurrencies, there is no end to the possibilities with privacy coins and with the market more robust than ever, now might be the time to consider these exciting anonymous digital assets. Although some people may have no concerns about whether their transaction history is discoverable by third parties, others might adamantly refuse to participate in any cryptocurrency platform that cannot guarantee them to complete privacy.
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