What are Privacy Coins?
Privacy coins are a type of cryptocurrency that take Bitcoin’s anonymity and privacy to the next level. With Bitcoin, every transaction is technically anonymous as there are no names involved. Instead, every payment is recorded with a user’s public key, which is a random mix of numbers and letters. However, it is still possible to figure out who the owner of a certain public key is because a name and bank account are required to transfer Bitcoin into traditional currencies. Since every Bitcoin transaction is recorded on a public database, once you know someone’s public key, you can then track their entire payment history. With privacy coins, payments actually stay private.
How They Work
While there are many different methods that privacy coins’ employ, they all do pretty much the same thing — privacy coins use complicated mathematical equations to guarantee that all transactions are properly verified by the entire network without publicly recording the parties involved and how much they spent. This way, privacy coins gain the decentralization and safety of a typical cryptocurrency while allowing users to stay anonymous.
Why are Privacy Coins Useful?
It may seem that privacy coins are just payment networks built for criminals — more on this later — but there are benefits for normal people as well. Even if they are not buying anything embarrassing, most people would not want their friends, families, and coworkers to see how much they spend on their clothes, vacations, gifts, etc. — I certainly wouldn’t. This also applies to corporations who want to keep certain activities secret from their competitors and the media. Privacy coins would also be helpful for people living under repressive governments who want to hide certain purchases. While this may not resonate as strongly in the US and Europe, there are many places around the world where privacy coins could become an incredibly helpful resource.
Another benefit of privacy coins is that they are often faster to use and more scalable than other cryptocurrencies because they do not need to store as much information.
Problems with Privacy Coins
While there are many reasons to be excited about cryptocurrencies, there are also reasons to be hesitant. The main issue is that privacy coins are the perfect form of money for criminals. It is impossible for the police to track any payments using privacy coins. As a result, privacy coins have become the payment system of choice for illegal online marketplaces. Additionally, privacy coins are now being used by kidnappers. The wife of the richest man in Norway was recently kidnapped, and is now being held at a ransom of $10 million to be paid in Monero — a popular privacy coin. Another potential concern is that privacy coins could be used by countries to get around sanctions.
Due to the numerous security concerns, Japan recently banned the use of all privacy coins, and France is considering a similar regulation. If privacy coins continue to be used by criminals, it is very possible that the US, Europe, and other world powers will also end the use of privacy coins.
What are the Different Types of Privacy Coins?
The three most popular privacy coins are Monero, Zcash, and Dash.
We will go more in depth on these cryptos in a later article — follow On the Block on Medium, Steemit, Twitter, and Facebook to be notified about future blog posts!
Thanks for Reading :)
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