What is the need of creating a privacy coin?
The primary reason behind creating Bitcoin was to create a new peer-to-peer ecosystem to exchange and transfer money. This ecosystem needed a certain degree of privacy to run, while keeping things transparent and trustworthy. This was achieved by using a bitcoin public address that was anonymous. Anyone one could see on the public ledger, that which address has done a transaction, but not trace it back to the owner. The privacy and control over their financial assets was one of the biggest reasons that attracted early adopters to the ecosystem.
As the market grew we saw both good — remittances being the most popular,
and bad use cases — drug deals and the dark web.
This resulted in the markets moving towards being more regulated. We saw centralized crypto exchanges coming up more stringent KYC/AML laws and mapping of anonymous public addresses with corporate or personal identities. The IRS got active and started technology to help unmask the transactions by bitcoin users who were evading tax.
Fungibility was another major concern with Bitcoin. Fungibility means all coins have equal value. But, for Bitcoin, that has been used for an illegal transaction, its history will be contained in the public ledger. This makes that specific bitcoin tainted and consequently have less perceived value than other clean coins.
As a consequence, bitcoin started becoming less anonymous and non fungible giving rise to a market of private currencies.
Top privacy coins in the crypto ecosystem today
Monero — Monero is a secure decentralized currency which is private, untraceable and completely fungible. It was created in 2014, and uses ring signatures (multiple signers in one transaction to mask who is the sender and who is the receiver) and ring confidential transactions (hides the value of transaction, by dividing the total amount into small parts), and stealth addresses (which allow a user create random addresses for every transaction) to obfuscate the origins, amounts, and destinations of all transactions.
Dash — Dash was forked from litecoin in 2014, and gives the additional features of instant and private transactions. It is also fungible like Monero. Dash has secured its ecosystem using nodes and masternodes. While nodes are used for mining which generates coins, masternodes provide specialized transactions like -
- Instasend — the ability to transfer dash instantly;
- Private Send — The ability to mix transactions to obfuscate the sender, receiver and amount involved;
- Decentralized governance — Voting rights, each masternode gets 1 vote.
It costs 1000 Dash to host a masternode and in 2016 the yearly return from hosting one was almost 11%
Zcash — Zcash is a privacy focussed cryptocurrency with all the benefits of a public blockchain. All the transactions which happen are there on the blockchain, but the sender, receiver and value remain private. This is enabled by a concept called zk-Snarks.
zk-Snarks is a zero knowledge proof construction, which allows Zcash to keep a public ledger without disclosing the sender, receiver and amounts involved. zk-Snarks basically convinces both the parties involved that the information is true, without revealing anything about the information itself, except the fact that it is valid.
Users can choose to send money publicly or privately using zk-Snarks. You can also send money from a shielded address to a transparent address. Zcash has recently announced the release of its Sapling update. This will allow Zcash to offer fully shielded transactions on low computational power.
PIVX — PIVX is the first proof of stake currency which is anonymous and forked from bitcoin. As it is proof of stake the the transactions are very cost effective when compared to other proof of work privacy coins alternatives. This enables PIVX to be used for micro transactions also.
PIVX is a very community focussed and community driven currency. It enables its decisions on development proposals and budgets to be democratized by appointing masternodes. You need 10,000 PIVX to become a masternode.
PIVX gets its anonymity from the Zerocoin Protocol. zPIV is a protocol-level coin mixing service which uses zero knowledge proofs (zk-Snarks) to sever the link between the payer and the payee with 100% anonymity and untraceability. This means that any PIVX coin that is sent using zPIV is now 100% fungible as it has no history attached to them.
Verge — Verge was a privacy cryptocurrency created by an anonymous founder in 2014 who still goes by the name “Sunerok”. It was called DogecoinDark but then later renamed to Verge in 2016. Verge is one of the few privacy coins which not only obfuscates the sender and the receiver address but also the IP address using TOR and I2P. This enables Verge to have a transparent public ledger and still hide the transaction data and IPs of the sender and receiver.
Verge recently introduced its Wraith Protocol, an update to the existing anonymity feature. Wraith allows you to choose between public and private ledgers, that which one do they want to use to transact on the verge blockchain.
Verge’s claim to fame was the Porn Hub Verge partnership, where porn hub will be accepting the verge token for anonymous payments on its website.
If you had to build a crypto basket of privacy tokens, which one’s would you have chosen?
Read more about what are crypto baskets.
This ends our list of the possible top privacy currencies which can be a part of our crypto index, that you can invest in using Palettes. Palettes give you the option of investing in intelligently weighted crypto portfolios, from the comfort of your own trusted exchange account.
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