Privacy Coins: which one is right for you?
When describing anonymity in cryptocurrency, the first thing that comes to mind for most is illegal activity. People often correlate the ability to conduct transactions anonymously with either the purchase of illegal products or money laundering. This thought process can most likely be attributed to the early days of cryptocurrencies when purchases of weapons, stolen credit cards, and drugs were conducted with the use of bitcoin on the dark web.
However, the purpose of anonymity is security. Cryptocurrencies such as bitcoin are stolen mainly by hackers associating transactions and wallets with their physical users. By hiding transaction histories and account balances through the use of privacy coins, cryptocurrency users are in turn increasing their security.
Given the amount of hacking that has occurred in relation to cryptocurrencies in 2018, a greater level of anonymity should be welcomed by any cryptocurrency owner. Here are a few privacy coins that can be utilized to protect your funds as we enter into the new year.
Monero has claimed the top spot of this list primarily because it was originally built with privacy in mind. Monero was developed in 2014 and utilizes an obfuscated public ledger or, more simply, a platform that allows for complete privacy in terms of a user’s account balance and transaction history.
It is an altcoin with the ability to provide its users with anonymity through two main functions: ring signatures and stealth addresses. Ring signatures hide transactions by mixing them up with other transactions conducted in the same block. When a transaction is made, the network randomly selects the amount from another transaction and stamps the amount on the transaction just made.
Say, you purchase a soda from a store for one dollar, and the person next to you is buying candy for two dollars. If ring signatures were applied, the cost of your soda would be displayed on the register as the amount of the $2 candy, and vice versa. So, although all the transactions are being recorded on the ledger, it randomizes them in order to keep expense amounts private.
Unlike bitcoin transactions that are conducted by sending funds from one unchanging address to another, a random one-time address is created for each transaction being carried out by the sender. This makes it impossible for hackers to link accounts to people.
Zcash was developed in 2016 based on the research of scientists from several well-established U.S. universities, such as MIT and UC Berkeley. The good thing about this altcoin is that it gives users the option of making their addresses either public or private.
This option is useful in that transactions between third parties sometimes need to be public for auditory or compliance purposes. This option has caused the use of Zcash to be adopted on a wider scale. Zcash is also supported by various wallets, including cold wallets such as Ledger and Trezor. The only downside to this is that transactions conducted with these wallets must be conducted publicly, thereby throwing out the aspect of anonymity altogether.
Dash appeared in the result of the 2014 bitcoin fork. As it has stemmed from bitcoin, it operates in a similar manner and has comparable features. The main difference is that Dash offers more secure and private transactions using the CoinJoin method.
The CoinJoin method is similar to Monero’s ring signature in that it compiles multiple transactions into a group, then dispurses them randomly, thereby ensuring anonymity. Another perk of Dash is its InstantSend feature which can confirm transactions in less than a second.
It is an altcoin built for both speed and privacy. Unlike Monero and Zcash, Dash is an accepted form of payment by hundreds of companies. It can be used to purchase games, clothing, books, food, and beverages across the web.
Privacy coins: the double-edged sword
History has shown us that any technology, despite how beneficial it may be as a whole, can be used negatively. Privacy coins are no exception.
Although developed to help owners ensure the security of their assets, they may be harnessed by negative forces for illegal activities. However, if anything, this says less about privacy coins and more about humanity in general. Privacy coins’ negative uses tend to outshine their positive aspects, consequently slowing their adoption.
Yet, as hacking and theft continue to spread in the cryptocurrency industry, the adoption of privacy coins will most likely grow, as they are quite possibly the most secure method of conducting transactions online.