Guide on Privacy Coins: Comparison of Anonymous Cryptocurrencies
Cryptocurrencies emerged mainly in order to decentralize the monetary system that we have today. Currently, only large banking corporations and the government has control over this financial system. With the creation of cryptocurrencies, the goal is to empower ordinary citizens too.
This article serves as a basic guide on these cryptocurrencies that are also called privacy coins (more information on this later). It compares three major cryptocurrencies in order to guide you before making an all-important decision of investing in cryptocurrency.
Why are Cryptocurrencies called Privacy Coins?
The exchange of cryptocurrencies is highly secured because of the complex and heavily encrypted cryptographic technology that is called Blockchain. With the features of this technology, a user’s privacy and security are upheld, thus allowing for an unrestricted monetary system.
This is why cryptocurrencies are also called privacy coins – because they are monetary units that protect the identity and security of its users. Its very purpose is to uphold the privacy of individuals.
What to look for in a Cryptocurrency?
There are so many cryptocurrencies mushrooming all over the world these days, so it is important to know what to look for before you buy crypto coins. Learn how to invest in cryptocurrency by asking the following questions first.
1. Does this cryptocurrency protect my privacy?
The feature of cryptocurrency that stands out the most is its ability to provide privacy and security to its users. Thus, it is important to know that the amount of coins that you transact – send and receive – cannot be traced or linked to you through your transaction history on the Blockchain.
2. Who holds the main authority in the cryptocurrency?
Since the primary goal of the development of cryptocurrencies is to have a decentralized monetary system, then it is just right to ask this question before transacting with a cryptocurrency.
Every node should have equal authority and control over the crypto coins, and make sure that the cryptocurrency is not maintained by only one person, company, or organization.
With these two questions in mind, let us compare the three most popular cryptocurrencies in the market right now.
Bitcoin
Before we dig in, let’s explore a little bit about the history of this cryptocurrency. The developer of Bitcoin is pretty much unknown. They (or he or she) is hiding behind the name Satoshi Nakamoto, and they released Bitcoin in the year 2009 as an open-source software (its source code can be accessed, modified, and distributed by anyone).
Bitcoin is perhaps one of the mostly used cryptocurrencies in the world today. As a matter of fact, this is confirmed by a University of Cambridge research. The research states that as of the year 2017, people using cryptocurrencies are at 2.9 to 5.8 million, and a majority of this number uses Bitcoin.
Now let’s move on to the two qualifying questions mentioned in the previous section.
1. Does this cryptocurrency protect my privacy?
No, Bitcoin does not protect your privacy. That is a direct answer to an equally straightforward question. Bitcoin itself has never claimed that it protects its user’s privacy, and has even disclosed that the bitcoin blockchain is basically transparent.
This means that all transactions with the amount sent and received, history, and other pertinent transaction details can be viewed by anyone. Although your bitcoin address is masked or hidden (your real name, age, and address are unknown), there is still a risk of other people linking your bitcoin address to you.
This risk is especially more possible when you cash out your bitcoins, or exchange it with another currency, or even when you purchase items using your bitcoins. And eventually, you will do any or all of these transactions. So the risk is really present.
The worst case scenario when your transaction history becomes compromised is that your bitcoins and the addresses linked to it can be blacklisted.
Well, that’s unless you transact with your bitcoins while using one of the VPN services available all over the world. With a virtual private network, your IP address will be hiding behind a dummy one. Not only that but all your data packets – those that you send and receive – are heavily encrypted.
Because of this VPN feature, even your internet service provider (ISP) will not be able to trace your online activities – including Bitcoin transactions such as cash out, exchanges, and purchases.
Using a VPN with Bitcoin gives you double the security and privacy, and keeps you from being blacklisted. With a virtual private network, you can buy bitcoins anonymously.
2. Who holds the main authority in the cryptocurrency?
Bitcoin is the first ever digital currency that is decentralized. This means that the whole bitcoin system does not have a central bank or just one administrator.
ZCash
1. Does this cryptocurrency protect my privacy?
ZCash has its own cryptographic security method they call zk-SNARKS (acronym for zero-knowledge Succinct Non-Interactive Argument of Knowledge). This method enables users to prove that the information being exchanged, such as the amount of coins, is accurate without having to transmit the exact details.
Therefore, with the zk-SNARKS methodology, you can be sure that all your transactions are private and secured. There is a catch though: this privacy protection is optional, and it is not actually given to users by default or automatically. In other words, you still need to opt-in in order to make use of this security method.
The blockchain of Zcash reveals that only around 5% of funds are using zk-SNARKS, and the rest of the funds are transparent to any viewer.
2. Who holds the main authority in the cryptocurrency?
ZCash is managed by Zerocoin Electric Coin Company, a for-profit corporation based in the United States. Like other companies, it has a CEO and a lot of investors who take 20% of all the coins you mine for the first four years.
You will get 100% of your coins only after that 4-year period. Needless to say, the decentralization purpose of cryptocurrencies is defeated. In addition, ZCash is sponsored by government sectors such as DARPA (U.S. Defense Advanced Research Projects Agency), Israeli Ministry of Science and Technology, and the AFRL (the Air Force Research Laboratory).
Monero
1. Does this cryptocurrency protect my privacy?
Monero provides privacy by default. It also makes use of more than one security feature such as stealth addresses and ring confidential transactions.
Stealth addresses work by assigning a one-time address that is chosen at random to every transaction. This way, payments and exchanges are going to unique addresses on the blockchain, thereby avoiding links to your address.
Ring Confidential Transactions or RingCT, on the other hand, enables users to hide the amount of the transaction, but at the same time still allows the verification of the amount. Basically, your transaction is verified without you having to reveal the exact amount.
2. Who holds the main authority in the cryptocurrency?
Monero is managed by volunteer workers, and it is funded by contribution of users through the Forum Funding System. Decisions are open to the public, and minutes of developer meetings are made available for everyone.
This makes Monero a decentralized cryptocurrency.
In Conclusion
The need for a more liberated system of money and finances has given birth to cryptocurrencies or digital currencies. So many of these are mushrooming all over the digital world. You hear and read about cryptocurrencies left and right.
Thus there is a need to stress that not all cryptocurrencies are the same. Some cryptocurrencies uphold the primary reason why they emerged – privacy and decentralization. On the other hand, there are also cryptocurrencies that do not have the same goal.
The two qualifying questions above ‑ Does this cryptocurrency protect my privacy? And Who holds the main authority in the cryptocurrency? ‑ will hopefully guide you in choosing what cryptocurrency to invest in.
If you look at the popularity and the number of users though, Bitcoin will truly emerge as the overall winner. It holds majority of the pool, and you too can swim in it. Just make sure that you use a VPN service when you buy bitcoins or make any transactions with it.
A VPN will further protect your privacy and security, and at the same time allow you to invest in bitcoins anonymously.
Rachael Chapman
A Complete gamer and a Tech Geek. Brings out all her thoughts and love in writing blogs on IOT, software, technology etc
