Cryptocurrencies in general offer many benefits compared to fiat currencies. Cryptocurrencies are mostly decentralized which provides security and privacy features for the users. However some offer an advanced version of these security features like being untraceable, anonymity and total privacy.
Compared to Bitcoin’s public ledger where everything can be traced, some coins offer complete privacy for the users. This article will focus on the five best cryptocurrencies that focus on privacy and anonymity and will explain how they manage to do it, each with their own approach to the issue. If you want to read about what 2018 has in store for the cryptocurrency industry and what security improvements are coming to the industry, click here to read our article about upcoming Blockchain improvements and upgrades.
Why are privacy coins important?
Blockchain technology is revolutionary. Compared to the traditional banking system that feels outdated, Blockchain technology offers new age solutions to already existing problems. Traditional Blockchain cryptocurrencies like Bitcoin and Ethereum have public ledgers in which every transaction and movement can be traced. This feature provides a network that is authentic and can’t be tampered with.
However this transparency feature can also cause feelings of insecurity. It is common to think that your transactions are no one else’s business. Some cryptocurrency projects had the same thought process and tried to replicate Bitcoin’s good features with some added privacy. Making transactions private was the first step of the process because it is not enough.
Purchase history, and transaction communication are also important for user’s privacy. Why is this important? That is because at the moment cryptocurrencies are one of the juiciest targets for hackers. They actively search for weak links and loop holes in these networks. Nevertheless there are cryptocurrency projects that excel in their biggest strength – privacy and security.
Monero is by far the best privacy cryptocurrency for now. It was launched back in April 2014 as a ByteCoin fork and uses its CryptoNote codebase and has established itself as a top cryptocurrency. Monero provides the highest level of privacy and anonymity available. It is so anonymous that you can’t even see the amount that is transacted between parties.
Monero’s Blockchain and transactions work similarly to Bitcoin’s network and framework. However they utilize ring signatures and address derivation. These ring signatures and ring confidential transactions hide all transaction-related details, including destination and amount send or received. Monero’s privacy features are so well done that even law enforcement agencies can’t bypass them. When the Alphabay market was shutting down, law agencies couldn’t find how much Monero was owned at the time by its owner.
Monero uses complex cryptographic methods like Stealth addresses, Ring signature technology, RingCT (Confidential Transactions) and Kovri. When you send coins with Monero, the transaction is signed with a ring signature that is verified against a group of public keys without revealing the actual user’s private key.
This happens by default which means that transactions on Monero’s Blockchain can’t be traced or linked to the user and his real-world identity. Monero’s Blockchain analysis is virtually impossible. The cryptocurrency is trailing behind the leaders, but is always in a strong spot. These facts plus Monero’s many privacy features makes them my number one choice. Read here 5 things you need to know about Monero.
ZCash is an open-source cryptocurrency that offers privacy and selective transparency for transactions. It was listed in 2016 and uses a different approach than Monero. They use a zero-knowledge proofs protocol called zk-SNARK (Succinct Non-interactive Argument of Knowledge) to provide anonymity and privacy for its users. All network transactions are published and validated by the Blockchain like other cryptocurrencies.
However this protocol allows for verification of data without revealing key information about users. It is used to encrypt the addresses of both parties in the transaction and the amount. Zero-knowledge proof means that every transaction can contain some data that is provided by the sender with encrypted transaction data.
Senders can’t generate a specific string unless they own the spending key of the address and the input values of both input and output needs to be equal. Unlike Monero, ZCash is not virtually anonymous. It is possible for Blockchain analysts to bring together information through public transactions. IP addresses of users are not totally hidden unless they use a routing service.
Dash is one of the most popular cryptocurrencies and is best known for everyday use. Like Monero, most of the time Dash is trailing behind the leaders. It is always in a strong spot and it was part of the leaders. Dash also provides private transactions and transparent payment options. Dash offers a decentralized mixing service within its platform called PrivateSend. The cryptocurrency allows partial anonymity with this feature that utilizes the concept of CoinJoin.
It is an improved version of CoinJoin and it allows transactions to be formed by multiple parties and paid out to multiple parties. The merging of funds means that they can’t be uncoupled afterwards. The feature requires at least three people. With this fund mixing, cryptocurrency analysts can’t be sure of the amount that is sent, the sender or the destination.
Dash is not as private as Monero and ZCash, that’s why it is in the third spot. However it is established and credible. Dash’s privacy features are simple and somewhat basic, because they provide meta-data that can be analyzed.
PIVX is the first proof-of-stake cryptocurrency to implement Zercoin protocol. It gives them anonymity and privacy features compared to other coins. It was launched initially as a DASH fork and is short for Private Instant Verifiable Transaction. The PIVX team marketed the cryptocurrency as an advanced privacy option and has added staking. PIVX works similarly to DASH and offers a mixing mechanism in the wallet, similar to CoinJoin.
The mixing takes place in a decentralized way verified by the network’s master nodes. This allows an additional layer of privacy because gaining control of 50% of the current master nodes would result in under a 0.5% chance of de-anonymizing an individual transaction that was mixed with 8 rounds of obfuscation.
Using PIVX master nodes requires the users to lock 10,000 coins into a wallet which means that a large part of the coins are locked in the master nodes. The community is also participating in the development of the currency.
Verge was initially launched on February 2016. It officially rebranded itself from Dogecoindark, which was a fork for Dogecoin. Verge is designed on the original Bitcoin blockchain and operates as a decentralized open-source cryptocurrency with its own platform. The coin can’t be centrally controlled and is completely untraceable. Verge is different than other privacy coins, because it doesn’t log user’s IP addresses and masks transactions on the network.
Verge uses multiple anonymity networks like Tor and I2P. This keeps user’s IP addresses and transactions private. In addition to these anonymity networks, Verge is utilizing multi-algorithm mining support. It improves security and provides the equal distribution of coins to miners. Verge’s ledger is transparent but uses Tor and I2P to protect user identities and to hide traffic. Verge has a great community and developer team with huge potential for the future.
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