Privacy cryptocurrencies are unique digital assets that offer greater user privacy features by obscuring transactional information and enabling more anonymity.
While all cryptocurrencies offer some degree of privacy, some offer more anonymity than others.
When Bitcoin was created in 2009, it aimed to provide a secure and pseudonymous way of transacting on the blockchain. However, bitcoin transactions are not entirely private; the sending and receiving addresses of each transaction are publicly available on the blockchain.
Seeing a potential to fill a gap in the market, tech communities created privacy assets to provide enhanced privacy features compared to bitcoin.
What are private cryptocurrencies?
Here are some examples of cryptocurrencies that enable better privacy features.
Founded in 2014, Monero is one of the hottest privacy-focused cryptocurrencies in the space. Monero (XMR) offers greater user anonymity by obscuring sensitive transaction details on the blockchain, by leveraging specific privacy technologies such as Ring Signatures, Stealth Addresses and RingCT.
This is done by ensuring that no one can tell which specific addresses Monero is being sent to, protecting the privacy of both sender and receiver alike. The use of RingCT (Ring Confidential Transactions) also mitigates the risk of double spends.
- Verge (XVG)
Verge originally started out as “DogeCoinDark”, and was created with the intention of improving the bitcoin blockchain. The 100% open-source asset enables private transfers to take place efficiently and securely.
Verge automates routes through the Tor network to anonymize the traffic and mask IP addresses, using dual-key stealth addresses and atomic swaps to power P2P cross-blockchain transactions.
Founded in 2016, Zcash prides itself as a decentralised network which increases user privacy. By leveraging high-encryption techniques like zk-SNARK (“Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) technology, it is able to facilitate both transparent and shielded transactions via the use of both z-addresses(private) and t-addresses(public).
Monero Vs Bitcoin: Anonymous vs Pseudonymous Cryptos
By definition, being pseudonymous means to use a “false name”. For bitcoin transactions, your pseudonym is a long string of digits that function as your Bitcoin address.
Unlike Monero, whenever a bitcoin transaction is made from a sender to recipient, both parties’ addresses can be seen on the blockchain. While these transactions don’t explicitly display any personal information, they are not completely anonymous. Your public address can be traced back to your identity for compliance or legal reasons, especially if you are signed up with exchanges that require you to complete Know-Your-Customer information.
The difference between Monero and Bitcoin lies in the way transaction details are displayed on the blockchain
Privacy Coins and Regulations
Much controversy still surrounds privacy coins, causing regulatory concerns especially with the FATF’s travel rule in place. With some jurisdictions suggesting the ban of privacy coins altogether, many of these anonymous cryptocurrencies are not as widely available on global exchanges as their pseudonymous counterparts.
Because the privacy protocols of anonymous assets do not enable on-chain monitoring solutions, Monero(XMR) and Zcash(ZEC) will remain as trade-only tokens on Coinhako. Wallet features will not be enabled to ensure compliance with regulatory measures.
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All opinions expressed here by Coinhako.com are intended for educational purposes, taken from the research and experiences of the writers of the platform, and should not be taken as investment or financial advice.