A quick look into privacy coins: Everything you need to know

When the first cryptocurrency was launched in 2009, it was introduced as a more secure alternative to traditional banking. However, digital currencies hold a pseudonymous nature. This is why some people remain sceptical about its privacy features and its ability to protect user data, especially in totalitarian countries where cryptocurrencies are considered illegal.

To address the issue of complete anonymity, privacy coins like DASH and Monero entered the market. However, how are they different from Bitcoin and altcoins that also promise a certain degree of privacy? Continue reading below to learn more about privacy coins’ future and its features!

What are privacy coins?

Privacy coins belong to a group of cryptocurrencies that facilitate anonymous transactions by concealing their origin and destination within the blockchain network. They vary in methods used such as combining multiple transactions to steer clear of chain analysis, as well as hiding a user’s wallet balance or address.

In addition, some private cryptocurrency coins are untraceable. Meaning to say, they can prevent other users or entities from snooping on your transaction trails.

Since they make crypto transactions anonymous and untraceable, privacy coins have garnered criticisms from investors and authorities alike. Some critics argue that they can be used by criminals to launder money and finance terrorism without getting punished by the law.

However, the creation of privacy coins was for the sake of transactional and user privacy. Crypto investors may want to hide their wallet balance and transaction histories so they don’t become a target of cybercriminals, especially if they have a large number of digital assets.

How do they work?

Private coins follow various strategies and methods to provide users top-notch security and privacy. Here are the most popular ones:

• Stealth addresses

Among the strategies used by privacy coins, stealth addresses are the most straightforward method to enhance transaction privacy. To prevent yourself from being linked to a receiver, it will oblige you to generate a new address for every transaction. In this way, other users won’t trace payments to your wallet address.

For instance, Monero (XMR) uses an upgraded version of stealth addresses called a dual-key stealth address protocol (DKSAP). This provides every wallet owner with their own private spend key, private view key and a recipient address.

• Zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge)

This strategy is a form of cryptography that allows users to prove a transaction’s validity without disclosing critical information such as your account balance and the receiver. Not only this can enhance your privacy, but can also improve the scalability of the blockchain network.

• CoinJoin

CoinJoin is most commonly known as a coin mixer that takes coins from various senders and combines them into a single transaction. Then, the coins will be mixed and sent out to recipients using a new address to reduce traceability.

• Ring signatures

When it comes to blockchain transactions, you need to sign a digital signature to prove that you’re the sender. This makes it easier for outside parties to trace back the transaction to your address.

However, through ring signatures, they combine you with other senders within a ring to hide you as the sender. This means that the larger the number of senders in a ring, the harder it is to link you with a transaction.

The 4 most private cryptocurrencies you should invest in

Planning to invest in privacy coins for better security and privacy? Here are the top private cryptocurrencies you should watch out for:

Monero (XMR)

Known to be one of the leading privacy-focused assets in the market, Monero has been continuously rising to prominence due to its ability to anonymize users. It uses ring signatures and stealth addresses that can help conceal the identities of the sender and the receiver, as well as hide the total amount of a transaction.

With a market capitalization of US$4,259,124,995 as of writing, Monero (XMR) holds the 44th rank in the market. It is worth US​​$232.54. 

DASH

Using its PrivateSend feature, DASH gives the users an option whether to make their transactions private and anonymous or not. In this way, users who want to trade using cryptocurrencies while still following their country’s regulatory standards can do so.

Through a mixing protocol using a decentralized network of servers called master nodes, this private coin works by the origin of your digital assets. However, keep in mind that using the PrivateSend feature can slightly raise the transaction fee.

As of the moment, DASH has a market capitalization of US$1,921,940,561, ranking as the 72nd cryptocurrency. It has a price of US$197.00.

ZCash (ZEC)

Launched in 2016 by the Electric Coin Company, Zcash (ZEC) was created from a similar code as Bitcoin. It has improved privacy and security features, allowing users to shield transactions and implementing a method called the zero-knowledge protocol. Meaning to say, you can start a transaction and have it verified by the network without revealing the receiver, the sender and the amount.

Currently, Zcash has a market capitalization of US$2,018,726,965 and ranks 70th among the digital currencies. Its current price is US$206.54.

Beam

Considered to be one of the most popular private cryptocurrencies, Beam uses an anonymity blockchain called Mimblewimble. This means that participants cannot see addresses and the transactions in the network are completely confidential. To outside parties, the transactions may look like random data that’s hard to decipher.

Beam is also known for its hardware wallets integration, support for both online and offline transactions and a compact distributed ledger, among other things.

This privacy coin is worth US$0.6789 and currently holds the 581st rank in the crypto sphere. It has a market capitalization of US$62,124,661. 

Privacy coins future: What’s next?

Due to its untraceable and anonymous nature that incites controversies, the regulation and overwatch of national governments and central authorities over privacy coins have increased in the past years. 

In fact, some crypto exchanges such as OKEx Korea and BitBay have delisted privacy coins from their platforms. South Korea and Japan even declared the possession of private coins illegal.

However, privacy coins remain to be a crucial part of the crypto ecosystem. They provide users full control and access over their privacy, allowing them to escape the threats of fraud and theft. Your identity and wallet address will be concealed and no one can view your transaction activities but you. 

In a world of serious regulatory threats and privacy issues, privacy coins can serve as one of the greatest monetary alternatives.