Since Bitcoin doesn’t guarantee anonymity or privacy, users started seeking ways to keep transactions anonymous. In response, privacy coins, a different class of cryptocurrency, were introduced.
What are privacy coins?
By design, the best privacy coins operate on the same blockchain technology as other cryptocurrencies like Bitcoin. However, they also provide users with anonymity by obscuring some information about the transactions. This privacy-focused function was created by utilizing high-encryption techniques and mixing technology.
So is Bitcoin safe? How is privacy coin more private than Bitcoin?
Bitcoin transactions are recorded on an open public ledger, allowing anyone to see the addresses of the senders and receivers. Even though the transaction details don’t contain anyone’s identity directly, it’s possible to link addresses with people, especially when it comes to liquidating funds with a licensed exchange. Privacy coins, on the other hand, hide information about the senders, receivers and wallet activity through various methods – this obviously makes it a safer option.
Why should you use privacy coins?
Untraceable crypto transactions are often stereotyped as being linked with criminal activity, but there are many legitimate reasons to protect your privacy.
First of all, payment using privacy coins prevent your identity from being tracked or revealed by hackers, since there is nothing to link any transaction to you. Secondly, if you’re an investor and don’t want your personal interests or financial status to be revealed through investment details, privacy cryptocurrency is what you should try out. Last but absolutely not least, privacy cryptocurrency brings you peace of mind when transacting, making a payment or purchasing goods. Once your wallet activity is obscured and your identity is masked, you no longer need to worry about any security threats that may have occurred otherwise.
Top 3 best privacy coins
Market demand has encouraged many teams to step up and create anonymity-oriented tokens that follow different protocols. Here, our top privacy coins list consists of 3 of the most reputable names: Monero, ZCash and Dash.
1. Monero (XMR)
As the most well-known privacy coin on the market, Monero’s transaction sources and destinations are untraceable. It protects user privacy by using the CryptoNight Proof-of-Work protocol, which utilizes stealth addresses, ring signatures and Ring Confidential Transactions to obfuscate the ledger of transactions.
For additional privacy, Monero also employs a splitting mechanism, which divides each full transaction into smaller amounts and sends them as a subset of separate transactions adding up to the initial one.
However, Monero was the most popular cryptocurrency used on the dark market, among web drug dealers and hackers. As a result, its reputation has been somewhat tainted by its association with illegal acts and garners a lot of scrutiny from the authorities.
2. ZCash (ZEC)
ZCash was created as an alternative to Bitcoin and claims to enhance privacy without giving up compliance with the law. Unlike Monero, private transactions are not compulsory when using ZCash. Instead, there are two types of transactions: one that happens on the public ledger with a transparent wallet address, and another one that obscures transaction details with a “shielded” address. The technology behind this mechanism is Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (or zk-SNARK) and a Zero-Knowledge Security Layer (ZSL).
ZCash’s semi-transparency allows users to display a small division of data belonging to any transaction so as to verify payments while masking critical information such as personal identities of the sender and receiver. This feature, however, exposes users to privacy issues when trading between fiat and ZEC on cryptocurrency exchanges, where KYC controls are still applied.
3. Dash (DASH)
Dash isn’t solely a privacy-focused cryptocurrency, instead, it offers privacy protection for transactions as an option for users. This means addresses and transactions are all viewable on the public Dash blockchain. To preserve anonymity, users can choose the PrivateSend feature to obfuscate transaction details.
Its mixing mechanism is the underlying technology of this network. Dash Masternodes take the coins from your transaction and mix them with multiple coins being sent on the network. As a result, a series of grouped payments is made at the same time, making it impossible to trace the input and output of each transaction.
The top privacy coins list continues with many names to choose from such as Verge (VGX), ZCoin (XZC) TeleCoin (TELE).
Turn any cryptocurrency into privacy coins
Although the aforementioned privacy coins offer a relatively high level of anonymity, mainstream users may not be able to access them or understand exactly how to use them. That’s when Incognito, a different sort of privacy project, comes into the picture.
Incognito offers not only a privacy coin, but also a decentralized platform for any cryptocurrency to become its own privacy coin. If you’re looking for a way to send and buy crypto anonymously, this is the app you need.
Incognito is designed as a sidechain for privacy coins, which connects to other blockchains like Bitcoin, Ethereum and Binance via a trustless portal. With the utilization of smart contracts and trustless custodians, the platform facilitates two-way transfers of crypto assets and issues privacy coins at a rate of 1:1. All transaction details stored on the Incognito blockchain are confidential and do not appear on the public ledger unless they are transferred back to their original blockchain. Therefore, users have full control of their personal data and assets, allowing them to send, receive and store any cryptocurrency in complete anonymity.
The future trend of privacy coins
Even though privacy coins are a controversial topic around the world, there is an increasing demand for this class of cryptocurrency. While some people may see them as a tool for criminal activity, their benefits in legitimate situations are undeniable. In years to come, current privacy crypto projects will need to achieve further advancements to live up to investors’ expectations.