What Are Privacy Coins?
Though preserving anonymity remains an integral component of blockchain technology, some cryptocurrencies — dubbed “privacy coins” — take their dedication to anonymity a step further by implementing advanced privacy measures. With privacy coins, this anonymity is extended throughout the network, concealing identities and all transactional information about its users.
Some of the most well known privacy coins include Monero and Zcash; however, there are dozens of other privacy coins around. At one point, the token Dash was also a privacy-focused coin, but later shifted gears to focus on digital payments.
While cryptocurrencies like Bitcoin post all transactions to a public ledger, all of this information is obfuscated with privacy coins. For Bitcoin and Ethereum, transaction information remains transparent, presented under a pseudonym (a cryptographic address). However, despite such anonymity, Bitcoin transactions can still be publicly tracked, traced and verified, to some degree.
Meanwhile, privacy coins — which are occasionally referred to as AECs (anonymity-enhanced cryptocurrencies) — protect the user to a fuller extent. Monero, one of the most popular and highly valued privacy coins, attests that their vision is to provide protection to their users. Moreover, Monero offers fungibility, ensuring that each user is equally protected from any form of surveillance, hiding the amount of the transaction, the wallet addresses and identities of the sender and receiver. Monero achieves this level of secrecy by providing one-time stealth addresses for each transaction, and ring signatures (ringCT) to mask identities with a decoy. Check out our guide on how to mine Monero.
What Are the Best Privacy Coins?
The top privacy coins (by market cap) are Monero, Zcash, Oasis Network and Secret. However, not all privacy coins are alike. Monero is an outlier in many ways due to the level of privacy it offers. Unlike Monero, Zcash, Secret and Oasis Network offer an option for transparent transactions that are published on the blockchain. The developers at Secret argue that striking a balance of transparency and privacy may be necessary for mainstream adoption of privacy coins.
CoinMarketCap provides a list of up to date and real time data on the top privacy coins by market capitalization in case this above information changes.
Are Privacy Coins Illegal?
Due to the vast obscuration of identity, there are several important legal issues surrounding these coins. Several countries have increased regulation surrounding privacy coins. Japan has banned them entirely, while Australia and South Korea have banned them from being sold or traded on crypto exchanges.
Because privacy coins like Monero can be used to protect criminals against charges for money laundering and other illicit activities, governments have concerns surrounding the widespread adoption of such untraceable technology. In the United States, government agencies are working to get a hold of more information and deanonymize privacy coins. In 2020, the IRS offered a reward of $625,000 to anyone who could crack Monero’s privacy network. Though a company called CipherTrace came forward and alleged that they had done so, Monero denies that anyone successfully exposed their network.
What Is the Future of Privacy Coins?
Though privacy coins have not exactly taken off in the same way as Bitcoin or Ethereum has, there is reason to believe they may see increased popularity in the future.
With the risk of added cryptocurrency regulation on the horizon, many privacy coins have seen a surge of interest as they offer more anonymity than typical tokens. However, the future of privacy coins is up for debate, as critics argue that “privacy” is not a top concern for cryptocurrency users. A recent study from the University of Massachusetts Lowell found that the average cryptocurrency user does not care all that much about “privacy” as much as they care about simplicity and ease of use.
