The Complete Beginner’s Guide to Privacy Coins

Privacy coins are gaining traction as they fly the flag of financial privacy. Over the decade, digital currencies have seen their fair share of unjust scrutiny regarding their privacy policies. At one point or another, we’ve all heard of the “evil” that is its anonymity hallmark and how its primary users are criminals hiding behind it. However, no digital currency is disparaged for this particular feature as much as privacy coins are.

Yes, blockchain-based cryptocurrencies allow users to use pseudonyms, giving them anonymity. However, most fail to understand that having a pseudonym doesn’t guarantee privacy. 

Most transactions on a blockchain are traceable and can be viewed by the public. Addresses can be linked, and someone can reveal the pseudonym’s real identities, which completely disintegrates their privacy.

This is where privacy coins come in. They were created as a reaction to the realization that other digital currencies aren’t private at all. As more people look into securing their financial privacy, we’ll examine what these coins bring to the table.

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What are Privacy Coins?

Privacy coins are unique cryptocurrencies that give users complete anonymity when making transactions. They use enhanced and foolproof stealth tactics that conceal the user’s identity and transactions. In addition, their built-in privacy features empower users to remain anonymous with different levels of privacy protection. 

Typically, privacy coins conceal records of the sender and receivers’ addresses and undisclosed transaction amounts and keep wallet information private.

So, what makes cryptocurrency private?

Features of Privacy Coins

Privacy

Absolute privacy comes with advanced cryptography beyond essential anonymity. For example, a privacy coin makes its user’s privacy a priority by concealing their identities and transaction histories. Transaction details, once hidden, should not be traceable or linkable to the user.

Furthermore, wallet balances should remain private, making it impossible to generate “rich lists” of the network’s wealthiest wallets.

Fungibility

Every cryptocurrency unit is always identical and interchangeable when a coin is fungible. However, Bitcoin is not fungible because every coin is linked to its transaction history. Therefore some bitcoins could have a lower perceived value depending on their previous use, like something illegal. Therefore, someone can choose not to accept bitcoins with a questionable transactional history, making those coins less valuable than those with clean transactions. 

Privacy coins must be identical and interchangeable to be private and valuable cryptocurrencies.

Decentralization

Private cryptocurrencies should offer a trustworthy and safe environment for value transfer. Ideally, privacy coins should provide a few decentralization layers like mining hash power distribution, nodes’ geographical location, and many more.

Liquidity

There should be a demand for cryptocurrency. If no one is willing to accept it, it can’t be used as a privacy coin.

Examples of Privacy Coins

You might want the added privacy of these coins for several reasons, none of which are criminal. Let’s look at a few of the privacy coins available today.

Monero (XMR)

Monero is one of the most private cryptocurrencies available. The coin uses the CryptoNight proof-of-work algorithm to make the network ASIC-resistant. Within that, Monero uses several different techniques like ring signatures and stealth addresses Ring Confidential Transactions to increase privacy. These techniques mix up transactions in the network to ensure no one observing the Monero blockchain can trace transactions.

The only thing displayed on the blockchain is the validity of transactions. Therefore, only the sender and receiver can tell the number of coins transferred. The high level of privacy and security makes Monero quite accessible for all online activity.

However, Monero is challenging to purchase with fiat currency. It is purchased using other cryptocurrencies, and some merchants accept it as payment.

ZCash (ZEC)

ZCash is a widely used coin that offers optional privacy. It implements a cryptography tool called “Zero-Knowledge Proofs” that allows users to protect their transaction privacy. ZCash uses an open blockchain ledger that doesn’t record, send, or receives addresses. Instead, only the sender and receiver have the encryption key to the transaction.

Verge (XVG)

It was initially known as DogecoinDark. Verge differs from most private coins that rely on cryptographic techniques to secure privacy. Instead, it uses an anonymous network layer, Tor and I2P, to ensure user privacy. In addition, the tools fully obfuscate the user’s IP addresses and location.  

Tor and I2P work together to hide a user’s location and offer stealth addresses, ensuring there is no link between transaction records and identifying information.

Author’s Notes

The increased government regulatory scrutiny in the cryptocurrency market makes privacy coins an ally against privacy infringement. These coins’ enhanced privacy features to ensure that the users’ identities and activities are protected. Let’s not forget that privacy coins are fungible, and their history of use can’t corrupt their value. The choice in the currency remains up to you and what fits you best.

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When picking a privacy coin to invest in, one needs a lot of initial research. It is worth mentioning that the systems behind each currency keep on developing and changing. It’s therefore essential to be up to date with your information.