Introduction to Privacy-centric coins

With the continued explosion of crypto, privacy and security are still important considerations many people must face. Below I will cover why a user should be concerned with privacy, a few of the basic concepts behind privacy coins, and give a broad overview in general of the topic.

Privacy Concerns

With cryptocurrencies, people have their own public key and private key. The public key is the address that anyone can use to send you money. Unlike a bank account, however, there is no form of identification attached to this. There is no name, address etc. associated with the key.

However, there are certain features of some cryptos, say Bitcoin, that may inadvertently lead to privacy concerns. All transactions on the Bitcoin network are recorded and the transaction history can be traced all the way back to when the coin was first made. That means with some detective work, someone can find the amount of bitcoin and the transactions to and from associated with a particular address.

Privacy Coins

There is no best solution. There’s various different solutions and they all try to solve this problem but they have advantages and disadvantages.

Dash

Dash uses a technology called CoinJoin. What it does is take a bunch of people who are trying to do a transaction, and you mix it up. You link the people together, pool up the resources, mix it together and now you have no idea who sent what to where.

There are some limitations to this method. It can only be used with predetermined amounts of the currency.

Monero

Not based on bitcoin blockchain technology but rather something called Cryptonote. This uses emissions and ring signatures. When making a Monero transaction, it creates a lot of dummy accounts to try and mix up the signal a bit. Unlike CoinJoin, it doesn’t require a mixer and you have more flexibility in regards to the transaction amount.

There are disadvantages though. Recently, Monero discovered a bug with Cryptonote which allowed the creation of coins out of thin air. They found out about this bug before it went public however.

Zcash

Uses Zerocash technology or zk-SNARKS. Basically it is a shielded transaction that can shield both the amount transferred and also the senders.

Another interesting thing is that Ethereum is trying to incorporate zero cash technology into the ethereum network.

3 comments

  1. I just can’t envision the world where privacy coins are a mainstream form of currency. I mean if everyone’s wealth is entirely anonymous then how can anyone be compelled to pay taxes? I not saying it can’t happen but I just worry about the complete transformation of society that this technology can potentially bring about.

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