Privacy Coins – What are These?

Anonymous cryptocurrencies, also called “privacy coins,” are digital coins with technical features that make it possible for network participants to hide their actions in the blockchain and prevent any privacy breach. Bitcoin, for example, is not a completely anonymous cryptocurrency because all transactions are shown in the public blockchain. If you want to, you can link addresses and payments to a specific person or company. Even more so if the transaction involves an exchange wallet and the exchange needs to check that the person is who they say they are.

Technical Aspects

Private coins hide the source and reason for transactions on the blockchain. There are different ways to do this, but we’ll look at the main ones below. Some methods let you hide the real amount in the user’s wallet, while others mix several transactions together to make it harder to track the links between inputs and outputs.

In the end, private coins take care of two different things at once: anonymity and being hard to track. The first makes sure that no one will know who or what is behind the transaction, and the second makes sure that third parties can’t use blockchain explorers to figure out where the money came from.

On the crypto market, there are a lot of anonymous cryptocurrencies, and it can be hard to choose one that meets all of your needs. Another problem is that global regulators are going after private coins more and more to stop money laundering and terrorist financing. As a result, some crypto exchanges don’t list them. When working with private coins, be careful and make sure you don’t break the law in your area.

Private Coins’s Main Strategies

Stealth addresses. They work so that the sender uses a different one-time address for every transaction, even if the same person gets paid more than once. The Elliptic Curve Diffie-Hellman protocol is often used to make these addresses. There are, however, other kinds as well. Stealth addresses are a great way to protect the privacy of transactions, but government agencies can check up on them.

Ring signatures. The ring signature scheme lets a member of a group sign a transaction on behalf of the group without revealing who sent the payment. The group is put together by chance. No manager would be able to tell who the real signer is. A single signature makes sure that the sender stays anonymous.

Zk-SNARKs. It stands for Zero-Knowledge Success Nonactive Argument of Knowledge, which is another way of saying “zero-knowledge proof.” Lets user A show user B that statement X is true without giving away any information other than the fact that statement X is true. For instance, on the Zcash network, transactions can be fully encrypted on the blockchain while still being confirmed as valid by the network’s consensus rules.

CoinJoin. A way to stay anonymous that requires more than one party to sign a digital smart contract together in order to mix coins in a new Bitcoin transaction. As a result of the transaction, everyone gets the same number of coins, but the addresses are mixed up to make it harder for people outside of the transaction to track. It’s hard to do a CoinJoin by hand, but some anonymous wallets, like Wasabi and Samourai, offer this service.

How do regulators handle private coins?

The government is fighting against these kinds of technological solutions because anonymous cryptocurrencies can be used for illegal things and the transactions can’t be tracked.

Summary

In the virtual world, privacy is one of the most important things to have. At the time Bitcoin was created, it seemed like a way to send money without being traced. However, after a few years, law enforcement agencies have learned how to track transactions and link them to specific people and businesses.

This makes people more likely to use the cryptocurrencies we talked about above, which are more private. There are always new options, and there is a lot of competition between them, which is good because it means the user gets the most convenient, safe, and quick ways to keep their privacy.