In the era of total globalization and tons of centralized services that store the end-users’ data, it’s become practically impossible to remain incognito, whether you send a message to a friend or buy things online. And since the central banks have failed to maintain the global economic stability and led to the crisis in 2008, the demand for a decentralized means of payment brought forward Bitcoin creation.
Bitcoin’s inventors have developed this cryptocurrency with the fact in mind that apart from decentralized production it should also give its users privacy. Authorities have no control over Bitcoin and don’t take kindly those who hide their income to avoid taxes.
Although all the bitcoin transactions are visible on the public blockchain, it’s still very hard to link the wallet address with the real person. If you take additional precautions, don’t purchase bitcoins from your verified account on a cryptocurrency exchange and use peer-to-peer services such as LocalBitcoins instead, it will be practically impossible to make out who you are.
For those who aim to achieve 100% privacy, multiple solutions been found. In this article, we’re going to review 4 popular privacy-oriented cryptocurrencies: Monero, Zcash, Dash and Verge. Actually, there are much more of them. PIVX, Spectrecoin, Sumokoin, Komodo, Zcoin and a few other cryptos are also designed to secure your privacy. But since the market is currently at the downtrend and most of the currencies will hardly survive this crypto winter, we are going to focus on the veterans of the crypto market that have at least some chances to see the next ‘bull run’.
Launched in 2014 as a fork of Bitcoin, Monero can now be regarded as the most popular and secure privacy coin. It comes with the following anonymity features that help XMR users stay completely out of anyone’s radars:
- Ring Signatures: While on Bitcoin every single transaction must be signed by the sender and the recipient which makes them both visible on the network, Monero utilizes the ring signature that requires the confirmation of a group of users. Usually, there are 5 members in every group that signs every given transaction, and it is impossible to track who exactly conducted the verification. That’s what makes Monero a completely untraceable coin.
- Ring Confidential Transactions (RingCT): This feature is designed to hide the amount of funds sent in each transaction. RingCT verifies that the input and the output amounts are equal, but doesn’t display the numbers themselves.
- Stealth Addresses: Unlike Bitcoin where funds are transferred directly from one wallet to another, Monero provides its users with the so-called stealth addresses that are in fact secret mediators between the sender and the recipient. No one but the participants of the transaction can see the stealth address and this is something that helps them stay incognito.
Apart from the high security, Monero also comes with incredibly low transaction fees. Since its hard fork in October 2018, the fees on XMR have decreased from $0.60 to $0.02 per transaction. The project developers don’t sit idle and keep on improving their project by adding more lines and commits to their GitHub account, although the numbers they show are not the first in line:
The downside of this coin is that it still remains highly centralized. According to arewedecentralizedyet.com (now archived), 3 entities control more than 50% of the voting/mining power of Monero, which makes it vulnerable to the “51% attack” and one day you may see your funds gone for good. However, this applies just the same to most of the other private coins that we are going to review here.
Zcash is also a privacy-oriented fork of Bitcoin. Zcash uses the algorithm with a scary name zero-knowledge Succinct Non-Interactive Argument of Knowledge proofs (zk-SNARKs). In simple terms, this is an encryption algorithm that is used to disguise all the data about transactions stored on the network.
Keep in mind that this algorithm is not perfect and the information about your transactions can still be found on the network by a blockchain analyst. On Zcash, the privacy feature is optional, and you will need some additional hard drive resources to turn it on.
The publicly available information shows that the privacy feature is not highly demanded. As of December 10th, 2018, more than 86% of all the transactions on Zcash network remain transparent.
Just as Monero, Zcash is not a truly decentralized currency (2 entities control more than half of the voting/mining power). It stands next in line after Monero by the number of GitHub commits, so the project keeps on developing.
Of all the popular privacy-oriented coins, Verge is the least preferable to use. But still, it’s worth to be reviewed as well.
Verge is the fork of Dogecoin which is the fork of Bitcoin. Apart from basing on a popular internet meme, Dogecoin doesn’t offer anything valuable to its users. Verge adds the privacy feature on top of Doge network, but it doesn’t come with any cryptographic features as Monero. It utilizes the Tor technology in order to hide the sender’s and recipients’ IP addresses during the transaction instead.
Another flaw of Verge’s security is that it displays the list of 100 top addresses that hold most of the Verge reserves on them. By clicking on any address you can also see the last 100 transactions associated with this address. So if you want to use Verge and stay incognito, make sure that you don’t use too much of it.
Dash is yet another privacy-oriented fork of Bitcoin that utilizes the Private Send feature to disguise the transactions on the network. This feature works as follows. Whenever you send your Dash coins to someone else, the funds are split into several smaller transactions among random addresses and thus get mixed up and lost in the network. Then they get together once more and are forwarded to the ultimate destination. This procedure can be repeated several times to enhance your privacy.
However, the core problem with Dash lies in its architecture. The Dash network is powered by masternodes that provide their operators with a reward for newly created coins of and keep track of all transactions. These masternodes can easily trace back the source of funds and to get yourself such a node you only need to get 1000 Dash on your balance ($72,000 as of December 10th, 2018). If authorities of any country get interested, they can easily afford themselves to set it up.
Although Monero is currently the #1 solution for those who want for some reasons to stay incognito when sending funds, the situation may change in the future. The cryptocurrencies represent a fairly new technology which is being vigorously developed, so the new players may come out into the light soon.
For example, the coin Komodo that we mentioned in the beginning currently takes the top positions by the number of GitHub commits. It means that its developers are working day and night to improve their product and bring it to the new heights, so perhaps we will soon see Komodo among the top privacy coins along with Monero and Zcash.
So the time is yet to show who will win this race of privacy.
Originally published at cryptoheroes.ch on January 19, 2019.