While Bitcoin represents an open and transparent peer-to-peer monetary system, its use hasn’t granted participants the privacy once thought. While Bitcoin is pseudonymous in that the identities of transacting parties are obscured, trades aren’t anonymous – meaning that transaction details and transferred funds are open to all to see.
Those seeking to conduct private transactions can, however, turn to privacy coins – cryptocurrencies that intentionally obscure or obfuscate the details and/or identities of transacting parties.
Originally created in 2014, Monero is sometimes recognized as the most visible privacy coin.
Monero leverages the concept of ring confidential transactions – a means which essentially bundles together sending and recipient addresses and renders transaction flows opaque. Further, technologies such as ring signatures and stealth addresses can obscure both the sender and receiver in any given transaction.
For these reasons, Monero has quickly risen in popularity – and its focus on privacy has presented a strong focus on fungibility.
In a somewhat alternative approach to the protocols leveraged by Dash and Monero, Zcash has risen to fame for its use of ‘zero-knowledge proofs’ (called zk-SNARKS).
Fundamentally, this allows data recorded on a blockchain to serve as a private means of verification. The Zcash enables the encryption of both sender and recipient addresses alongside transaction amounts – meaning that any analyst attempting to determine the origin, destination, and nature of a given transaction might well be stymied.
Importantly, Zcash does not obfuscate the IP addresses of its users – meaning that Zcash cannot hide personal identifiers linked to public data.
A newer entrant on the list of privacy-focussed cryptocurrencies, Bitcoin Private has its origins as a ‘merge fork’ of Zclassic and Bitcoin.
If that doesn’t make any sense, let’s back up.
In the beginning, Bitcoin itself was forked into Zcash, which was then again forked into Zclassic. Earlier this year, Zclassic proponents elected to re-brand the cryptocurrency project to Bitcoin Private in a bid to enthrall new users by using the Bitcoin brand name. Fortunately, the bid paid off, and Bitcoin Private is now ranked as one of the top 100 cryptocurrencies by market cap.
Bitcoin Private essentially introduces Zcash’s zk-SNARKS technology to Bitcoin users, and offers both a larger block size and advocates ‘decentralized mining’ through ASIC resistance.
Digital Cash, or Dash, originally started life as DarkCoin – a privacy-focussed effort. Today, Dash is one of the largest cryptocurrencies by its market capacity alone, which presently stands at some $2 billion USD.
Dash is unique in the sense that it provides both a transparent and ‘opaque’ method of transaction. While Dash users can opt to issue Instant transactions which are recorded on a blockchain similarly to how the Bitcoin blockchain functions, transacting parties can also use its PrivateSend feature, which uses a decentralized ‘mixing’ service.
Essentially, this enables three or more participants to pool their funds – leaving any intended transaction obfuscated. The cryptocurrency has its limits, however, and at present only allows 1,000 DASH to be spent per PrivateSend transaction.
Similarly to Dash, Verge is a newer cryptocurrency which offers its users the option to either send public or private transactions.
Verge leverages its ‘Wraith Protocol’ to enable users to differentiate between sending transactions on a private or public ledger.
Unlike other privacy-focussed cryptocurrencies, Verge does not ensure cryptographic privacy – instead, the cryptocurrency uses Tor and I2P routing to conceal a user’s identity when participating in transactions.
Verge has, however, suffered numerous hacking attempts in the recent past, which has seen malicious parties walk off with undisclosed sums.