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Crypto 101: What are Privacy Tokens?

When you hear Privacy Tokens you might think of something similar to Bitcoin and Ethereum, two extremely well-known cryptocurrencies. However, unlike Bitcoin and Ethereum, privacy tokens are truly anonymous. We hate to break it to you but Bitcoin is not as anonymous as you may think. While no personal information doesn’t show on typical BTC transactions, it is not completely anonymous like Privacy Tokens.

Unlike other digital cryptocurrencies, privacy tokens will conceal the information present in a typical transaction. Hence, these coins allow for a non-disclosure of identity providing users with financial privacy. Especially with the scarce amount of privacy in the digital age, the privacy of our information plays a large role. Note that this is the Beginner’s guide to privacy coins. We can trace back and identify every Bitcoin related to illegal activity. Therefore, some people use a Bitcoin mixer, for example, bestmixer.io to make transactions untraceable and fungible. It can distort the trail from the original source but it is not completely untraceable. Therefore, several cryptocurrencies that specialise on concealing transaction data have been introduced. We will discuss a few major Privacy Tokens in this article. 

Monero (XMR)

Monero (XMR) is the first altcoin to provide untraceable transactions. Monero’s privacy comes from CryptoNote protocol that implements a ring signature system. During each transaction, there will be an inclusion of numerous addresses for mixing. An observer cannot tell which address is the real sender. It provides privacy  for everyone included in the ring signature.

Also, the transaction amount is confidential. They apply a Math Function so that only the sender and the receiver can know the actual amount. We call the technology Ring CT.

The generation of a one-time random address will be present for each transaction. Therefore, transactions are unlinkable to your public address.

The diagram illustrates how XMR transactions are obscured with more routes the transaction  goes through. After implementing ring signatures, all users referenced will have an equal possibility of being the actual sender.

Verge (XVG)

XVG was created back in 2014 under its original name, DogecoinDark. XVG is an open-source privacy coin that has a team of international developers. With the help of its anonymity tool Tor and its anonymous network layer I2P, it is able to hide transactions’ IP addresses and locations. Typical transaction speeds on Verge are estimated to be at 5 seconds with the use of Simple Payment Verification (SPV).

The Core QT wallet also has built-in TOR integration and SSL encryption which obscures the IP addresses of users. With the introduction of the Wraith Protocol upgrade, it also enables users to send and receive payments privately across the Verge blockchain by making addresses invisible. Verge users are also able to switch between private and public ledgers. Lastly, Verge offers five different Proof-of-Work algorithms for ming – Lyra2rev2, Scrypt, X17, blake2s and myr-groestl.

Key Features of Verge:
-Verge can be mined

-Allowed for everyday payments

-Decentralized money

-Backed by many partners

Beam

Beam is a next gen confidential cryptocurrency that is based on the innovative and elegant Mimblewimble protocol. This token allows users to have complete control over their privacy. The system allows users to decide what information should be made available to which parties. Moreover, no addresses are stored in the blockchain – this includes information about the sender or received of a transaction. Beam is also built on the efficient and confidential Mimblewimble blockchain. 

To read more about Beam, check out this article:

https://docs.beam.mw/BEAM_Position_Paper_0.3.pdf 

Grin

Grin is a Privacy Token launched in 2019. This token is censorship-resistant and is native to the Mimblewimble blockchain. The digital currency is not controlled by any company, foundation or individual; instead it is built openly by developers who are distributed around the world. There are also no addresses and amounts of transactions being relayed among a subset of peers before it is broadcasted.

Grin also makes it extremely easy and quick to set up a full-node. With the ease in running a full node, there are also a wide variety of Gin wallets that users can choose from to serve your needs. Grin is slowly gaining popularity as more and more services and merchants are accepting Grin from around the world. It will only be a matter of time until you see the adoption of Grin to our daily lives.

 Key Features of Grin:

-Complete privacy

-Scalable transactions

-Ease for p2p transactions

-Decentralized advancement and mining

Dash (DASH)

The launch of Dash (DASH) was in Jan 2014 as Xcoin and had a rebranding as Darkcoin. In Mar 2015, it rebranded again with the name Dash to avoid correlation to the dark market. The Masternode performs its private transaction through Privatesend. Privatesend can break down your transaction into specific denominations (0.01,0.1,1 and 10 DASH) and mix it with transactions from different people. After a few mixes, the coins will be indistinguishable from other coins on the network.

 However, the Privatesend function is optional. Other transactions are as transparent as those on Bitcoin’s blockchain. The anonymous transactions may still be traceable if they connect to the transparent ones.

Key Features of Dash:

-Completely anonymous transactions

-Two-tier network

-Powered by masternodes (Full Nodes)

Zcash (ZEC)

Zcash (ZEC) is based on Bitcoin’s code. They use a zero-knowledge proof method called zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). It is a method that one party can prove to another party that a given statement is true, without conveying any information apart from the fact that the statement is true. Encryption for transaction metadata during verification, including the amount, sender address and receiver address.

Similar to Dash, users can choose to send publicly or privately (shielded address/transparent address). However, most users and exchanges only use or support transparent addresses. Those who use the shielded function will be quite suspicious to investigators. Therefore, using Zcash is not 100% anonymous.

Key Features of Zcash:

-Uses a zero-knowledge proof method aka zk-SNARK

-Can choose to send both publicly or privately.

How to Buy Privacy Tokens?

Some of the privacy tokens are available at exchanges while others have to be bought at the token’s official websites. The URLs below will correspond to each token’s official website. 

 

Monerohttps://www.getmonero.org/

Vergehttps://vergecurrency.com/

Beamhttps://beam.mw/

Grinhttps://grin.mw/

Dashhttps://www.dash.org/

Zcashhttps://z.cash/

 

*Note – before you make the decision in purchasing the crypto, make sure that you have done your own research!

Conclusion

For people who care about privacy, these coins are better than bitcoin. However, some suggest that there can be a vulnerability in their privacy technology. According to a research paper, there was a risk that Monero’s transaction can be traceable because a pattern can be seen in the mixing process. Though this problem has a solution, there may still be unforeseen vulnerabilities. Also, the adoption of Monero is slow because of the complexity of its blockchain. With low usage(~3000 tx per day) and intense regulation on exchanges, the government may be able to track transactions on exchanges.

Last year, the Japanese government discouraged exchanges from listing cryptocurrencies that can provide a sufficient degree of anonymity. With increasing regulations, privacy coins may need to compromise privacy or go underground. In contrast to the common misconception, crypto is not a better tool than cash for illegal activities or money laundering. Instead of just using blockchain analysis to monitor suspicious transactions, investigators have various tools and a lot of resources to track illegal activities. 

In a recent senate hearing, US Customs officials explained that money laundering using crypto can be traced. Criminals use crypto like btc/monero to trade drugs and transfer value. However, they still need to convert crypto into fiat. To exchange for fiat, they have to go through crypto exchanges or p2p platforms. The investigators utilize traditional methods such as surveillance, undercover and informants, in combination with blockchain analysis to find out the illegal activities.Riccardo Spagni, a core member of Monero has said that “Privacy isn’t a thing you achieve, it’s a constant cat-and-mouse battle.” It seems that uncrackable anonymity is not yet achievable for existing cryptocurrencies.

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