In the abundance of crpytocurrency projects out there, many are aiming to improve on what is currently lacking in the privacy sector. As more and more people are adopting cryptocurrencies, they begin feeling too exposed because of the public record they keep of all transactions executed.
This is why we are talking about Privacy Coins – those projects that add layers of anonymity or privacy – the lack of which is considered to be the “Achilles Heel” of Bitcoin and many of the most popular Alts.
In a way, privacy coins are an evolution in crpyto. At first many people don’t realize that Bitcoin transactions are not completely anonymous in the sense that the owner of each wallet is unknown, but every transaction is recorded and visible to anyone on the public ledger. This means that all transactions for a given wallet can be seen and audited. Therefore, if a person’s real-world identity is linked to a Bitcoin wallet address then anonymity is compromised.
Like Bitcoin, most privacy coins utilize a public ledger for transactions, but they add various ways of obscuring the identity of a sender or receiver of a transaction. In some cases even the amount is obscured or the user’s IP address. The leading privacy coins implement different solutions to this problem, but the key point is that the link between sender and receiver for a given transaction is obscured which obstructs tracking the activity of wallet addresses.
The more we start using cryptocurrencies in everyday activities, the more traceable and transparent our history becomes, many times we sacrifice a great degree of privacy in the name of security and protection against malicious third-party practices, but ever so often there comes the need for a truly private use whether it be for personal reasons or from a practical Business point of view such as the example of companies often need to maintain certain agreements with manufacturers and suppliers secretive, not open to the public ahead of a product launch.
Additionally, we are also facing some new regulatory issues (mainly in the Eurozone) in regards to using a publicly accessible and permanently recorded on a public ledger data. There are laws in the making that are aiming to provide personal freedom in regards to what data is being stored about individuals and being accessible in the public domain which is another concern of many crypto users today.
Privacy coins are designed to solve these issues and grant transaction anonymity in a decentralized and scalable way.
Let’s take a look at some of the leading technologies that have been developed so far in this space and I will try to keep things uncomplicated.
When we compare the top coins on the market, on top usually comes Monero.
While many other privacy coins started as forks of Bitcoin with added layers of masking, Monero is on an entirely different code and model. It is cryptographically private by default, utilizing several privacy features – most prominently being Stealth Addresses and ring confidential transactions (RingCT) as well as using the CryptoNote technology.
In simple terms, a recipient is able to receive multiple payments through a single address, while at the same time ensuring there are no links on the blockchain between their address and anybody else’s address. This is made possible by Stealth Addresses, where a random one-time address is automatically created for each transaction being made by the sender. In other words, all payments sent to the recipient are routed to unique addresses on the blockchain, which in turn prevents any links – masking the recipient and providing no way to see if anybody else has sent coins to the recipient.
Anonymity is enhanced with the help of Ring Signatures Confidential Transactions: outputs are masked, so the sender is not able to tell if it’s their coins that are then moved by the recipient, ultimately providing untraceability. This is done by grouping the transaction being sent, with other transactions from the blockchain, to obfuscate the outputs being spent and allowing for plausible deniability. Confidential Transactions include a cryptographic proof that the sum of the input amounts is the same as the sum of the output amounts, without revealing the actual numbers.
Moving on, the next most popular choice is Zcash.
It implements Zerocash which was an improvement on a protocol called Zerocoin. In contrast to Bitcoin which operates in a transparent manner by broadcasting and verifying payment transactions on a public ledger, with Zerocash these payment transactions are assembled and then verified, ultimately providing increased anonymity to the user.
Zcash implements the Zerocash protocol based on zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). A zero-knowledge protocol is a way for one party to prove to a different party that a given statement is true, without conveying anything other than the statement is indeed true.
In other words, you can verify the correctness of computations without having to execute them and you will not even learn what was executed – just that it was done correctly.
Zcash offers the choice of optional privacy. In other words, privacy (“shielding”) does not come by default. According to Zcash’s blockchain, only a mere 5% of the coins are held in private z-addresses, meaning that the majority of Zcash transactions are still public knowledge and not private at all.
Zcash is not “private by default” particularly due to the inefficiency of zk-SNARKs. The process of creating a transaction with zk-SNARKs is slow and costly according to my research.
Horizen (formerly known as ZenCash) is one of the forks of Zcash (indirectly). It actually forked out of Zclassic which forked from Zcash in order to remove the founders rewards) and it is not only a means of transacting but can also be used for secure and anonymous publishing. Through their ZENchat messenger service the end-users can provide private communications on blockchain, enabling worldwide anonymous publishing. This allows users to safely and anonymously create posts, without revealing their identity. This is possibly the unique feature of ZEN that makes it stand out in the crowd, with the use of zero-knoledge proofs (zkSNARKs) of course, this makes for a strong contender in the marketplace. It’s somewhat overlooked but with great potential for that matter.
Next on my list is Dash (formerly known as Darkcoin and XCoin) originally forked from Bitcoin. Dash offers the same features as Bitcoin but has improved capabilities, including instant and private transactions.
The main features of Dash include:
InstantSend : Immediate transactions with ability to handle large volumes.
PrivateSend : A coin mixing service based on a decentralized CoinJoin implementation.
Decentralized Governance by Blockchain (DGBB) : A mechanism for management of future funding and development through a self-governing community. It is a decentralized autonomous organization powered by a Sybil proof decentralized governance and funding system (DGBB) – also referred to as the “treasury system”, it is a consensus mechanism on network development and funding of the Dash ecosystem. 10% of block rewards go to this treasury.
InstantSend is the feature that Dash is really focusing on. They are trying to stand out from the crowd with their simple and user-friendly interface and near-instant transactions.
PrivateSend is decentralized coin-mixing service based on CoinJoin. This includes using Masternodes in place of a single gateway, chaining by mixing with multiple masternodes, restricting the mixing to only accept certain denominations (e.g.: 0.01 DASH, 0.1 DASH, 1 DASH, and 10 DASH, etc). Using PrivateSend mixing requires at least three different participants which allow funds to be merged together and create obfuscated transactions. Speaking of Masternodes, these are members of the Dash network who are “required to have 1000 Dash collateral, a dedicated IP address, and be able to run 24 hours a day without a more than a 1 hr connection loss. Masternodes get paid 45% of the block reward on every block, which is distributed to masternodes one at a time. Typically, around 2 dash is paid to each masternode every 7 days.” (Dash webpage)
Dash is not cryptographically private. Dash delivers anonymity through mixing, utilizing a modified version of CoinJoin – a method initially created to “anonymize” Bitcoins. My research revealed that the mixing process is liable to take up-to several hours or sometimes days to complete, depending on the amount of rounds the coins are chosen to mix through.
Similar to Dash (and some may argue “superior” in a way) is PIVX.
Another DAO (decentralized Autonomous Organisation), PIVX launched in early 2016 under the name of Darknet (DNET), after a short time it was rebranded to PIVX and is allegedly the first proof of stake cryptocurrency with a Zerocoin protocol level anonymity, thus making it truly fungible.
The PIVX implementation of the Zerocoin protocol converts publicly view-able PIV (Personal Identity Verification) into anonymous PIV.
The main goal of PIVX is also fast-speed transactions. It uses SwifTX technology to achieve near instant transaction confirmations in less than a second to overcome double spending challenges.
The main difference between PIVX and Dash is that PIVX is 100% Proof of Stake. This means PIVX doesn’t rely on miners, instead rewarding holders through a Proof of Stake (POS) mechanism. This way the power is shifted in the hands of the Masternodes who verify transactions instead of the miners.
Swiftly moving onto VERGE – the coin that polarized opinions the most. It’s a Love-it-Or-Hate-it coin project with many devotees but also a lot of fierce critics who claim that the whole project is a hoax.
Verge (XVG) began life with the name DarkDogeCoin. In 2016, they re-branded under the current Verge name and any analogies with Doge have been eliminated since.
By default, Verge is not cryptographically private. Verge only offers “privacy” by way of Tor and I2P routing, to obfuscate traffic and conceal a user’s IP address when transacting. There are no cryptographic privacy features with regards to the blockchain, the traceability of transactions and addresses, nor the concealment of the amounts being transacted. All information, including the destination of transactions and the amounts being transacted, are transparent on the blockchain and are easily viewable by an observer. Furthermore, Verge offers a rich list which is seen as a breach of any idea of privacy.
In regards to the protocol of Tor : this is a free software program that you can load in your computer (like a browser) that hides your IP address every time you send or request data on the Internet. The process is layered with heavy-duty encryption, which means your data is layered with privacy protection.
Verge had some recent issues with a 51% attack on the network that caused an accidental hard fork but this was swiftly handled within a few days and the project continues without any significant disruption.
DeepOnion is a new privacy coin project that is generating some interest in the community. Like a few of the other coins in this list, DeepOnion uses TOR to send untraceable transactions. It also uses a mix of Proof-of-Stake and Proof-of-Work protocols to offer fast confirmation times.
DeepOnion also employs stealth addresses to keep transactions private. As mentioned before, a stealth address allows the sender to use a one-time user address for their transactions. The recipient only needs a single address, but before they receive the value that is sent, that block is sent to unique addresses on the chain where they cannot be connected to the sender or recipient’s personal address. This ensures that only the sender and receiver can consistently know where payments originated and where they were sent.
DeepVault is an information storage service that allows users to store data in the blockchain forever. Unlike Bitcoin that has a 1mb block size limit, DeepOnion has a 1.5mb limit. This, coupled with the addition of the PoS mining means that the average block rate is about 47 seconds. During previous testing phases of the mining, it was found that DeepOnion was clearing about 1,825 blocks in 24 hours.
Komodo is the underdog in the cryptocurrency world, and also one many are unaware of. The interesting thing, however, is that they are also anonymous crypto.
Komodo achieves this by implementing zk-SNARK protocol inherited from Zcash.
That’s why Komodo also has similar limitations like Zcash in terms of private transactions. Also, Komodo is not only for private transactions because they are much more focused on decentralized exchanges, cross-chain atomic swaps etc.
BTCP Bitcoin Private created much hype recently because it forked out of two coins, Zclassic and Bitcoin, thus gaining a lot of traction very quickly. The project is using the Zerocoin protocol and is technically the same as Zclassic. This project had a very sketchy launch with some internal differences that led to their main developer abandoning the project and moving on to create other forks which gave him and all his projects a very bad name and the reputation of this coin slumped just as well as its price. The value went down so much that it lost more than 90% in just a few months. It never recovered.
Zclassic has a similar history, it began as a straightforward fork from Zcash minus the founders reward (20% of mined coins are awarded to the founding members of Zcash). It gained a very big community very quickly and was a respected project….until it’s creator began his serial forking of other projects.
There are other privacy-centric projects that I will not go into here, many of which are based on the Zcash protocol and there will be more created for sure like Zcoin (XCZ), Zion (ZOI), Kurrent (KURT) or Hush (HUSH) and Tpay to name but a few.
Last one I will mention here is NAV Coin. It also competes for a top spot among the key players with a decentralized model in place.
“Managing transactions and the issuing of NavCoin is carried out collectively by the network. NavCoin is open-source; its design is public, nobody owns or controls it” (Nav website)
NAV Coin doesn’t use cryptography to achieve privacy. Instead, they use complicated obfuscation techniques with a sub-blockchain parallel to the main one. The obfuscation is achieved by NavTech servers.
While most other cryptocurrencies implement some form of POW (proof of work) mining, Nav Coin was among the first to implement POS (proof of stake) which makes it possible to earn a 5% interest from staking your NAV. In order to do so, however, you’ll need to operate a staking node on the network. You can do this on your computer by downloading the Nav Coin Core client and setting the amount of NAV you want to stake. (more about staking coins see my previous posts).
This concludes my report for today, I will post some interviews with key developers from some of these projects to help understand them better so stay tuned (subscribe).