- Privacy coins are considered to be the safest payment option because of their obscured transactions.
- Zcash, Monero, and Dash like cryptocurrencies are using this cryptographic technique for data hiding.
Privacy coins are those elements of a decentralized ecosystem that work as privacy-focused cryptocurrencies. These data-hiding techniques not only obscure the details associated with a transaction but also shield it from prying entities who are looking for opportunities to sneak into your wallet or other relevant crypto holdings. Various techniques are introduced by many cryptocurrencies to prevent data tampering. Still, privacy coins are one step ahead in this race because of their built-in functions that use several methods to hide your transaction details registered on a distributed ledger.
Working Method of These Coins
Privacy coins stand out from the crowd due to their out-of-the-box approaches that include methods that encrypt an individual’s transaction history as well as their identity. These coins use strategies such as:
- Stealth Address
This feature is responsible for the creation of a new address every time a user receives any type of cryptocurrency. Monero coin is one of the cryptos that utilize this method of generating a public address. Private keys also display a private spend key in the case of fund transfers and incoming transactions.
- Ring Signature
It joins multiple users together in a ring format to obscure their specific identities. This method makes it more difficult to identify or track which user created a certain signature. This method of data hiding is used by Bytecoin and Monero (XMR) to secure a transaction.
- Zero-Knowledge Succinct Non-Interactive Argument of Knowledge
zk-SNARKs is the method that includes cryptographic encryption to validate a particular transaction’s legitimacy while hiding the transaction’s details. Zcash (ZEC) is the best example of a privacy coin that inherits the wide-scale implementation of the zk-SNARK method.
Why Use a Privacy Coin?
These coins are developed with privacy-enhancing features that reduce traceability and enhance a transaction’s anonymity. These coins operate similarly to traditional currencies out there but within a digital environment to ensure the data obfuscation associated with a transfer protocol. It’s more like a bank or ATM withdrawal, where the bank manages a record but there is no trace of your expenses until and unless the amount is deposited back to the bank.
The cryptocurrency exchanges (CEX) supporting privacy coins need an initial ID verification from an individual to check their legitimacy. However, the tracking and revelation of these datasets is a difficult task for these exchanges due to the privacy features of these coins.
This coin is considered to be at the top of this list due to its integral privacy features. This cryptocurrency aims to keep its user’s transactions hidden and untraceable at the same time. This coin works to hide transaction details at both the sender’s and recipient’s ends. By using features like ring-signature and single-use addresses, it succeeds in hiding critical details.
Unlike Monero and Zcash, Dash doesn’t entirely focus on privacy; instead, it offers an optional privacy feature with its PrivateSend function to obscure transactions. This privacy coin was forked from Bitcoin to improve the predecessor network’s discrepancies. It uses a private function called CoinJoin that helps to obscure multiple transactions, along with an instant transaction function known as InstantSend. This coin is widely adopted in countries facing inflation in their fiat currencies.
This privacy coin utilizes zero-knowledge proof technology to make transactions anonymous while hiding the transaction details from the public ledger. Zcash cryptocurrency is heavily inspired by Bitcoin, which capped its total coin circulation at 21 million and so Zcash follows the same path. It offers several features, from fully public to fully private functions, which makes this coin more regulatory-friendly compared to XMR.
These coins are an absolute solution to the limitations associated with existing cryptocurrencies that face different malicious activities like hacking, scams, and fraud. Because of data hiding linked to transactions, it becomes difficult for prying eyes to track any transfer where they can grab an opportunity to access a user’s details.