The World Of The ‘True’ Anonymous Cryptocurrencies
If blockchain technology is the foundation on which cryptocurrencies are built, it is also the channel through which individuals, organisations and companies collect, in abundance, information on all the crypto transactions carried out by targeted third parties. Furthermore, it is precisely this which cryptocurrencies such as Bitcoin have demonstrated their limitations. In fact, on their respective blockchains, all the information relating to each transaction is accessible to anyone willing to take the time to consult it. It is precisely this weakness which gave rise to genuine anonymous cryptocurrencies. They have paved the way for confidentiality-orientated cryptography. Let’s embark on a tour of this world of cryptocurrencies that make your transactions confidential!
Why do we need anonymous cryptocurrencies?
Understanding the importance of anonymous coins requires an understanding of how blockchains work. For the purposes of this discussion, it should be noted that a blockchain is a time-stamped chain of a cryptocurrency’s transaction records. These records are managed by several thousands of interconnected computers called ‘nodes’.
A blockchain or ‘chain of time-stamped transactions’ is not governed by any central authority – this is one of the main reasons why Bitcoin was created. Instead, all information relating to a transaction, like the identities of the two parties and the amount of the transaction, are accessible to all who know the public address of the sender and/or recipient. This principle of transparency facilitates the verification process and ensures that the network remains decentralised at all times.
This is how the most famous cryptocurrencies function, such as Bitcoin, Ethereum, Litecoin, Ripple and so on. They therefore do not guarantee the confidentiality of a transaction which means they are available and visible to anyone at any time. Thanks to this purposely built-in flaw, anonymous cryptocurrencies were born with systems designed to offer complete anonymity.
Popular anonymous cryptocurrencies
Although their common goal is to offer anonymity, anonymous tokens do not all work in the same way. It all depends on their respective anonymisation protocols that they use. We will now present some of the most used anonymous coins, starting with the most well-known, Monero.
Created in April 2014, Monero is currently the most-used anonymous cryptocurrency. It was created out of a hard fork with Bytecoin and is so secure that it is impossible to know even the volume of transactions.
Monero uses very complex cryptographic systems such as:
- The ‘Ring Signature’ – to hide the sender’s address using by mixing public keys
- Stealth addresses – to hide the recipient’s address
- The ‘Ring Confidential Transaction’ – to hide the volume of transactions
All XMR transactions are therefore completely confidential.
Zcash is also a very well-known anonymous cryptocurrency. Created by Zooko Wilcox, it ensures the confidentiality of transactions thanks to its zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) protocol. Better described as zero-proof knowledge.
In fact, the zk-SNARK protocol allows a user to authenticate themself without a username and password, which prevents the verifying nodes from accessing personal data whilst verifying a transaction.
Of course, Komodo (KMD), which is a cryptocurrency born out of a ZEC hard fork in September 2016, is also found on the list of anonymous cryptos.
Launched in January 2014, DASH – which first called itself XCoin and then Darkcoin – offers optional anonymity primarily based on its PrivateSend functionality.
Its PrivateSend feature allows transactions to be ‘mixed’ which gives the user the same privacy properties as taking cash out at an ATM. Mixing prevents outsider observers to see what you then do with your DASH, effectively making your future transactions anonymous. In addition, Dash users can carry out transactions without creating an account and without authenticating themselves.
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The coins mentioned above are some of the leaders in this type of cryptocurrency, but there are of course several other anonymous cryptocurrencies. They might operate on a smaller scale but they deserve to be mentioned. These include:
- Verge (XVG): uses the Tor protocol and the Invisible Internet Project (I2P) network to remove direct connections between the parties of a transaction by passing them through relays, so that it is not possible to identify the recipient and sender
- Horizen (ZEN): formerly known as ZenCash, is also based on the zero-knowledge-proof protocol
- Zcoin (XZC): was created in September 2016 and also based on zero-knowledge proof
- NavCoin (NAV): was created in June 2014 and gives users the choice of accepting or refusing anonymity
- PVIX (Private Instant Verified Transaction): launched in January 2016 and uses the Zerocoin protocol to offer total anonymity
As you can imagine, anonymous cryptocurrencies have often served as privileged channels for illicit transactions, which has led them to be distrusted by regulatory authorities. However, that does not prevent them from offering a service which the giants of the industry, Bitcoin, cannot offer: protection against prying eyes.
Just your average global millennial embracing, and interested in, the future of money and finance. Excited by blockchain tech as well as fintech but have a special passion for DeFi and Yield Farming, what will this technological disruption bring next?