Bitcoin is one of the most secure cryptocurrencies, with a hash rate that climbed to an all-time high in January 2022. But transactions made on the Bitcoin blockchain are transparent and can be seen by anyone using widely-available blockchain explorer websites.
While future upgrades to the Bitcoin core code could make transactions more anonymous, for now any Bitcoin transaction can potentially be traced back to its source. This has led developers on a quest to create the most private cryptocurrency.
Top Privacy Coins and How They Work
There are a variety of technological methods that cryptocurrencies use to anonymize transactions. Which method works best to create the most secure cryptocurrency is a subject of heated debate within the community.
For investment purposes, it should be noted that all of these coins are highly speculative, risky, and can require opening a digital currency exchange account to trade them. As a general rule, the smaller the market capitalization and daily trading volume, the higher the risk.
Here are some of the top privacy coins available on the market today.
1. Bytecoin (BCN)
Bytecoin , which is based on the CryptoNote technology, claims to be the “first private untraceable currency.” CryptoNote was created with the goal of making transactions both a) untraceable and b) un-linkable.
Untraceable means observers cannot tell who sent a transaction to a specific recipient, while un-linkable means that observers cannot tell whether or not any two transactions were sent to the same source. The untraceable aspect is accomplished through ring signatures.
These ring signatures make its transactions opaque, meaning observers can’t see who sent the transaction, how much it was for, or who received it. Ring signatures basically string transactions together in a way that makes it difficult (but not entirely impossible) to tell them apart from each other.
To achieve un-linkable transactions, CryptoNote uses one-time keys. With ring signatures, it’s still possible to see incoming transactions to a single public key (wallet address). To fix this, CryptoNote automatically generates one-time keys whenever someone receives coins. It’s based on an encryption method known as the Diffie-Hellman Key Exchange, which allows for the sharing of secret data between two parties.
When someone sends Bytecoin to another Bytecoin address, the sender creates a unique code that gets used in the transaction. This unique code makes it look like the coins were sent to a different crypto wallet each and every time.
As of late February 2022, BCN had a market cap of $30.2 million and daily trading volume of about $30,695.
2. Monero (XMR)
Like Bytecoin, Monero is a private cryptocurrency that has privacy features built into all its transactions. XMR is actually a hard fork of BCN. That means Monero uses the same privacy tech as Bytecoin and shares most of the underlying characteristics.
When Bytecoin was created in 2012, 80% of the total supply was already in existence, as opposed to most mineable cryptocurrencies that begin with very little supply in existence.
This led seven of the developers working on Bytecoin to create a new coin by hard forking the BCN network. They called this new coin Bitmonero, which was then changed simply to Monero, which means “coin” in Esperanto.
As of late February 2022, Monero is worth over $2.7 billion with a daily trading volume of about $128 million.
3. Zcash (ZEC)
Zcash uses a technology called “zk-SNARKs,” short for zero-knowledge succinct non-interactive arguments of knowledge.
The exact details are about as complicated as the name makes it sound. What matters is that zk-SNARKs allow one party to prove to another that something is true without revealing anything specific, making this solution ideal for private crypto transactions.
However, privacy is not a default feature of Zcash, meaning that transactions are not automatically made anonymously. Zcash allows for four different types of transactions with varying levels of privacy.
The pros of Zcash is that it has some of the strongest privacy protocols on the market and the second-highest market cap of any coin on this list. The con might be the different types of transactions leading to confusion among users, some of whom might assume all Zcash transactions to be private.
As of late February 2022, Zcash is valued at $1.5 billion with a daily trading volume of about $265 million.
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4. Dash (DASH)
Dash was the first private cryptocurrency created in 2014. Originally called DarkCoin, the coin eventually rebranded itself as DASH, short for “digital cash.”
As the name implies, Dash is meant to be used as a medium of exchange. Transactions can clear in a second and can cost less than a penny.
In addition to the typical crypto miners, Dash uses something called “masternodes.” These central masternodes receive 45% of all DASH mining rewards in exchange for performing essential functions on the network, including making transactions private and processing them quickly.
One of the potential cons of DASH is that these masternodes make the network more centralized than some other crypto networks.
As of late February 2022, DASH is valued at more than $968 million with $176 million in daily trading volume.
5. Verge (XVG)
Verge describes itself as a “cryptocurrency designed for people and everyday use.” Verge was created in 2014 as DogeCoinDark. Like Dash, DogeCoinDark rebranded itself shortly after its inception, changing its name to Verge.
Verge uses a technology called the Wraith Protocol to make transactions private. Wraith Protocol anonymizes transactions through the Tor Network.
By routing internet connections through multiple anonymous nodes around the world, The Tor Browser works to hide IP addresses. Wraith Protocol uses this tech for the purpose of anonymizing cryptocurrency users. This feature is optional and must be turned on.
Some benefits of Verge include fast transactions, low fees, and the potential to scale and be used by more people. The big drawback is that most of the total supply of XVG is already in circulation, so the coin will likely lose value in the long-term due to inflation, just like Bytecoin.
As of late February 2022, Verge is valued at around $155 million with a daily trading volume of around $6.4 million.
Privacy coins have only existed since 2012, and didn’t really burst onto the scene in a big way until 2014. The tech is even newer than Bitcoin, and the landscape is constantly changing.
Monero is thought to be one of the most private cryptocurrencies, so much so that it has been the subject of scrutiny by regulatory agencies. But some privacy enthusiasts argue that coins like Zcash have better privacy protocols and that they might be the most secure cryptocurrencies. The subject is still up for debate.
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