Privacy-focused coins—coins with strong anonymity features—have generated a lot debate within and outside cryptocurrency circles. Simply because these coins hide the details of their transactions, they have gotten the attention of privacy proponents, activists, criminals, crime fighters, and of course governments across the world.
The U.S. Secret Service, for instance, advised the House of Representatives to regulate privacy coins like Monero [XMR] and ZCash [ZEC]. In Europe, the region’s cybercrime watchdogs EUROPOL have also warned against the privacy feature of these coins while in Asia, Japan’s Financial Service Agency have pressured cryptocurrency exchanges in the country to delist coins with these anonymity features.
As blockchain users get uncomfortable with the ultimate transparency of public blockchains which leaves the details of their transactions traceable, they flock to coin mixing services or privacy-focused blockchain networks. This not necessarily because they intend to commit crime, but that’s not the subject of discussion.
What are the major Privacy Coins Available?
As privacy concerns push users to privacy coins, it makes sense to review the options available to them—and there are quite a number of them.
Monero [XMR], ZCash [ZEC], Dash [DASH], and Verge [XVG] are notable privacy-centric coins to mention just a few.
We would go on to review Monero [XMR] but first a brief look at what to expect from an ideal privacy coin.
What exactly do Privacy Coins offer in General?
While the privacy needs of people differ, and privacy protocol of these coins vary, there is a basic expectation from privacy tokens.
First, it should cryptographically hide transaction details including the address of the sender, the recipient, and the number of coins sent.
Similarly, it should prevent transaction history and balances from being tracked by other members on the network.
The coins on the network should also of the same value and mutually interchangeable, an attribute known as fungible.
Monero [XMR] Review
Monero was introduce by a hardfork of Bytecoin in 2014. Just like its parent blockchain, Monero is based on CryptoNote technology which is designed for anonymous cash settlement. It uses a proof-of-work consensus protocol and CryptoNight hashing algorithm.
To ensure the privacy of transactions on the network, Monero [XMR] uses three major privacy features namely, Stealth addresses, Ring Signatures and Ring Confidential Transactions (RingCT).
When one a party (the sender) wants to send XMR to another party (the recipient), the Monero protocol uses a stealth address which is a random one-time address created by the sender based on the address given by the recipient. The recipient alone has the ability to recover the corresponding private part of the key to redeem the funds. The transactions are untraceable because all transactions are sent to unique addresses and has no link with other addresses.
The Monero protocol uses ring signatures to mask the identity of the sender in a transaction. Basically, what happens is that the transaction output is grouped with several other transactions. This “mixin” makes it impossible to trace which actual transaction was spent giving the spender plausible deniability.
Ring Confidential Transactions (RingCT)
This is an upgrade on the Ring signature which uses the same ‘mixin’ technology to cryptographically the details of the transaction including the amount of XMR sent. It is important to note that the RingCT allows the amount of XMR to be verified while it still remains confidential.
Of the three, RingCT is most recent as it was released last year. Other developments that improve security and privacy on the network have also be added in the recent past. The mixin level was increased to 6 from 4.
The protocol also added features like the “Kovri I2P” Protocol which will allow Monero to route transactions through the I2P network and the “Bullet proofs” which will make transactions more efficient and hence cheaper to initiate.
These, coupled with the community stance against ASIC miners which may bring some level of centralization, will stand Monero in good stead with privacy proponents.