2019 is the year in which privacy dies.
Smart devices that constantly listen in, social media networks that never sleep, daily data data breaches exposing our information, and a job that demands constant attention, will become the norm. For some of us this paints a dystopian picture. One in which we can never escape from public attention and one which draws worrying parallels to George Orwell’s 1984.
Something that Orwell could not have foreseen, was the rise of cryptocurrencies. In a time in which surveillance has become ubiquitous, bitcoin and its offshoots promise a welcome reprieve.
In Satoshi’s white paper, only a small section is dedicated to privacy. Here he explains how bitcoin will separate identities from transactions by “keeping public keys anonymous”. In 2008, the ability to make a seemingly anonymous transaction without the need for a middleman was revolutionary.
Nevertheless, Satoshi knew that he had found an imperfect solution. Further down the section, he states: “The risk is that if the owner of a key is revealed, linking could reveal other transactions that belonged to the same owner.” (page 6)
This neatly summarizes the problem with bitcoin’s approach to privacy. Although bitcoin is seemingly anonymous – due to its separation of identity from the transaction – the reality is that bitcoin provides a highly transparent pseudonymous ledger. One that provides less privacy than a typical bank account.
This is a flaw in bitcoin’s makeup and Satoshi was aware of it. In the white paper, he calls this an “unavoidable” consequence of broadcasting each transaction to the network. As we are about to see, privacy-focused cryptocurrencies have built on Satoshi’s pioneering work and proved him wrong.
Privacy is not only achievable but has become one of cryptocurrency’s strongest use-cases. Let’s take a look at 5 tokens that do an excellent job of providing much-needed privacy to its users.
Monero (XMR) – Private Digital Currency
Monero is the most well-known cryptocurrency focusing on privacy. Launched in 2014 and based on Nicolas van Saberhagen’s CryptoNote protocol, Monero uses innovative technology to provide complete privacy to its users.
In order to achieve this, Monero uses stealth addresses. These are one-time addresses created by the sender on behalf of the recipient for every transaction. By employing this approach Monero ensures that passed transactions cannot be linked to a single address. This gives its users privacy while still broadcasting all transactions to the network.
In the real world, this has a number of key benefits. Perhaps the most striking involves merchants, as third parties cannot observe how many customers a merchant might have or how much revenue she has generated.
Besides stealth addresses, Monero also uses Ring Signatures. When a transaction is performed, Ring Signatures mix together random outputs. These essentially hide the ongoing transaction and make it virtually untraceable for outside observers.
At this point you might be wondering how Monero manages to avoid the double spend problem if transactions are untraceable. The short answer is that Monero uses Key Images, which are contained in every transaction and can only be used once. If someone attempted to double-spend their coins, the transaction would contain a previously used Key Image and would consequently be rejected.
The final piece in Monero’s privacy puzzle is called Kovri. Kovri is a downloadable piece of software that allows network members to hide their location as well as their IP address. In combination with stealth addresses, Ring CT, Ring Signatures and Key Images, Kovri provides a best-in-class anonymity service to Monero users.
If you are interested in privacy and anonymity definitely give Monero a try.
DASH (DASH) – Privacy as a Feature
2014 was a great year for privacy-focused cryptocurrencies. Along with Monero, DarkCoin was launched by Evan Duffield and Daniel Diaz. Just like Monero, Darkcoin built on the progress made by the CryptoNite protocol and sought to make blockchain transactions anonymous.
A few years later, DarkCoin underwent something of a pivot, switching its focus from privacy to payments and renaming to DASH. As such DASH offers privacy as a feature rather than as a default setting, giving users the ability to stay anonymous if required.
Nevertheless DASH does an excellent job of providing privacy to its users, which is why it made this list. Specifically, users are able to use the PrivateSend feature to make anonymous transactions to network members.
Unsurprisingly, PrivateSend bares a striking resemblance to Monero’s Ring Signatures, mixing various inputs together in order to obfuscate the origin and destination of the funds.
In order to achieve this a DASH transaction is first split into standardized denominations. Once this is completed your DASH wallet communicates the now broken down outputs to a Masternode which then waits for two more transactions to be performed. At that point the mixing begins and typically undergoes multiple cycles, each increasing the difficulty of tracking the original transaction.
Although this method prevents outside observers from linking transactions, it does place a significant level of power in the hands of the Masternodes. As pointed out here, users must trust the Masternodes to act in the best interest of the network, as otherwise, they could share all relevant information with malicious actors.
As you would expect, transactions are assigned to Masternodes at random making it almost impossible for a Masternode to predict which transaction will be processed. In order to become a Masternode you need to own at least 1,000 DASH (around $90,000), resulting in something resembling an Plutocracy.
On the other hand, with so much wealth tied into the DASH network, nobody would have more to lose from a malicious actor than the Masternodes.
ZCash (ZEC) – Privacy-Protecting Currency Built on Strong Science
ZCash represent a fascinating departure from typical privacy-focused cryptocurrencies built on the CryptoNote protocol. Instead ZCash is a direct descendant of ZeroCoin, the cryptocurrency developed in the 1980s by Matthew Green, currently a professor at John Hopkins University.
Green’s academic background allowed him to find novel approaches to seemingly intractable problems. One of his more brilliant ideas was to use zero-knowledge proofs (ZKPs and zk-SNARKs), a method of verifying transactions without participants needing to disclose any information.
Additionally, ZCash contains two different wallet addresses: private (z-addresses) or transparent (t-addresses). When a z-to-z transaction is performed, it appears on the blockchain but all relevant information is encrypted. The addresses, transaction amount, and memo field are not publicly visible, meaning that the transaction is completely private.This type of blockchain encryption is only possible using zero-knowledge proofs.
Unlike the solution proposed by DASH therefore, ZCash does not rely on a group of individual Masternodes to ensure privacy but instead uses complex mathematics. Interestingly, ZCash also offers users to disclose certain transaction details. This is designed to help network members with compliance, tax declarations, and audits. The end effect provides both privacy and convenience.
Verge (XVG) – From Meme to Legitimate Privacy Solution
Verge began life in 2014 as DogeCoinDark. At the time DogeCoin was a growing internet meme and the team hoped to harness the marketing potential of its ancestor. The plan worked and DogeCoinDark managed to carve out a small niche for itself.
— DogecoinDark (@Dogedcoin) February 15, 2016
Two years later DogeCoinDark rebranded to Verge in an attempt to shed its meme-status and establish itself as a legitimate solution. Interestingly Verge has never been a hard fork of DogeCoin but instead uses a completely separate codebase.
This allows Verge to provide some pretty cool features, allowing its users to make private transactions in a decentralized manner. Verge achieves this, not by building on ZKPs like ZCash or the CryptoNite protocol like Monero and DASH, but instead integrates with TOR.
The Onion Router (TOR) is an IP obfuscation service which enables private communication across a secondary network layer. Perhaps uniquely in the world of cryptocurrency, Verge has managed to integrate its blockchain protocol with TOR, allowing users to send XVG via a private ledger.
Verge calls this integration the Wraith Protocol. One of its coolest features is its ability to provide both a public and a private ledger to its users. Network members who choose the private ledger enjoy complete anonymity thanks to stealth addressing, TOR+SSL integration, and an Elliptic-curve Diffie-Hellman (ECDH).
Verge’s Dark Paper goes into detail on how exactly these features provide complete anonymity and I highly recommend checking it out.
One thing to note is that Verge fell prey to a 51% attack in April of 2018, allowing a malicious actor to steal 250,000 XVGs. The stolen amount is trivial when compared to similar hacks, but it’s worth mentioning here because Verge experienced another 51% attack just a few months later. Worryingly the attack vector seems to have been eerily similar, suggesting that the initial vulnerability in the code base had not been patched correctly.
No cryptocurrency is perfect, but Verge’s repeated failure to ensure the integrity of its network does put it a step behind its more secure counterparts like Monero, DASH, and ZCash.
As you can probably tell I think Monero is the best privacy coin in crypto. It offers a holistic approach to privacy, covering every base; from concealed transactions to obfuscated IP addresses. The Monero team have done an excellent job of adapting and debugging the CryptoNite Protocol, something contemporaries like ByteCoin have arguably failed to do.
DASH is another CryptoNite descendant, although now more focused on payments and governance than privacy. Nevertheless, DASH offers an excellent Private Send feature, which provides enough privacy for most use-cases.
Some privacy-conscious crypto-enthusiasts might balk at the prospect of trusting Masternodes however. If this is the case for you, and Monero is not an option, definitely give ZCash a try. This slightly obscure cryptocurrency has rock solid academic foundations and provides a revolutionary approach in zero-knowledge proofs.
— Edward Snowden (@Snowden) December 19, 2017
In the event that you dislike all of the above, your final choice is Verge. The former meme coin has established itself as a new and interesting take on privacy. The merits of TOR are unquestioned and the Wraith Protocol does a fantastic job of opening up the Router to cryptocurrency transactions.
Regardless of your choice, these four privacy coins do a great job of protecting you from prying eyes. Alternatives like PIVX, ByteCoin, Bitcoin Private and other, less established tokens should be handled with great care.