THE WORLD OF PRIVACY TOKENS

When the emergence of bitcoin came about in 2009, we were promised a lot of things which highly hinted on anonymity, though, transparency through the blockchain was dwelt on. The idea of skillfully masking transactions was exciting and then boom!, transactions started going out in bitcoin.

But over the years, we’ve seen the full details involved in using bitcoin by enthusiasts and front runners which include the fact that bitcoin is in fact built on a public blockchain. In reality, bitcoin does not preserve anonymity but instead preserves pseudonimity; which helps us understand that, unless someone has claimed ownership of an address, you can’t tell who it is but once someone claims an address, it can easily be identified and traced.

This inadvertently made bitcoin less anonymous like we presumed, leading a majority to raise concerns on lack of privacy and questions about how secure transactions were, if there is any chain analysis done.

This particular reason made certain privacy tokens, like Monero (XMR), Dash formerly Darkcoin (which wishes not to be addressed as a privacy token) and Zcash (ZEC), rise as authorities solely for the purpose of maintaining the anonymity of transactions carried out or value added.

Monero amongst all other privacy tokens has the highest market cap and has consecutively been the most use privacy token.

PRIVACY TOKENS

Privacy tokens also known as anonymity-enhanced cryptocurrency (AEC) are a class of tokens that are based on the feature of anonymity and aim to keep blockchain transactions within their network, private and anonymous. These tokens use techniques which can, make it impossible to view the sender and receiver of the transaction, hide the IP addresses and details, mixing up different transactions, or even using stealth addresses. Yes, stealth addresses (Blame monero for that being a brilliant idea). Some popular privacy tokens besides Monero, the most popular and valuable AEC, include but other top tokens like ZCash (ZEC), Oasis Network (ROSE), Secret (SCR), Verge (XVG) and Decred (DCR).

MONERO:

Monero is built on a peer-to-peer network, with the philosophy of privacy, security and decentralization, engraved at its core. The company’s website states clearly that,

“Monero takes privacy seriously. Monero needs to be able to protect users in a court of law and, in extreme cases, from the death penalty,” the site reads. “This level of privacy must be completely accessible to all users, whether they are technologically competent or have no idea how Monero works. A user needs to confidently trust Monero in a way that this person does not feel pressured into changing their spending habits for risk of others finding out.”

This above statement is explicitly practiced in their functioning privacy enhanced technologies used to run their network on the blockchain.

• RingCT: this hides amount involved in all transaction generated on Monero.
• Stealth Addresses: this technology, generates one-time addresses for every Monero transaction and to ensure only the sender and receiver know the transaction details and destination.
• Ring Signatures: this groups current transactions with old “decoy” transactions, so you can’t identify any current transaction.
• Transactions over Tor/I2P: TOR routes your communications through a distributed network of relays and tunnels operated by volunteers around the world, thereby hiding your identity. I2P, on the other hand, encrypts user data before sending it over an anonymous, peer-to-peer, volunteer-operated, globally distributed network. This allows you to hide the location and IP address of transaction participants.
• Dandelion++: Dandelion++ changes the way transactions propagate through the Monero network, making it difficult to associate a transaction or group of transactions with a particular IP address.

These privacy enhanced technologies equipped by Monero made it one of the most used tokens on the Dark web after bitcoin and the most used AEC. And because of activities like that, it attracted the attention of the US government in late 2020. Subsequently, privacy tokens were being pressured, hacked and even delisted from different exchanges. Some gave in (*mouth zipped*) but Monero has been unable to be hacked even after the IRS (Internal Revenue Service) offered a bounty of $625,000 to whoever could crack its anonymity technology within it’s network.

ZCASH (ZEC)

Zcash is considered another popular asset in crypto space with a focus on privacy. It started in 2016 and was started by the Electric Coin Company, run by Zooko Wilcox. According to the website, Zcash (ZEC) comes from the same code as Bitcoin but Zcash operates on its own blockchain with PoW(Proof of Work) mining consensus, separate from Bitcoin. ZEC allows both private transfers, also called shielded transactions, and public transactions. Zcash also implements an encryption tool called ZeroKnowledge Proof (Zk SNARK), giving those participating in transactions, the ability to shield transactions. This allows participants to execute transactions without one having sharing an address with the other.

“Zero-knowledge proofs allow transactions to be verified without revealing the sender, receiver or transaction amount. Selective disclosure features within Zcash allow a user to share some transaction details, for purposes of compliance or audit.”

DASH

Developed in 2014, DASH is a cryptocurrency that allows users to choose whether to make transactions anonymous and private, using the private send feature. This allows users who want to stay within their country’s regulatory standards to do so. This feature works by disguising the source of the funds. If you choose to use the private send feature, the transaction fee will increase slightly. DASH accomplishes this through a hybrid protocol that uses an innovative distributed network of servers called master nodes

Unfortunately, anyone who has a hold of the master nodes can see every transaction.

VERGE (XVG)

Verge (XVG) does not rely on encryption technology, but on existing tested technologies from the Onion Router (TOR) and Invisible Internet Project (I2P) to protect user identities.

TOR routes your communications through a distributed network of relays and tunnels operated by volunteers around the world, thereby hiding your identity.

I2P, on the other hand, encrypts user data before sending it over an anonymous, peer-to-peer, volunteer-operated, globally distributed network. This allows you to hide the location and IP address of transaction participants.

Verge got a lot of attention when a popular adult site got it to start accepting cryptocurrency payments. The main reason for the development was Verge’s privacy feature.

ARE PRIVACY TOKENS (AECs) LEGAL?

Depends on who you’re asking. Privacy coins are closely monitored by regulatory agencies around the world to crack down on the black market backed by privacy coins. Australia and South Korea have banned exchanges from offering privacy coins, but Japan has banned them altogether.

FUTURE OF PRIVACY TOKENS

While Bitcoin is still the most popular choice, it is by government agencies. They have become quite adept at tracking Bitcoin transactions, creating a strong incentive to move to more private cryptocurrencies. Bitcoin has been a popular choice for protecting users’ identities, and as a result, transactions are constantly targeted and monitored by government agencies.

But at its core, cryptography is a set of methods and techniques designed to enable secure communication in the presence of strangers. As such, private cryptocurrencies are a central part of the cryptocurrency ecosystem, despite the fact that their untraceable nature causes controversy regarding criminal transactions.

Unfortunately, even after reports show that only a small percentage of cryptocurrencies are used in money laundering, terrorist financing and other illegal activities, governments around the world continue to give anonymity enhanced cryptocurrencies, a cold shoulder.