What are privacy coins/tokens?

Privacy coins are really popular these days. With the increase in KYC regulations, many people have started preferring transacting in privacy coins rather than Bitcoin. And as time progresses, the usage is only going to increase.

“In a world of increasing surveillance, privacy is a luxury”

What are privacy coins?

Bitcoin was designed to anonymous and decentralized. But to make Bitcoin decentralized, the ledger of Bitcoin was kept public. That meant every transaction on the blockchain could be seen by anyone.

In the initial days, many transactions took place node to node, which made Bitcoin truly anonymous. But due to an increase in the usage of centralized exchanges and strengthening of KYC regulations, an individual behind the Bitcoin address can be identified.

A number of Bitcoin analysis firms have sprung up, that are helping governments and law enforcement agencies to identify the individual behind Bitcoin addresses.

To combat this limitation of Bitcoin blockchain, privacy coins were invented. Privacy coins mask the transactions on the blockchain. That means the senders address, receiver’s address and the transaction amount are all hidden. To ensure 100% security once a transaction is masked they cannot be recovered.

Why do we need Privacy?

One of the biggest arguments against privacy is that “if you are doing nothing wrong, you have nothing to hide” philosophy. This is a philosophy used by global agencies to spy on their people.

But what if they create a problem. For example, a business can see where their competition is purchasing items from, or anyone can see where their friends are spending money. Developers identified this problem and asked themselves, “Do we really need everyone to see where someone is spending their money”?

Enter privacy coins which are meant to give users a degree of anonymity in a robust and decentralized manner. Using Privacy Coins a user/business can transact freely without the need for worrying about people snooping in on their transaction.

Types of Privacy Coins

Let us look at some interesting privacy coins which are there in the market. This is in no way a complete list, but rather an outline of a few interesting projects.

Monero (XMR)

Probably the most famous and the world’s biggest privacy coin is Monero. Started in 2014, as a fork of Bytecoin, Monero has established itself as one of the most reliable privacy coins. Monero uses the CryptoNote technology as well as Ring Signatures, Ring Confidential Transactions and Stealth Addresses to keep the transactions private.

CryptoNote technology is an open-source protocol that allows for an increase in privacy in cryptocurrency transactions. CryptoNote technology uses Ring Signatures to make the transactions private. Ring Signatures work by getting multiple nodes to sign a transaction, with the actual signer being unknown. It’s similar to a joint bank account, but the account holders name is hidden.

Beldex Coin (BDX)

A fork of Monero, Beldex is a newcomer in the world of privacy coins. Beldex Coin is designed to provide a second layer transaction solution to be used in decentralized exchanges. Using Beldex Coin, decentralized exchanges (DEX) can keep the exchange of tokens private.

Being a fork of Monero, Beldex Coin is using the same technologies as Monero except for one notable difference. Instead of Ring CT to mask transactions, BDX is using Bulletproofs, a technology used by ZCash to keep the size of masked transactions small and ensure faster transactions.

ZCash (ZEC)

ZCash is an implementation of Zerocoin, one of the earliest privacy coins in the market, with one notable difference of being based on zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge).

ZCash is based on Zero-knowledge proof which is a way for one party to prove to a different party that a given statement is true, without conveying anything other than the statement is indeed true. ZCash is an interesting privacy coin as it gives the sender the ability to send either normal transaction (visible to everyone) and also private transactions (shielded, not visible to anyone).

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