What Are Privacy Coins?

What are they?

May 2020, 3 min read

Privacy coins

A bout a decade ago, Bitcoin was introduced to the world, and with all the challenges that the cryptocurreny has faced, it has proven that the possibility of having digital currency to be used on a peer-to-peer basis can be achieved seamlessly. Bitcoin paved the way for the creation of other cryptocurrencies, and can be termed a successful digital cryptocurrency. However, there is a flaw that may be exploited by some bad actors, and that is the privacy weakness of the crypto. Bitcoin’s perceived weakness has lead to the creation of different cryptocurrencies that intend to overcome the privacy challenge. At the moment there are some private crypto coins that can protect the privacy and anonymity of users, including information about their transactions.


The Fungible and Pseudonymous nature of Non-Privacy Coins

There is a general misconception that Bitcoin and other similar cryptocurrency are untraceable and private. We are well aware of the fact that on the blockchain network, user identity/usernames are in form of public addresses, and while the protection is just pseudonymous, it does not translate to being private. There is the possibility of having a crypto address linked to an individual, and with that possibility is the ability to trace or track transactions to and from the address.


The flaw of weakness in the privacy of Bitcoin and other non-privacy coins also affects their fungibility, for instance, if a public address has been flagged for engaging in phony activities, then other users may boycott transactions from that public address, and thus make it difficult for the bitcoin to get interchanged.


However, it is different for privacy crypto coins, because their privacy features are strong, and promote privacy and anonymity to great extents.


There are different privacy coins within the crypto community, and one of the notable ones is “Monero”. This privacy-oriented open-source crypto was founded in 2014, and is secure and untraceable. Interestingly, Monero is able to bring this topnotch privacy to users by integrating three amazing technologies:


  • Ring Confidential Transactions
    When transacting with Monero, the value of the funds are hidden. This is possible with the aid of a cryptographic algorithm that shows proof of equality in transactions between inputs and outputs, without putting the actual value of the transaction out for all to see.
  • Ring Signatures
    A distinct digital signature is created from a combined group of potential signers, in order to authorize a transaction. The ring signature technology makes it impossible for a third party to interfere or identify the real individual that authorized the transaction.
  • Stealth Addresses
    This is another added privacy feature that requires the user to create new addresses each time there is a transaction. Thus, a third party is unable to track or trace any transaction to the real address of the recipient.

While it looks like Bitcoin is dominating cryptocurrency, people have begun to look for privacy coins, because it has become imperative to stay safe and secure when performing transactions on the internet.