With more regulation imposing itself upon the blockchain industry, the need for more privacy is becoming increasingly attractive. Millions of dollars are flooding into crypto daily, but a good percentage of new crypto owners need to bring themselves up to speed on how to protect their investments. Privacy is vital to protecting wealth, and this is especially relevant with crypto. Even though there is complete transparency with a blockchain transaction, the individuals initiating them shouldn’t be privy to the same level of transparency (enter the safety from terrorism narrative).
In the beginning, Bitcoin was thought to be anonymous by most users, and still is regarded as such by many today. There is a difference between anonymous and private however, as transactions are one thing, but the sources for them are something completely different. The blockchain ledger is time stamped for all to see, and because these transactions are on the network, they can be tracked and traced to their source. How this break in privacy occurs is when users interact with services like merchants or exchanges who require KYC information. This data can be used, then subsequently matched with a user’s Bitcoin address resulting in exposure. So how does one maintain total anonymity? This is the solution that privacy coins solve.
Privacy coins are designed to encrypt any users address that can be associated with any transaction over the blockchain, eliminating the ability to track the sender and receiver of these coins. Monero is one of the best examples of a privacy coin with its use of ring signature technology, which allows a sender to hide his or her identity from other senders in the network when sending coins. When a group of users sends Monero, these ring signatures do not expose who in particular sent the transaction. This tech takes a sender’s private keys and mixes them with public keys on the blockchain, thus becoming impossible through computation to reveal the sending source. Another popular coin ZCASH, that aims to compete with its cryptographic tech called zk-SNARK, a technique known as zero knowledge proof construction, allowing user transactions to be shielded from identity exposure. CLOAK, PIVX, KOMODO, and more, are all offering similar features of anonymity in what is sure to be a very popular niche for the coming years of crypto.