Best Privacy Coins and Privacy Methods
The best privacy coins are the ones that are truly private. If you do not know what privacy coins are you can read this article here: what are privacy coins.
Different privacy coins use different methods to keep your identity hidden. However some methods of protecting privacy and maintaining security are better than others. In fact some methods do not have the best standard practices.
This article goes through the best privacy coins and the different methods used to implement privacy. We also go through all the well-known cryptos that are marketed as privacy coins. You will learn that some of these cryptos are far from private.
However a cryptos privacy or lack thereof has nothing to do with future price performance. Whether that is either positive or negative. You should note that this article compiles extensive research. Hence it is not meant to serve as investment advice.
Best Privacy Coins
Pirate Chain is a brilliant privacy coin and one of the best privacy coins around. It uses zk-SNARKS to hide all peer-to-peer transactions. Additionally Pirate Chain’s blockchain has end to end encryption. This is good, most importantly because privacy is by default on the blockchain.
On the other hand other cryptos rely on transacting party’s opting into privacy. However most of the time most people do not know how to opt into privacy. Or they simply do not bother with it.
Additionally it is also a very robust cryptocurrency. Pirate Chain is even more resilient to 51% attacks than standard cryptocurrencies. This is because it has a backup of the chain on the Bitcoin blockchain. So if hackers wanted to mount an attack on Pirate Chain they would first need to 51% attack Bitcoin.
If you like what Pirate Chain has to offer you can see where and how to buy Pirate Chain.
Uses: TLS encryption, Ring Signatures, zk-SNARKS
Dero is one of the best privacy coins around. It is fascinating because Dero is a crypto commodity like Ethereum. This is because most other privacy coins are only currencies. However Dero has its own currency and it can support smart contracts.
Moreover another thing that makes Dero different is the fact it has a hybrid blockchain and DAG network. It is very fast at processing transactions. Usually faster cryptocurrencies compromise on security and privacy. Like for example Dash. However thanks to the hybrid DAG system, Dero is able to process transactions without compromising privacy.
Dero has a number of features that are used to implement privacy by design. Is uses zk-SNARKS like some other privacy coins, but also Ring Signatures like Monero. Additionally Dero has end to end encryption.
Moreover Dero is immune to 51% attacks. So it is highly secure.
If you are interested in Dero you can find out where and how to buy Dero here.
Other Coins That Are Not 100% Private
It is worth mentioning that there are a lot of coins marketed as privacy coins. The teams behind the cryptos try to put them up there with the best privacy coins. However they are anything but private.
Moreover the amount of privacy you get with a cryptocurrency would depend on the features developers used. You can think of different protocols and features laid out on a spectrum. Hence even with the less private coin some are less private or more private than others. Here is a list of the less private cryptocurrencies:
Uses: stealth addresses and ring signatures
Monero is like the Bitcoin of privacy coins. It is the most well-known and was considered as one of the best privacy coins. Monero uses both stealth addresses and ring signatures. At some point they were top notch privacy features and complimentary to each other. To clarify they hide either payers or payees to ensure both parties remain anonymous.
The developers that built Monero always prioritised privacy above all else. At the time they developed Monero they made sure Monero was private. In fact Monero was private for a while. However things changed.
The Dark Web’s favourite currency is less untraceable than it seems. Researches from prestigious universities noticed that third parties can still see individual transactions on Monero’s blockchain. As a result CipherTrace which is a private company say they developed a tool to track Monero transactions.
CipherTrace developed the tool because they had an agreement with the Department of Homeland Security in America. They needed to develop it for criminal investigations since Monero is used on the dark web.
However CipherTrace have not shown how their tool works. So quite a few people are sceptical how much they can trace. In fact they think that CipherTrace is limited on how much they can analyse on the Monero blockchain.
Regardless Monero is still not as private as it once was. If you like what Monero has to offer you can buy Monero here.
Dash uses CoinJoin that tries to hide the parties involved in a transaction. If you use Dash you have to opt to make your transaction private. So a lot of transactions are visible on the blockchain.
This means that third parties with the right tools can still analyse transactions. They can see the wallet addresses that transacted with each other and by how much. As a result Dash is quite transparent.
Read the guide to learn how to buy Dash.
Unfortunately Mimblewimble is not the best privacy model. As a result Grin and other privacy coins that use Mimblewimble are not truly private.
In fact some people figured out how to bypass Grin’s Mimblewimble’s privacy. Additionally Mimblewimble does not allow multi-party transactions which is not great.
Zcash uses zk-SNARKS which is a great method to use for privacy. However Zcash uses 2 different types of wallet addresses. It uses t-addresses which are not private and z-addresses which are private and encrypted. People do not tend to use z-addresses and unfortunately most wallets do not support them.
Unfortunately a lot of transactions that happen on the Zcash blockchain are fully transparent. Additionally the parties involved are none the wiser.
Unless a blockchain has privacy by default then the blockchain is not private at all. This is because once you have some transactions visible you can figure out all the rest. It is like a puzzle where you already have part of it laid out. As a result the rest is much easier to assemble.
This is in contrast to Pirate Chain which only uses encrypted wallet addresses. Therefore Pirate Chain ensures the privacy of all transacting parties and hence the entire blockchain.
Methods Used to Maintain Privacy
Not all these method used for network privacy are equal. In fact some methods like CoinJoin are not good at all. Other methods when implemented well can produce some of the best privacy coins.
However if the method is not implemented properly then the network is not private. For example Pirate Chain and Zcash both have zk-SNARKS. However Zcash’s privacy is not by design. People have to opt into privacy.
On the other hand some privacy coins combine different privacy methods. Like this they can make the network even more secure.
1. Stealth Addresses
Stealth addresses are also known as one-time public keys. They are a good method for maintaining privacy. This is because every time you make a transaction the blockchain generates a new and unique one-time use wallet address.
As a result this new wallet address is designed to protect the identity of mainly the recipient of the funds. However stealth addresses alone will not provide 100% privacy. You need to pair it with other methods.
From the outside no one will can tell who made a transaction with stealth addresses. This is because no one can identify the individual wallet addresses.
On the other hand you can still show proof of a transaction whenever you need to. Whoever sent the funds can easily screenshot or show their private records as proof.
2. Ring Signatures
Ring signatures are another great feature when it comes to privacy. They are specifically designed to protect the identity of the sender. The network does this by placing the real funds from the transaction in a pool of other funds. It then pulls funds from previously executed transactions to form a ring.
In this way the real and fake senders are lumped together. They then produce a unique signature that is used to authorises the transaction. As a result all the possible funds act as decoys. They throw off any analytics tools that attempt to figure out from which wallet the funds originated from.
Note: Blockchain is all about solving double spending that is a problem in our current financial system. Ring signatures are a problem when it comes to double spending. So there needs to be a way of checking that it is not happening on the blockchain. Like that people can put their mind to rest that the cryptocurrency is sound money.
As a result miners can verify that no double spending is happening by checking key images. Key images are created when a transaction goes through and is registered on the blockchain. They are made so that miners can verify that no double spending occurred. While at the same time key images ensure that the identities of the parties involved are untraceable.
CoinJoin uses multiple parties to execute transactions like ring signatures. However the similarities stop there.
The funds you are owed are not provided from the person that owes you the funds. Instead a third party shuffles the funds from different parties that are making transactions at the same time. The third party distributes the funds supposedly in a way to hinder any attempt of doing analytics. At the same time it allocates the right amounts owed to each wallet address.
However even though this method seems to support privacy it is not truly private. Third parties can still do statistical analysis. Hence with time and the correct tools, third parties can still retrace the funds back to their original owner.
Zk-SNARKS is short for Zero Knowledge – Succinct Non-Interactive Argument Knowledge. It is derived from zero knowledge proof. It is a way to prove that a statement is true without actually revealing the information contained in the statement.
On a blockchain it is done with complex mathematics. However since this is not easy to understand we can go through a real world example.
Say you take a card out of a deck of cards and need to prove that it is red without revealing the number of the card. You can do this by showing the verifier all the black cards. It is demonstrated in the video below at the 2:57 mark.
As a result developers can use zk-SNARKS in a number of different ways to protect privacy on a blockchain. For example to prove a wallet address has more than a particular amount before a transaction is made. Or to prove a transaction took place without identifying the payer and payee.
Zk-SNARKS is an excellent method for implementing privacy. It is touted as the best in class compared to other privacy enhancing technologies by some. In fact it is used by some of the best privacy coins. However zk-SNARKS privacy depends on how it is implemented.
Here is a little bit of trivia for you. This protocols name is a Harry Potter reference of a spell called Mimblewimble. This spell is a tongue tying curse that stops a person from talking.
Mimblewimble supports privacy on a blockchain by putting together a number of transactions. So instead of having a signature for every single transaction it groups transactions together to form one multi signature transaction.
For example say person A transferred to person B and then B transferred to C. Not all of B’s data of the transaction will get recorded in the blockchain. The blockchain will record only the minimum amount of data necessary for all parties. As a result no one can identify the wallets. Most importantly less data is stored for party B.
B’s information will consist of a signature to confirm that the transaction was authorised and the excess values. The amounts transferred are kept private. Only the parties involved in the transaction can see the amount that was transferred. However enough information is kept so as third parties can verify transactions on the blockchain. This method ensures there is no double spending.
Mimblewimble got a lot of positive feedback and attention at the beginning. However this protocol is not the best one for privacy. Third parties can still figure out what is happening on the blockchain.