What are Privacy Coins and Anonymous Transactions?
The brands listed on this site are carefully researched, and we may earn fees from some. However, our recommendations are driven by our independent opinions. The information provided on this site is for educational purposes only and we strongly encourage you to do your own research before making any decisions.
Privacy coins are cryptocurrencies that are able to hide transactions, wallet addresses and balances. For this reason privacy coins are censorship resistant, highly secure and fungible. They are unlike other cryptocurrencies like Bitcoin which is pseudo-anonymous due to its transparent blockchain.
The Best Privacy Coins
Not all privacy coins are made equal. There are all sorts of different ones that you could consider to HODL or trade over the short, medium to long term. However different cryptos use different methods to make the coins private.
There is the added complication that some cryptos do not implement protocols or features well enough to ensure privacy at blockchain level. Some cryptos although marketed as being privacy coins are not really private.
Cryptocurrencies marketed as privacy coins include Monero, Pirate Chain and Dash. There are is also a private blockchain called Dero and a private oracle called Equilibria. However all these coins, tokens and blockchains vary considerably in terms of technology and security.
If you want to know the differences and what to look out for, you can have a look at the article here called best privacy coins and which ones are truly private.
How Are Privacy Coins Private?
Privacy coins have privacy implemented at the protocol level on a blockchain. This makes coins indistinguishable from one another and hence fungible and censorship resistant.
Privacy coins are sometimes called ‘digital cash’ because they are the digital equivalent of cash. To clarify when cash is withdrawn from an ATM there is a record of it leaving your banks account. However what you do with that cash after is completely private and there is no record of what you did with it.
This is exactly what happens with privacy coins. There is a record of your currency going from your bank account into an exchange and purchasing the privacy coins. Once you take them the coins off the exchange it’s anyone best guess what you did with them.
Why Use Privacy Coins?
Privacy is an important part of the security and fungibility of any currency whether it is a cryptocurrency or not. Opponents to privacy say that it enables money laundering and all sorts of illicit activities. They justify a lack of privacy as a cause for the greater good.
The truth is that traditional finance has facilitated more illicit activities than cryptocurrency every did. Here is a detailed article on forbes explain how this is done.
Fungibility is 1 of 6 characteristics that make sound money. Sound money is an essential part of any society that wants to have a healthy financial system. So government crackdown on privacy in the currency we transact with could ultimately lead to a lack of confidence in currency.
Fungibility in finance means that you can exchange any $/€/£10 note for any other note of the same value. That is to say the notes are the same and hence the currency is fungible. Same goes for any other cryptocurrency where 1 Bitcoin should be the same as another. However this is increasingly not the case for Bitcoin.
Here are a couple of reasons on why privacy must be protected and made a priority:
1. Censorship
It is never good to grant absolute power to one institution or central authority as they are likely to abuse that power. This also includes governments. As a result governments will continually encroach and intrude in the affairs of everyday business. They will have or have the ability to control and censor what transactions are allowed and which ones are not.
2. Data
Big technology companies have our data which we provide to them for free. They abuse the privilege of having that data by selling it to third parties and making a profit from it.
They also analyse our behaviour online and figure out how to directly tailor messages to each of us to manipulate us to interact, engage or buy products they sell us. We become the product as The Social Dilemma on Netflix clearly documents. You have can a look at the trailer for The Social Dilemma here below:
Moreover, every now and again companies are hacked and our data gets stolen only for us to be burdened with the repercussions.
Both censorship and data issues are important because you can never be sure what will happen in the future. Consequently it is better to pre-empt any possible negative future problems before they happen.
Are Privacy Coins Legal?
In short it depends on the jurisdiction. Even though privacy coins are not banned outright, governments are making it difficult for exchanges or countries to continue to support them. Global regulators like the Financial Action Task Force (FATF) can bring in new rules to continue to stifle adoption and use of privacy coins.
For example regulators are increasingly putting more pressure on the crypto industry to be in line with this additional regulation. As a result some cryptocurrency exchanges have removed the privacy coins they had listed on their platforms. For example Australian exchanges have delisted privacy coins and so have Bittrex and ShapeShift. Other platforms, such as the KuCoin exchange, continue to support privacy coins.
It is good to be always be aware of any changes that happen should they affect you. Additionally exchanges will usually provide a time frame within which you can exchange your privacy coins for other supported crypto should you wish to exchange your coins.
