Sumit BeraThu, Jun 25, 2020 11:00 AM
Review of the Most Anonymous Cryptocurrencies: Are They Really Private?
Not all cryptocurrencies are 100% anonymous. In most networks, transactions can be tracked. However, there are systems where this is complicated, and sometimes impossible to do.
Bitcoin is considered a pseudo-anonymous cryptocurrency. It preserves the privacy of users since it is difficult to determine the identity of the person behind the wallet, but it doesn’t guarantee complete anonymity.
Those who want their transfers to be kept in secret use special mixers – services that mix coins from different transactions. As a result, it is practically impossible to trace the funds were spent.
But there are also completely anonymous cryptocurrencies, in which all transferred data is hidden by default and those where this feature is optionally selected.
We will analyze the most popular crypto projects that allow their users to keep their crypto transactions in secret.
Monero bears the title of "the most anonymous cryptocurrency." It was created as a fork of Bytecoin and has the highest capitalization among similar coins. Monero automatically hides info both the sender and receiver of the XMR, as well as the amount of funds in the transaction.
To ensure maximum privacy, it uses an integrated approach, which consists of several mechanisms. Ring signatures ensure the privacy of the sender – several addresses sign the transaction, and therefore it is impossible to track.
Hidden Stealth addresses ensure that the recipient remains anonymous. RingCT (Ring Confidential Transactions) anonymizes the number of coins being transferred. In autumn 2018, the Bulletproofs mechanism was activated on the network, which replaced RingCT, reduced the size of ongoing transactions, and also led to a reduction in the fees charged when sending funds.
Zcash cryptocurrency is based on the Zerocoin protocol and uses zk-SNARK technology. Zero-disclosure evidence allows signing transactions without having to reveal the exit and entry points of the transaction, as well as the amount of money sent.
The sender transfers the encrypted number of coins to the blockchain. The recipient uses the survey key to find the transfer on the network, decrypts it, and gains access to the funds. Thus, coins in the network are interchangeable, it is impossible to track who used these or those ZECs before.
However, this works in the case if the user selects the option to protect transactions when sending. Currently, only about 5% of coins are stored in hidden z-addresses. Most transfers on the network, however, remain open and are carried out using transparent t-addresses.
In October 2018, developers activated the Sapling update. It reduced the amount of time required for processing secure transfers and allowed them to be carried out not only from full nodes but also with the help of light clients.
Dash is a fork of Bitcoin that arose in the crypto arena in January 2014. Complete anonymity on the network is not the default option. Users who want to hide their operations can use the PrivateSend function. This is a modified version of the Bitcoin CoinJoin mixer. At the same time, transfers to Dash are mixed using random masternodes (hosts).
In Dash, instant transactions are also available and are carried out using the InstantSend mechanism.
The token is focused on privacy, transaction security, and anonymity. It is integrated with the famous Tor network. Stealth addresses hide wallet balances and exclude the ability to track transaction history. The system also uses Meek, OBFS4 technology. Soon they promise to add an option like DeepSend.
DeepOnion is a hybrid cryptocurrency that uses two algorithms in its work – Proof of Work and Proof of Stake. Translations on the platform, besides being anonymous, are also instant – no need to wait until they are confirmed, the whole process takes seconds.
The official start of this coin came at the beginning of 2019. The code is written in C++. Unlike Bitcoin, where only the sender must sign the transaction, the recipient is also involved in the transaction and must agree to the transfer. The transfer is signed using the Schnorr protocol. Bulletproofs are used to confirm transactions without publicly disclosing data. If third-party data audits are required, a separate key pair is created for this.
The system operates on the Equihash PoW algorithm, which is resistant to ASIC devices. Beam is a deflationary cryptocurrency. Its issue is limited – just over 260 million tokens will be issued.
The Grin cryptocurrency was launched in mid-January 2019 and was created in the Rust language. An ICO at the start of the project was not carried out, and developers rely entirely on donations from community members.
The system uses the Cuckatoo32+ mining algorithm. There is no limit on the issue of coins in Grin – they will be issued endlessly. New tokens appear on the network every second.
More than a dozen sites work with Grin, including Poloniex, Bittrex and others.
Pros and cons
Anonymous cryptocurrencies are often accused of being used in the criminal world to buy illicit goods and money laundering. After all, the movement of such funds is difficult to track and it is almost impossible to identify who is behind the attacks.
However, looking at the big picture privacy-oriented coins have several advantages. The main one is that they allow companies to protect financial information that they would not want to be publicized on the public blockchain.