Privacy-Centric Cryptocurrencies And Their Future

Privacy-centric cryptocurrencies or better known as privacy coins have a special place in the heart of crypto investors. Coins such as Monero (XMR), Zcash (ZEC), DASH, and Zcoin (XZC) and others added a layer of privacy on top of public blockchain networks.

Unlike Bitcoin and some of the most popular altcoins where every transaction is trackable on the blockchain explorer, these privacy coins allow its users to spend money privately, unknown from the public investigation and prying eyes.

However, these privacy coins also get into various troubles recently - from regulatory perspective to stereotype about illegal use cases, they might face a more uncertain future.

How Do These Privacy Coins Enforce Privacy?

Well, let’s start with the most famous privacy coin, Monero (XMR). Monero has several different features that allow itself to enforce privacy. First of all, it utilizes a technology called Ring confidential transactions or RingCT to obfuscate the amount sent in a transaction using cryptographic commitments and range proofs.

On top of that, Monero also utilizes what they call as Ring signatures. Ring signature is a group of possible signers who are mixed together to generate a distinctive signature that can be used to authorize a transaction. 

Inside the Monero’s ring signature, there’s an actual signer, who is mixed with non-signers to form a ring. The actual signer and non-signers inside this ring signature are seen as equal. The non-signers are basically past transaction outputs that are pulled from the blockchain itself. You can learn more about Monero on this link.

After Monero, we also have ZCash (ZEC). ZCash’s privacy technology is called zk-SNARKS, which is its unique implementation of zero-knowledge cryptography. With zk-SNARKS, the transaction values and wallet addresses can be “shielded” from the public eye. In order to prove that the sender actually owns the transaction and wallet address, the sender has to prove both input and output values with the logic of zero-knowledge.

There are also other privacy coins such as DASH and ZCoin but we won’t get into too many details about them. The idea is that each coin has its own privacy-enforcing technology to shield their users’ transaction from the public eye.

Why Does Privacy Matter?

The biggest supporters of these privacy coins often praise the importance of privacy because financial transactions are meant to be discreet. Their argument is that just like how cash transactions are often discreet from the public eyes, crypto transactions shouldn’t be made “transparent” in the public blockchain explorers - except if the users are asking for it.

In other words, they believe users have the financial right to be discreet.
This argument is true that fiat transaction history won’t be publicly available. However, fiat transactions can be tracked by the banks and authorities while these privacy-centric blockchains are significantly more complex.

The Future Of Privacy Coins

While privacy coins were/are great but their future remains questionable. Many governments from all over the world have issues with privacy coins due to how hard it is to track a rogue user’s transaction history. For example, if someone uses Monero to pay for illegal service, it would be much harder for the authority to track it (compared to if that same person uses Bitcoin mixer service).

That’s why many governments are still in the crossroads when it comes to privacy coins. So, even when a big institution like JPMorgan adopts Zcash’s zk-SNARKS privacy implementation, Zcash itself (as a whole package) might not face easy approval from the governments. 

Recently, Monero (XMR) has been delisted from two popular exchanges, Huobi Korea and Bithumb due to Nth room scandal. For your information, Nth room scandal is the scandal where many Telegram users utilize XMR to purchase illegal minor porn materials.

And of course, there’s a reason why these people prefer to use XMR rather than more mainstream cryptocurrencies. Because of its privacy technology.

And this reputation damage to Monero might also affect the general privacy coin industry and its stereotype among the outsiders, even among other altcoin supporters. Anyway, if you are interested in learning the variations among different altcoins, you can check out this article.

It remains to be seen what would be the best solution for privacy coins to get out from these uncertainties. And while ZCash looks more “mainstream-friendly” than Monero due to its technology being adopted and tested by JPMorgan and even praised by Vitalik Buterin, it still faces a similar dilemma.