It isn’t just criminals and money launderers who wish to keep their financial transactions private. And for those who want to transact in cryptocurrency, unfortunately, most major coins like Bitcoin have proven to be less anonymous than people thought. So what are the best privacy coins right now and how do they measure up? Let’s take a look at Monero vs Zcash.
Monero and Zcash are probably the best-known out of all privacy coins at the moment. But what technology allows them to obfuscate the data on their blockchains (including addresses and transaction amounts)? In other words, what makes them “private”?
How does Monero measure up?
Monero is probably better known than Zcash, but not necessarily because it’s better. Researchers have found plenty of privacy flaws and security vulnerabilities with Monero. It’s also the most popular cryptocurrency for mining illegally through a malware called cryptojacking.
Major flaws aside, it still does a fairly decent job of concealing most transactions. Monero uses stealth addresses, ring signatures, and ring confidential transactions (RingCT) to hide transaction data.
RingCT hides the transaction amount and the transaction route, and the stealth address protocol gives recipients the option to publish one address but receive payments via multiple linked addresses. In plain English, this means only the sender and the recipient have the exact knowledge of the payment.
However, a study by the University of Singapore staged three different hacks on the Monero blockchain and found that 87% of the time, this information was easy to uncover. Moreover, they were able to trace as much as 98% of transactions.
But that was 2017. Since then, the Monero team has worked hard to improve its blockchain, integrating more secure practices.
What about Zcash?
Zcash uses what they call zk-SNARKs to ensure private transactions. Zk-SNARKs were born from an older concept called zero-knowledge proofs that allow for transactions to be proven with a minimal amount of information.
This means that part of the transaction data is always hidden, which essentially ensures that the whole transaction is anonymous, like credit cards, for example.
When it comes to the experience of Monero vs Zcash, Monero has the edge. Monero was created in 2014, whereas Zcash was first launched in 2017. Zcash has also been hurt by privacy breaches in its short life span.
A May 2018 study found that 69% of Zcash’s supposedly private transactions could be linked to miners or founders. This caused heavy criticism of the coin (see below) and a drop in value, although changes are always being implemented.
https://twitter.com/tangleblog/status/990363683002994690?lang=en
Stealth transactions are optional
Interestingly with Zcash, privacy features are not mandatory and users can opt to use them. This makes it more flexible than Monero for when users want to make a public transaction. However, this ability to opt-out is what causes the greatest criticism of Zcash.
Users swapping from a public to a private blockchain can leak key metadata, which may undermine anonymity for all users. In fact, as recently as February 5th, Zcash suffered another problem with its network. Cryptographer Peter Todd responded to the critics and explained that Zcash had fixed the problem.
(fixed) Zcash counterfeiting vulnerability: https://t.co/MhB39pRCfo
"This vulnerability is so subtle that it evaded years of analysis by expert cryptographers focused on zero-knowledge proving systems"
Reality is bleeding edge crypto is risky; second inflation bug they've had.
— Peter Todd/mempoolfullrbf=1 (@peterktodd) February 5, 2019
He then went on to hit out at major coins like BTC:
“BTC has categorically worse privacy than ZEC on L1, but the trade-off is a safer system re: total loss. Had this been exploited, it could have easily been a hundreds of millions of dollars loss.”
Actually, more than 94% of Zcash transactions are transparent. This means the vast majority of its users don’t use it for its privacy features. This is partly because stealth transactions are expensive, and also because there is still little infrastructure available to use it and few wallets that support regular Zcash stealth transactions.
Even with the introduction of the Zcash upgrade Sapling, which reduces the memory and cost needed for stealth transactions, most of its users continue to use Zcash without the privacy features.
Monero vs Zcash
Private transactions are expensive. Since they are not optional with Monero, users pay additional fees to conceal their movements. Unfortunately, this can also slow down confirmation time. The hard fork implemented in October of last year, however, added Bulletproofs into the RingCT protocol. This allowed Monero to reduce fees by 80% and speed up transactions.
At the same time, Zcash has strived to make their stealth transactions more usable despite the massive processing power and cost of using zk-SNARKs. The Sapling upgrade has improved transaction speed and reduced cost, but failed to onboard more users.
However, one point in its favour is that Zcash is currently working on BOLT, a privacy-centric version of the Lightning Network. This is a second-layer protocol that will conceal user identities and transactions and also allow Zcash to scale for faster transactions.
A point against is the fact that zk-SNARKs do not offer a trustless system. This means that they require permissioned setup from a centralised party. If the private key for this were to be exposed, the entire network would be at risk.
To sum up
It should also be noted that both Monero and Zcash will have even more limited options moving forward. As the FATF legislation forces exchanges to carry out KYC in all major jurisdictions, privacy coins will be banned.
However, for the time being, Monero remains the king of privacy coins with privacy by default. Zcash still has a long way to go to earn its users’ trust, and by which point, it will be even harder to use in more parts of the world.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.