There are a number of privacy/confidentiality cryptocurrencies available today. In this guide, we’re going to take a look at the top five privacy cryptocurrencies on the market and explain how each one works.
The privacy cryptos covered in this guide are Monero, Zcash, Dash, Verge, and Grin. A quick breakdown of some key features/differences and how they relate to Bitcoin can be seen below:
| Bitcoin | Monero | Zcash | Dash | Verge | Grin | |
| Public addresses |
YES |
NO |
NO |
YES |
YES |
NO |
| Public transaction details |
YES |
NO |
NO |
NO |
NO |
NO |
| Blockchain analysis possible |
YES |
NO |
NO |
YES |
YES |
YES |
There are a variety of privacy-enabling technologies with completely different working mechanics and goals. Some, like Monero, want to give users complete confidentiality over their transactions and addresses, while others, like Dash, want to give users the option of privacy and confidentiality features only if they chose to enable them.
Monero
Monero (XMR) is a secure, private, and untraceable currency system. Monero uses a special kind of cryptography to ensure that all of its transactions remain 100% unlinkable and untraceable.
In essence, the Monero funds you own will not be associated with your public address like they would with Bitcoin. When you send funds to someone’s public address, what happens is that you actually send the funds to a randomly created one-time destination address. This means that the public record does not contain any mention that funds were received by the recipient’s public address.
The technology behind Monero’s confidentiality features is called ring signatures. Ring signatures enable transaction mixing to occur. Transaction mixing means that when funds are sent, the sender randomly chooses several other users’ funds to also appear in the transaction as possible sources of the funds being sent. The cryptographic nature of ring signatures means that no one can tell which of the sources was the true source of the transaction. A system of ‘key images’ associated with each ring signature ensures that although no one can tell the true source of the funds, it can be easily detected if the sender attempts to anonymously send their funds twice.
In Monero, your public address will never appear in the public record of transactions. Instead, a ‘stealth address’ is recorded in a way that only you, the recipient, can recognise the incoming funds
Zcash
Zcash is a privacy-protecting digital currency built on strong science. It helps users transact efficiently and safely with low fees while ensuring digital transactions remain private.
Zcash addresses are either private (z-addresses) or transparent (t-addresses).
A Z-to-Z transaction appears on the public blockchain, so it is known that the fees were paid and the transaction occurred. But the addresses, transaction amount, and memo field are all encrypted and not publicly visible. Using encryption on a blockchain is only possible through the use of zero-knowledge proofs. Zcash uses zk-SNARKs, an inventive form of zero-knowledge cryptography. The strong privacy guarantee of Zcash is derived from the fact that shielded transactions can be fully encrypted on the blockchain, yet still be verified as valid under the network’s consensus rules by using zk-SNARK proofs.
The acronym zk-SNARK stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge,” and refers to a proof construction where one can prove possession of certain information (for example, a secret key) without revealing that information.
In order to be private yet still allow users to remain compliant with regulatory bodies, an owner of an address may choose to disclose z-address and transaction details with trusted third parties, through the use of view keys and payment disclosure.
Transactions between two transparent addresses (t-addresses) work just like Bitcoin – the sender, receiver, and transaction value are publicly visible.
The two Zcash address types are interoperable. Funds can be transferred between z-addresses and t-addresses.
Dash
Dash is an open source cryptocurrency and is a form of decentralised autonomous organisation (DAO) run by a subset of users called “masternodes.” Masternodes are responsible for approving and validating transactions. Dash uses a Proof-of-Stake algorithm alongside its masternodes to incentivise the network. The currency permits fast transactions that can be untraceable.
Dash was previously known as Dark Coin, a copy of Bitcoin, before it rebranded to Dash in 2015.
Dash is currently mostly used in countries like Venezuela, where people need to transact quickly with privacy and confidentiality due to strict government regulations.
The technology behind Dash’s privacy features is Tumblers, or cryptocurrency mixing. This means the cryptocurrency itself is not private, and if a masternode gets attacked, user information (addresses and transaction details) could be leaked.
Verge
Verge (XVG) is a cryptocurrency built with an emphasis on privacy and confidentiality. The XVG token utilises anonymity-centric networks such as TOR and i2P to make sure the IP addresses of its users are obfuscated and transactions are completely untraceable.
Verge started as DogeCoinDark back in 2014, which makes it one of the older anonymous coins, and in 2016 it rebranded to Verge.
Much like Dash, Verge wasn’t originally built for privacy, meaning its core protocol simply hides transactions through transaction mixing and IP addresses with multiple layers of routing.
XVG is mainly used due to its cheap transaction fees and quick transaction speed times.
Grin
Grin was created with the goal of allowing users to transact completely privately and quickly. Grin’s aim is to allow for a private cash-based system. As such, its blockchain is incredibly scalable.
The technology behind Grin is Mimblewimble, which contains confidential transactions that allow for public verification of transactions without revealing any significant details such as amounts or addresses.
Simply put, in Grin, there are no transactions or addresses. The blockchain is like a huge UTXO that keeps updating with new transactions, meaning each user keeps their own records and the ledger just records the latest blockchain state. Grin is the earliest implementation of Mimblewimble and is completely open source.
What next when it comes to privacy cryptocurrencies?
If you want to know more about different types of cryptocurrencies, visit our definitive guides.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.