This guide looks at the different category of cryptocurrency market, focusing on the fourth category which represents anonymous & privacy coins. This is the fourth part of the series that breaks down the crypto market into 12 major categories.
This guide looks at the fourth category in the Top 100 of the cryptocurrency market, which features the different types of privacy-centric and anonymous cryptocurrencies.
Fourth Market Category: Anonymous & Privacy Coins
There are a total of 10 coins that falls under the category of privacy coins. As you might know, Bitcoin is not anonymous but rather pseudonymous. This means that Bitcoin transactions can be linked backed to a particular identity. If the IRS or any other party asks an exchange who is the identity behind a specific Bitcoin address, they know who you are and can track back almost all of the Bitcoin transactions you have ever made and all your account balances.
Privacy coins aim to prevent exactly that through address fungibility, which changes addresses constantly, IP obfuscation and more. There are 2 types of privacy coins, one with completely privacy and one with optional privacy. Optional Privacy coins like Dash and Navcoin have the advantage of more user friendliness over completely privacy coins such as Monero and Enigma. Here are the coins that belong in the privacy group:
(You might also be interested in: Guide on Privacy Coins: Comparison of Anonymous Cryptocurrencies)
Monero is an open-sourced cryptocurrency that is a fork of Bytecoin. It uses a Proof of Work (POW) system called Cryptonight and is currently the biggest privacy coin based on market capitalization (fancy term for market value). Monero leverages on a variety of unique privacy techniques that includes Ring Signatures, Stealth Addresses and Ring Confidential Transactions (Ring CT) to ensure complete, end-to-end anonymity and untraceability of all transactions. Given the full privacy that Monero affords, it is one of the few cryptocurrencies that is purely fungible.
A great trait of Monero is the strength of its organic community; it is fully developed, managed and maintained purely by volunteers with a shared mission. Monero’s strong community spirit and persistence in ensuring decentralization was apparent in their decision to pursue a hardfork and implement a new algorithm in a bid to combat the centralization of institutional miners.
(Read more: Category of Cryptocurrency Market: Pure Cryptocurrency)in
Zcash is an open-source, privacy cryptocurrency that is created and managed by a venture-backed entity called Zcash Company. Zcash uses a type of Proof of Work consensus algorithm called Equihash. Zcash is similar to Bitcoin, with the only difference is that it provides an option for transactions to be concealed or ‘shielded’. It must be stated that privacy is optional and therefore, Zcash transactions are not private by default.
A unique aspect of Zcash is the creation of a custom cryptographic technology called “zk-SNARKs” (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge). Essentially, it allows users to prove that the information they are sending to the other party (e.g. the amount of funds) is true, without having to broadcast said information.
Verge is a community-led, open source cryptocurrency that was forked from Dogecoin (DOGE) and focuses on anonymity features. Unlike other projects, Verge uses multiple Proof of Work algorithms that include Scrypt, Lyra2rev2, Blake2s, X17 and Myr-groestl. Verge achieves privacy by leveraging on TOR (The Onion Router) and I2P (Invisible Internet Project) routing to obfuscate traffic and conceal a user’s IP address when transacting.
A unique feature of Verge is the creation of a technology called ‘Wraith Protocol’, which affords users the option of switching between public and private ledgers.
(See also: Crypto Beginners Guide: 5 Things Crypto Newbies Should Know)
Bytecoin is an open-source, anonymity-focused cryptocurrency that holds the accolade of being the first privacy-focused cryptocurrency ever created. Bytecoin was the first to use CryptoNote ring signatures, which serves as the basis for anonymous and private transactions. Bytecoin uses a Proof of Work algorithm called CryptoNight, similar to that used by Monero.
Bytecoin has suffered from negative publicity owing to an anonymous development team and a huge pre-mine of coins; almost 80% of the initial supply was pre-mined.
(See also: Guide on Identifying Scam Coins)
Bitcoin Private (BTCP)
Bitcoin Private is a merged fork between Bitcoin and Zclassic (fork of Zcash); it combines the privacy features of Zclassic with the security and resilience of Bitcoin. The Proof of Work algorithm used by Bitcoin Private is Equihash, in a bid to fend off mining centralization and enhance decentralization. The privacy feature of Bitcoin Private is supported by Zk-Snarks technology.
Bitcoin Private seems to be targeting the Bitcoin market with its faster block times, privacy feature and decentralized mining rather than being a direct competitor to privacy-focused coins.
(Read more: Guide to Bitcoin Hard Forks: Bitcoin Cash, Bitcoin Gold, Segwit2X & Bitcoin ABC)
Komodo is an open-source cryptocurrency for private and anonymous transactions. Komodo has developed a hybrid consensus mechanism called Delayed Proof of Work (dPOW), which allows the native Komodo blockchain to take advantage of the hashing power of Bitcoin’s blockchain by notarizing their transactions on both blockchains. For privacy features, Komodo uses the Zk-Snarks protocol.
Thea team behind Komodo – called SuperNET – plans to build an ecosystem comprising of various components and functionalities such as decentralized exchanges and an ICO platform.
PIVX – or Private Instant Verified Transaction – is a decentralized, privacy-focused cryptocurrency that is a fork off another cryptocurrency called DASH. PIVX was a created because of a disagreement within the DASH community, torn between building the ultimate privacy coin or focus on scalability for wider adoption. Those that decided to pursue the path of mass adoption and scalability went on a separate path and created PIVX.
PIVX uses the Zerocoin protocol, a technology that extends Bitcoin’s capabilities with complete anonymity and privacy features by using Zero-Knowledge Proofs. Backed by Proof of Stake (POS) consensus mechanism, PIVX possess key characteristics that include a masternode mining structure, instant transactions (via a technology called SwiftTX) and an unlimited coin supply.
Zcoin is the first full implementation of the Zerocoin Protocol, which allows users to have complete privacy in a scalable manner. Zero-Knowledge cryptographic proofs is used to ensure complete financial privacy transactions; whenever someone sends a private transaction, the coins are cryptographically burned and new coins – that aren’t associated to a previous transaction – will be minted to the receiving address.
Currently, the consensus algorithm used by Zcoin is Lyra2z algorithm, which is a form of Proof of Work (POW). Eventually, the plan is to migrate towards Merkle Tree Proof of Work (MTP) algorithm to prevent mining centralization through ASICs.
(See also: Guide to Valuing Cryptocurrency: How to Value a Cryptocurrency)
Enigma is an inter-operable and agnostic extension that can be deployed to any blockchain platform, leveraging on off-chain data-storage and computation, enabling high scalability and privacy. Enigma uses secure Multiparty Computations (MPCs) and an off-chain Distributed Dash-Table (DHT) to achieve privacy and anonymity. Using MPCs and DHT, network nodes are unable to see the data that they compute, whilst still capable of verifying the accuracy of their computations.
A key proposition of Enigma is that it allows for the development of privacy-focused decentralized applications (dApps) on its blockchain using a unique innovation called ‘Secret Contracts’, where the data embedded in the smart contracts remain encrypted at all times.
(See more: Guide To Cryptocurrency Valuation: A Look into On-Chain Data)
Navcoin was one of the first cryptocurrencies that addressed the shortcomings of Bitcoin’s privacy features. Designed to be easy to use, Navcoin stands out as having fast transaction times (within 30 seconds), low transaction fees and high scalability. Navcoin achieves privacy by using an innovative dual-blockchain structure called NavTech, allowing users to break the chain of transactions using subchains. The consensus mechanism used by Navcoin is Proof of Stake (POS).
(You might also be interested in: Evolution of Cryptocurrency: The Problem With Money Today)
Beneficial Resources To Get You Started
If you're starting your journey into the complex world of cryptocurrencies, here's a list of useful resources and guides that will get you on your way:
Trading & Exchange
- Crypto Guide 101: Choosing The Best Cryptocurrency Exchange
- Guide to Bittrex Exchange: How to Trade on Bittrex
- Guide to Binance Exchange: How to Open Binance Account and What You Should Know
- Guide to Etherdelta Exchange: How to Trade on Etherdelta
- Guide To Cryptocurrency Trading Basics: Introduction to Crypto Technical Analysis
- Cryptocurrency Trading: Understanding Cryptocurrency Trading Pairs & How it Works
- Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience
- Guide to Cryptocurrency Wallets: Why Do You Need Wallets?
- Guide to Cryptocurrency Wallets: Opening a Bitcoin Wallet
- Guide to Cryptocurrency Wallets: Opening a MyEtherWallet (MEW)
Read also: Crypto Trading Guide: 4 Common Pitfalls Every Crypto Trader Will Experience and Guide To Cryptocurrency Trading Basics: Do Charts & Technical Analysis Really Work?
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