23 Mar

Private Crypto: The Bygone Days of Anonymous Bitcoin

Anonymous Crypto – The Confidential Nature of Privacy Coins Today

Anonymous Crypto - The Confidential Nature of Privacy Coins TodayThink back about a decade, to a time when cryptocurrency wasn’t a household term; when Bitcoin was a word that piqued mild curiosity, at best. In its earliest years of existence, those who understood and appreciated the concept of Bitcoin were intrigued by its private nature. It was 100% digital, ridiculously cheap to move, and offered users a degree of anonymity no fiat currency possibly could.

Such is not the case today. As technology progresses, we’re always looking for ways to make digital innovations more secure. Turning cryptocurrency into an investment technology didn’t help, either. It only gave governments more reason to demand regulation (for taxation purposes, of course.)

Along the way, Bitcoin has inevitably become yet another form of money that links to identifiable sources. The blockchain ledger maintains data for every transaction, between every crypto wallet. This linkage system traces back between senders and receivers, tracking what tokens are going where.

Long story short – Bitcoin, along with almost every other cryptocurrency on the market, is no longer anonymous. Bitcoin in particular is what the industry calls “pseudo-anonymous”; meaning users must register a wallet to hold coins, but that it can be done under a false identity. There’s good news though for anyone seeking ultimate privacy in digital transactions.

Genuine Privacy Coins Deliver Absolute Anonymity

There’s a small but admirable class of digital tokens that’s bringing anonymity back to cryptocurrency. They’re what the industry calls Privacy Coins. They include coins like Monero, Verge, and Zcash. Not only are they able to offer a degree of privacy the other 99.5% of the crypto market cannot, they’re actually gaining value, while their traceable cousins decline.

From March 1 to March 22, Monero and Zcash gained 7.6% and a whopping 46% respectively; 4.7% and 16% in the last week alone. Bitcoin, on the other hand, has fallen yet another 5% this month. Coincidence? Perhaps. It could just be another oddity in the unpredictably idiosyncratic dimension that is cryptocurrency. Or, maybe it’s more telling than meets the eye.

What are Privacy Coins and How are they Different?

Quite simply, a privacy coin is one that cannot be traced. There’s no way to know who is buying, trading and selling them. Privacy coins give users a medium for moving monetary value from one person and/or location to another, without leaving any trail behind.

Traditional crypto (i.e. Bitcoin, Litecoin, Ethereum, etc.) transactions are recorded on a blockchain. Pseudo-anonymous or not, those transactions can link back to the buyers and sellers. In most cases, the identities behind a trade are barely hidden at all, thanks to registration and KYC requirements with crypto investment apps like Coinbase, Robinhood and Binance.

According to ING head economist of digital finance and regulation, Teunis Brosens:

Coins can, with some effort, be traced back to the very last “satoshi,” bitcoin’s smallest unit. Recent reports of ransomware money being recaptured, and arrests made for crypto exchange hacks made years ago, attest to this progress.”

Privacy coins, on the other hand, are not traceable. Their transactions take place on a blockchain, like all cryptocurrency, but there’s a lot less data recording on the ledger. It will include only the most basic details. Viewers of the blockchain will know a transaction took place, and of what type of crypto. The identity of the sender and receiver, as well as the amount of coins, remain private.

Are Private Cryptos Legal?

Yes, they are perfectly illegal in most countries. There are currently just nine countries that prohibit the use of crypto currency in general, and _ jurisdictions where traceable crypto coins are legal, but privacy coins are not. They include:

All Cryptocurrency Illegal Only Privacy Coins Illegal
  • Algeria
  • Bangladesh
  • China
  • Egypt
  • Iraq
  • Morocco
  • Nepal
  • Qatar
  • Tunisia
  • Australia
  • Japan
  • South Korea

In all other parts of the world, privacy coins are just as viable and legitimate as any other cryptocurrency. But there are plenty of federal agencies that would like to see them become illegal, or at the least adhere to AML/KYC regulations.

If you’ve been keeping up so far, you should have some indication why private crypto tokens aren’t popular with governments. It’s not just because they can’t profit from it, either, although that is high on the list. If the government can’t tie the funds to any person or business, they can’t tax them.

More importantly, though, privacy coins are a perfect medium for conducting illegal business; everything from drug trafficking and arms dealing, to tax evasion and money laundering. But to prevent this type of activity, crypto would have to be wholly regulated by central governments, defeating the whole purpose of decentralized currency. Digital tokens were created to give global society a means of transacting without big fees or penetrating oversight by enterprise or government.

Who Uses Private Crypto (Besides Criminals)?

As we just discussed, criminals are inevitably drawn to privacy coins for the anonymity they bring to the table. But not everyone who uses private tokens is in it for illegal intent. There are plenty of people who would simply prefer their transactions remain under the radar.

The majority of legitimate individuals who use private crypto are simply looking to maintain security. It’s no secret that the simplest way to protect your identity and financial security online is to avoid putting it on the internet in the first place. Then there are people who spend money online that they’d prefer their friends and family not know about; things like online gambling and other forms of ‘adult’ entertainment.

The bulk of privacy coin transactions belong not to individuals, but businesses; especially big businesses that don’t want the rest of the business world knowing they’ve conducted a major transaction. In fact, privacy coins were originally developed to accommodate anonymous business transactions between mainstream companies, like Facebook and Google.

Why is Anonymity so Important?

To the average citizen, it’s not. The truth is, most people don’t care about maintaining their anonymity. Security, yes, but privacy? Not so much. A study by the University of Massachusetts Lowell concludes that the majority of both “typical” (consumer) and “critical” (investor/miner) Bitcoin users “enjoy the remarkable simplicity of Bitcoin and disregard the anonymity concerns.

That doesn’t change the fact that a minority of users, both personal and enterprise, appreciate the privacy and anonymity this rare breed of crypto provides. For them, maintaining privacy is paramount to the preservation of their activities. And so long as there is a demand for privacy coins, and a legal route to issue them, the supply will be there.

Can Anonymous Cryptocurrency be Trusted?

The trust factor doesn’t lie with the crypto itself, but rather the entities transacting it. The real question is, does the sender trust the receiver, and vice versa? There is generally an exchange taking place, whether it be good, service, and/or monetary in nature. When two parties make such an exchange, we typically rely on accountability to ensure each makes good on their end of the bargain. Transactions involving privacy coins may lack accountability, thus trust may be the only assurance you have.

When two major businesses transact privately, there may be private contracts to back them up. For common users, there are no contracts. The two parties may or may not know the identity of the person on the other end. So again, the question really comes down to whether you trust the other end user to make good on the deal.

There are crypto trading communities that maintain anonymity, while ranking buyers and sellers by experience. It’s hardly any different from Facebook Marketplace. Anyone can set up an account with little more than an email address. The age of the account and number of successful, complaint-free transactions, determines their rank. That rank helps other decide whether to trust the user or not.

More Information about Specific Privacy Coins

Bitcoin was the first cyrptocurrency, introduced in 2009. Before long, it was joined by dozens of alternative crypto, a.k.a. altcoins. Today, there are literally thousands of digital tokens on the market. Privacy coins have undergone a similar fate. First, there was one – Monero. Then a few more cropped up, and before we knew it, the list grew to enormous lengths.

To date, there are about one hundred anonymous cryptocurrency in existence. Below is a list of the top 10 tokens at time of writing, including their current privacy rank, overall crypto rank, name and symbol, by highest market capitalization (at time of writing).

Privacy
Rank
Overall
Rank
Crypto
Name
Ticker
Symbol
Current Price CA$
(Spring 2022)
1 40 Monero XMR $245.56
2 51 Zcash ZEC $223.82
3 86 Oasis Network ROSE $0.3373
4 93 Decred DCR $72.34
5 97 Secret SCRT $5.89
6 122 Horizen ZEN $56.46
7 144 Keep Network KEEP $0.7955
8 226 Pirate Chain ARRR $2.68
9 227 MobileCoin MOB $6.63
10 246 Status SNT $0.07677

Why Monero is Number One in Anonymous Altcoin

Monero (XMR) has led the private crypto market for nearly a decade now. Established in 2013, it was the very first anonymous crypto to hit the market, followed by Bitcoin fork Xcoin in 2014 (later named DarkCoin, and now Dash). If there’s one thing Monero has done in all this years, its maintain its commitment as a “private, decentralized cryptocurrency that keeps your finances confidential and secure.”

Monero utilizes a number of features to protect the privacy of its user. First and foremost is what they call “stealth addresses”; one-time-use public keys used by the two participants in the transactions. These are combined with “ring signatures” and Monero’s exclusive “RingCT” protocol. Ring signatures mix up the actual identities of the users with decoys, while RingCT hides the amount of the transaction.

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