What are anonymous cryptocurrencies
The openness of the blockchain registry has forced many cryptocurrency network users to question their anonymity. Special services, hackers, and even ordinary users can easily track any transaction and even calculate the holder’s identity when cashing digital coins. Therefore, many developers have directed their efforts at creating truly anonymous cryptocurrencies that would allow users to maintain maximum privacy.
Anonymous cryptocurrencies are peer-to-peer payment systems with their own settlement unit. A high level of privacy is achieved through the use of cryptographic protocols that complicate or make it completely impossible to track transactions on the blockchain.
The most anonymous cryptocurrencies
With the discovery of vulnerabilities in the crypto industry, a real race has begun among developers who release new anonymous cryptocurrencies and apply various protocols to achieve a high level of confidentiality. Today, there are more than 10 anonymous cryptocurrencies with different methods of protecting user privacy.
The creators of Monero developed a special blockchain structure based on the CryptoNote cryptographic protocol, which allows you to hide the sender, recipient addresses and the transaction amount in the blockchain itself.
To achieve anonymity, the system uses a complex mechanism of ring signatures, in which transactions are signed immediately by a group of users, and not by one person, so it is impossible to find out exactly who made the transfer. In addition, the system generates one-time stealth addresses for each transaction.
The coin appeared in 2014 and at this stage it is considered the most anonymous cryptocurrency, however, as a result of the use of complex cryptography, the transaction size on the Monero network is 50 times larger than that of Bitcoin.
Now on the ZCash network, both anonymous and public transactions operate simultaneously. This is due to the fact that secure transactions require the use of more powerful equipment for verification and, accordingly, have increased commission fees. In the future, ZCash plans to make the transition to a completely anonymous system.
Anonymization of users in the system is achieved through the use of the zk-SNARK protocol, also known as proof of work with a zero value. It is a mathematical algorithm that confirms the authenticity of information without revealing it. For this, a random number generator is used. In hidden transfers, only the time of the payment is saved in the system.
Dash is one of the first anonymous cryptocurrencies that allows users to hide their data through the PrivateSend system. Anonymity is achieved through a two-level blockchain system and the use of masternodes, which share the reward with miners equally.
A user who wants to make an anonymous transaction turns to masternodes, sending them a request for a transaction. When a certain amount of transactions is collected, the coins are crushed into small parts, mixed several times between different users and only then sent to the final recipient. Coin mixing occurs in several stages by randomly selected masternodes, which makes it impossible to track the connection between the sender and receiver of the transaction.
The Verge cryptocurrency has an ambiguous reputation and a data hiding mechanism that is distinctive from its competitors. Unlike other cryptocurrencies, where cryptographic methods are used for anonymization, Verge uses Tor and I2P networks.
There are two types of transactions that can be performed on a network. The first type occurs through an open blockchain, and anonymization is achieved through a private connection to the blockchain using Tor. The second type of transaction is through anonymization of the address, like the Monero system, with additional concealment of the IP address.
Bytecoin was developed back in 2012 and many consider it the first anonymous cryptocurrency that gave impetus to the development of a whole direction in cryptocurrency technology. Bytecoin uses the cryptographic protocol CryptoNote.
It is from Bytecoin that Monero comes from. As in Monero, the anonymity of transactions in the system is achieved through the use of a unique one-time public address for each transaction, which makes it impossible to track the identity of the sender.
During the existence, many forks were made with Bytecoin, but in recent years, developers have taken a course to improve their positions, rebranded and began to actively promote their development.
Bitcoin Private is a forked merger of Bitcoin and Zclassic, combining the level of Bitcoin security and anonymization based on ZCash’s progenitor technology.
The developers set their goal to create a cryptocurrency that would combine the advantages of two digital coins at once. Transaction anonymization is achieved by applying a zero-proof evidence protocol, as in ZCash, but without remuneration to the founder.
PIVX – cryptocurrency fully resistant to transaction register tracking. It allows you to maintain complete confidentiality of participants in the transaction through the use of the Zerocoin protocol, which is based on a cryptographic scheme of proof of authenticity with a zero value. The Zerocoin protocol allows you to add transactions to the blockchain without disclosing the addresses of the recipient, sender, and also without the transaction amount.
Anonymous and open transactions are available in the system. In order to perform an anonymous transfer, you must first convert PIVX to cryptocurrency zPIV and then conduct a transaction.
SmartCash is a relatively new cryptocurrency that appeared as a result of a hard fork on the Zcoin network. User anonymity is achieved using innovative SMART PRIVACY technology.
After receiving an incoming transaction, in order to break the connection between the input and output of coins on the wallet, the user has the opportunity to burn coins and order a similar number of completely clean new coins. This approach ensures anonymity and a complete disconnection, but a small commission will be required to burn and issue new coins.
Zcoin is another cryptocurrency working on the Zerocoin protocol. To anonymize the transaction, the principle of burning coins is applied. When a transaction is completed, Zcoin coins are destroyed, and the wallet receives a similar number of new coins that do not have a transaction history.
Nav Coin is an anonymous cryptocurrency that does not use cryptographic methods to ensure confidentiality. Instead, it uses a sophisticated method of entangling traces in a subchain of the main blockchain. Instead of sending cryptocurrencies directly to the recipient, the transaction is initially sent to the sub-chain of the NavTech blockchain, where it is encrypted falling into a pool consisting of many servers and only then sent to the final recipient.
Komodo is a cryptocurrency based on the principles of bitcoin security and with the possibility of anonymous transactions with proof of zero value used in ZCash.
On the network, you can choose between regular and anonymous transactions. When conducting private transactions, only the fact of the transaction is disclosed, while the recipient and the transfer amount remain hidden.
Zen Cash is another fork of Zclassic. In combination, it is also a decentralized platform for sharing content. Based on the protocol of anonymity, the developers plan to launch several more services in the future, including an anonymous cryptocurrency exchange, insurance and banking services.
Transaction privacy is achieved through the use of anonymous and pseudo-anonymous addresses using a zero-value proof protocol.
Criticism of Anonymous Cryptocurrencies
Shady financial areas are an attractive area for attackers. State control authorities are significantly concerned that cryptocurrencies can be used in criminal schemes, while remaining completely uncontrolled. In particular, they allow hackers and extortionists to hide the further movement of coins. At the same time, no liability is provided for illegal actions. Japanese authorities even obliged cryptocurrency exchanges to remove anonymous currencies from the listing. The US special services are seriously concerned about the problem.
Another negative factor in anonymous cryptocurrencies is transaction size. It increases due to the use of complex cryptographic and other algorithms that are used to hide data. This leads to high fees and the need for more power (more computer memory) to conduct transaction verification.
Anonymity of confidential data are considered the main problems of the century. At its core, the best anonymous cryptocurrencies can allow a person to remain in the shade and be protected from manipulation.
In the modern world where Facebook massively transfers personal data of users, and the concept of bank secrecy already means practically nothing and user money can be debited without notifying the client, anonymous cryptocurrencies are a popular means of protecting personal life and savings. Some experts believe that it is one of the anonymous cryptocurrencies that can become the key currency of the world in the future.