What is a Privacy Coin?
A privacy coin is a type of cryptocurrency that allows investors to make private transactions for the purpose of improving security. It also adds to the transparency feature which is one of the defining traits of blockchain technology.
It is important to note that all cryptocurrency transactions are recorded at a public blockchain network to make it freely and equally accessible to all. Fortunately, privacy coins allow investors maintain financial privacy.
How do Privacy Coins Work?
Privacy coins are digital currencies that are able to secure transactions traceability by the way of hiding wallet addresses and balances. Privacy cryptocurrencies operate in the same manner as other blockchain products but they add an additional layer of privacy-improving features that bring anonymity to transaction origin and pathways.
However, it is important to note that all privacy coins are not completely secured against interception and breach of security.
Important Features of Privacy Coins
Privacy coins add additional features to the underlying blockchain network to maintain anonymity. In this manner, these cryptocurrencies are able to ensure protection and effective security measures for users making their transaction history untraceable and incomprehensible.
Here are some of the privacy coin components that help investors maintain a high level of protection:
Stealth addresses are digital wallets to make transactions inconspicuous. This type of address uses a mixture of public and private key combos to create unique identifiers for each new transaction. In this manner, the users are able to generate a new and one-time address for every transaction. Stealth addresses can also be termed proxy addresses that hide the public addresses of a user.
A ring signature is a type of digital product that runs a transaction within a group. In this manner, the program is able to generate a unique signature without revealing the identity of the issuer. All members of the ring retain a passcode and sign transactions that do not require coordination from other members.
These signatures bring permanent anonymity for investors for a duration while the group is carrying out a new transaction. In this manner, outsiders cannot acquire any information regarding the terminal points of the last transaction.
CoinJoin is a privacy feature that allows various users to create a coin mixer. This mixer enables the individual members of the group to perform single transactions. This transaction result is sent back to the original participants in proportion to the real token quantity.
Addresses are blended with crypto transactions and make the cryptocurrency untraceable. CoinJoin hides the sources and destinations of the digital assets and maintains robust privacy protection for all users.
SNARKs stand for Succinct Non-Interactive Argument of Knowledge. ZK technology stands for a zero-knowledge protocol that can process transactions while remaining impervious to the origin and full details of the complete transaction. ZK-SNARK is a privacy-focused method that does not record transaction details on a public blockchain.
Top 3 Privacy Coins
Monero (XMR) is one of the most popular privacy-focused coins. The project uses various techniques such as stealth addresses and ring signatures. The privacy features of this digital asset are by intrinsic design such that they protect sender and receiver addresses and the real amount of transaction.
Aleph Zero (AZERO) was launched in 2021 as a privacy-focused and Proof-of-Stake blockchain network. The project aims to resolve scalability problems and address security issues at the base layer of the blockchain.
It utilizes a unique system based on the Directed Acyclic Graph framework. Additionally, AZERO network also employs zero-knowledge proofs to warrant user identity and hide their transaction information.
Oasis Network (ROSE) was introduced in 2018 as a privacy-focused blockchain open-finance program. It is a layer 1 Proof-of-Stake (PoS) network and combines secure architecture with scalable privacy-focused DeFi protocols. The ParaTime confidential feature of Oasis protects user data and ensures transaction secrecy for users.
Privacy coins have become a trending topic in the current regulatory environment. However, the project has faced legal constraints in regions such as the USA, Australia, Japan, and South Korea. On this account, some major cryptocurrency exchanges have delisted them.