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Monero vs zcash vs dash: which is the most anonymous cryptocurrency?
Bitcoin has been praised for its improved security over traditional currencies. However, using bitcoin is definitely not the most private or anonymous way to carry out transactions. The creators of some altcoins have stepped up to attempt to provide a form of digital currency that offers more privacy and anonymity.
Dubbed ‘privacy coins,’ these altcoins are often associated with darknet markets and illegal activities, but there are plenty of legal reasons for wanting to maintain privacy. Whether you want to keep personal transactions private or you run a business and need to conceal transactions from prying eyes, anonymity is key.
With privacy coins becoming increasingly advanced, you have plenty of options. Monero, zcash, and dash are three of the most popular altcoins that offer superior anonymity to bitcoin. They each have their own pros and cons and there is debate about which is the most anonymous. In this post, we explore each of these altcoins and compare them to decide which offers the best option for those seeking more anonymity.
Anonymity of cryptocurrencies
Before we jump into the three altcoins, we’ll take a look at the meaning of anonymity in terms of cryptocurrencies. Since it’s the most widely known cryptocurrency, bitcoin serves as a good point of reference.
Bitcoin is lauded for providing improved security over fiat transactions. When we talk about security here, it essentially refers to the difficulty involved in someone stealing or copying coins. The improved security is due to the nature of blockchain technology. It would take a group of miners with at least 50% of the mining power to include a false transaction in a block.
Every block in the chain includes the hash of the last, which makes changing past blocks extremely difficult. So with each block that is added to the chain, every past transaction becomes increasingly secure. Even the latest block to be added to the chain would be difficult to tamper with and each one before it more so. Security has been improved upon with some altcoins but bitcoin is still considered solid from this standpoint.
Bitcoin lacks privacy and anonymity
On the other hand, it’s largely agreed upon that bitcoin isn’t all that private or anonymous. Every transaction, including the wallet addresses of the sender and recipient, amount, date, and time, is stored on a public ledger. It can be considered pseudonymous because names aren’t actually listed, but it would be fairly easy to trace most wallet addresses to their owner using clues like IP address and transaction history.
While it is possible to make bitcoin transactions more anonymous, it does require a fair amount of effort in the form of coin mixing. In the context of bitcoin, coin mixing is often referred to as coin tumbling or laundering. It involves mixing coins from multiple parties in order to break the connection between the sender and recipient. If done properly, it can make transactions virtually impossible to trace.
Bitcoin Blender is one popular service for mixing bitcoins.
To mix coins properly involves various steps including creating multiple fresh wallets with new burner email addresses. The process can be cumbersome and time-consuming, especially if you’re mixing on a regular basis.
For ongoing anonymity, it makes more sense to go with a cryptocurrency that provides an in-built option for anonymous transactions without the added fuss. Even with these, you likely still need to take additional precautions such as using an anonymizing browser like Tor.
Bitcoin isn’t fungible
One more problem with bitcoin we haven’t yet addressed is its lack of fungibility. When a coin is fungible, every unit is interchangeable and doesn’t have a particular history tied to it. Since every bitcoin is traceable (unless it has been mixed), some bitcoin could have a lower perceived value than others if it has been used in something illegal, for example, a theft, hack, or ransomware attack. This is known as ‘taint.’
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Improvements made by the creators of some altcoins to make the cryptocurrency more anonymous also makes it fungible. This way, users don’t have to worry about tainted coins and subsequent loss of value or rejected transactions.
Why you might want anonymity
As mentioned earlier, privacy coins have been linked to criminal activity, from tax evasion to drug dealing, but there are plenty of legal reasons for wanting to keep transactions anonymous. You probably wouldn’t want the world to be able to view your bank statements and cryptocurrency transactions shouldn’t be any different.
A couple of specific cases in which you may want to go anonymous are when paying for a private medical procedure or service, such as cancer treatment or psychotherapy, or making an anonymous donation to charity.
There are also various general reasons you may want to maintain anonymity:
- Stop advertisers building a profile around your spending habits
- Keep your net worth under wraps
- Prevent malicious hackers and other cybercriminals accessing your information
- Simply prevent the world from seeing where you shop, eat, and vacation
And these are just on a personal level. The implications for businesses dealing with things like trade secrets or a private list of clients could be much broader.
Monero vs zcash vs dash
Now that we know what we’re looking for in terms of anonymity, let’s see what these three coins have to offer.
Dash is one of the older altcoins on this list, having been launched in 2020. It was originally named xcoin, then darkcoin, before becoming dash in 2020. It is known for its fast transactions speeds, a quick four seconds compared with bitcoin’s ten minutes. One might assume that’s where the name came from, but dash is simply short for ‘digital cash.’
Dash has other factors that differentiate it from the bitcoin network, including how decisions are made. Any changes to bitcoin require unanimous approval from members of the network. Dash instead uses a voting system which means that changes can be made quickly.
Another notable difference between this altcoin and bitcoin is the operation of the network. There are two main tiers, the miners and the ‘master nodes.’ The miners carry out similar functions to those in the bitcoin network. The master nodes are responsible for governance functions and for carrying out special transactions — InstantSend and PrivateSend.
InstantSend enables near-instantaneous transactions and is claimed to prevent double-spending, a potential problem with other cryptocurrencies. Regular block times are two and a half minutes whereas InstantSend transactions can be processed in under a second.
Dash is traded on various exchanges and is included in many cryptocurrency payment networks and debit cards. It can also be found in certain US ATMs and at post office branches in Austria. It’s the most widely adopted (mainstream) cryptocurrency of the three.
Dash privacy and anonymity
PrivateSend transactions are where dash gets its reputation for being one of the most anonymous altcoins available. This privacy initiative uses coin mixing to improve anonymity. As mentioned earlier, mixing bitcoin can be a bit of an inconvenience, especially if done regularly.
In the case of dash, when users take advantage of the PrivateSend function, the mixing is carried out for them and coins are deposited in new addresses. By the end of the process, the origin of the coins is obfuscated. This also makes the currency somewhat fungible, but only when PrivateSend is used.
PrivateSend can be initiated at the click of a button, but there are fees involved. (Source: Dash)The main questions here pertain to how reliable this service is and whether it will really help you remain anonymous. One of the main critiques is that you can still see the receiver of the coin. The whole network isn’t private, just the PrivateSend function. So if you send coins, you’re reliant on the recipient of the transaction using the PrivateSend feature if you want to break the connection. Basically, if anonymous transactions are connected to non-private ones, there’s potential they could be traced.
Monero was created in the same year as dash and origniated as a fork of bytecoin. There was some negative press surrounding bytecoin at the time, with critics dubbing it “shady.” This was mainly due to the fact that a large majority of coins were pre-mined and granted to an unknown group of creators and stakeholders.
Nonetheless, monero, which is based on the same CryptoNote protocol that bytecoin was, gained popularity fairly quickly, its market cap peaking (subject to the time of writing) at almost $7 billion at the beginning of 2020. In fact, it was the best performing cryptocurrency of 2020 in terms of market cap, although this has been attributed to its popular use in criminal activity.
The network is based on blockchain technology similar to that of bitcoin, with one of the main differences being that blocks are mined every two minutes. Although it has gained most of its fame from its privacy features, monero does address usability issues inherent in some networks. For example, instead of simply having a cap on block size, it issues penalties to prevent miners from trying to manipulate the system.
Monero is difficult to purchase with fiat currencies although it is traded for both EUR and USD on Kraken and for USD on Bitfinex. It can be found on multiple exchanges for purchase with other cryptocurrencies. Some merchants accept monero as a form of payment and it’s included in various coin payment platforms such as Binance and Evercoin. As mentioned, the place you’re most likely to see it accepted directly is within darknet marketplaces.
Monero privacy and anonymity
Confidential transactions were introduced to the monero network at the beginning of 2020 through the use of ring signatures as an optional part of the protocol. They became mandatory in September 2020.
A ring signature involves additional possible senders (mixins) for each transaction. This means that the actual sender could be one of two or more people. What’s more, transactions are broken up into separate amounts so that one transaction actually occurs as multiple, going to different ‘stealth addresses.’ This negates the possibility of someone tracing a sender or recipient based on personal details attached to their wallet address. However, critics have identified flaws in the system and claim that transactions can be traced.
A potential issue if you’re thinking about using monero is that it’s getting a bad reputation for increased popularity with criminals. It was reportedly the ransom currency of choice in the Wanna Cry ransomware attack of 2020 and has been a feature of other major attacks since. That being said, its widespread use in criminal activity is actually considered testament to its privacy and anonymity. Monero is fungible so tokens don’t lose their value if they’ve been used in shady transactions.
Bear in mind, similar negative press has been earned by bitcoin in past years. Plus, given the chance, a newer coin like zcash could be catapulted to notoriety within the criminal underground very soon. The point is, if something can be used for both good and bad, it likely will be.
Zcash is the youngest of these three privacy coins, having only been around since October 2020. Developed by a reputable team of scientists and cryptographers, it didn’t take long for this coin to join the wave of crypto success stories and reach a peak of more than $2.5 billion in market cap earlier this year.
It hasn’t exactly made its way into the mainstream just yet, but it can be exchanged for fiat currencies on a few exchanges including Kraken, Bitfinex, and CEX.io. It can be easily purchased with other cryptocurrencies on exchanges like Binance.
Zcash privacy and anonymity
Zcash claims to be more secure and private than bitcoin due to its “zero-knowledge” ledger. Instead of displaying the identities of senders and recipients along with amounts, the ledger only shows the time a transaction took place.
The network is based on zk-SNARKs, a form of cryptography that uses zero-knowledge proof. In the most basic terms, this means that transactions can be verified simply based only on true-false statements. Zcash was the first major cryptocurrency to use this protocol, although others including Ethereum have followed suit. Like dash and monero, zcash is fungible.
Overall, this cryptocurrency does seem to have the most promise when it comes to anonymity. Even privacy advocate Edward Snowden tweeted that:
“Zcash’s privacy tech makes it the most interesting Bitcoin alternative. Bitcoin is great, but “if it’s not private, it’s not safe.”
Zcash emphasizes in its FAQ section that there is more of a focus on privacy than anonymity per se. It mentions that while IP addresses aren’t protected, use of an anonymizing network like Tor can complement its privacy features.
In another FAQ answer, zcash alludes to the improved privacy it holds over dash PrivateSend transactions. While it doesn’t outright mention the other cryptocurrency, it compares a pool of 20 million senders to that of three (which happens to be the number involved in a dash transaction). Indeed, monero also appears to be hampered by a similar issue since its ring signatures contain a limited number of mixins. Zcash basically argues that a larger set size is better, which of course makes sense.
There has been a bit of skepticism regarding the strength of this altcoin’s underlying protocol, but without solid proof, it’s hard to determine if this is simple bias. There have been attempts to audit the system but even those are deemed to provide additional assurance rather than substantial evidence.
Dash vs monero vs zcash summary
All of these cryptocurrencies offer advantages over bitcoin when it comes to privacy and anonymity. So which one should you choose?
- Dash: This altcoin is more accessible and widely accepted (outside the darknet) than the others. But it only offers increased privacy and anonymity through its PrivateSend feature. This could be a more suitable option for those looking for something that is easy to spend and who need occasional anonymity.
- Monero: This coin is hampered by a bad reputation and accusations that transactions are traceable. Although, it has been in use for a relatively long period and has proven success in marketplaces (albeit some illegal ones).
- Zcash: This one provides increased privacy through its underlying protocol, meaning less traceability. If used properly, i.e. with an anonymizing browser, it appears to be the most anonymous option overall. But it doesn’t have experience on its side which may put some users off.
Your choice could depend on various factors, including your use case or even how much faith you have in the creators of each coin. It’s worth bearing in mind that the protocols and systems behind each coin are in constant development. As such, one that is missing the mark right now might be rolling out improvements very soon. Indeed, if you take a look at forums on the topic, you’ll find some ongoing debates about which offers the most privacy and anonymity.
Disclaimer: We do not condone the use of any fiat or cryptocurrency for the purposes of illegal activities. Additionally, the information in this article should not be interpreted as a recommendation to invest in cryptocurrencies. This is a risky and volatile market and anyone thinking about investing should complete their own due diligence beforehand.
Monero is a decentralized and privacy-oriented cryptocurrency dedicated to protecting its user’s anonymity by obfuscating information on senders, recipients and the amounts featured in transactions.
|Market Cap||Volume 24h||Circulating Supply||Maximum Supply|
|17,517,464 XMR||17,517,464 XMR|
What Is Monero?
The Monero platform and its XMR token were designed with one mission statement in mind: making it possible for each user to control the level of visibility of their personal data online. It came into existence in 2020 with the launch of Bytecoin, an anonymity-focused cryptocurrency from which Monero was launched as a fork back in July 2020. The idea for the project was born out of the perception that the Bytecoin’s reputation took a hit after the public learned that the majority of its supposedly mineable coins were already in existence. Despite the fact that the parent Bytecoin network has been built from scratch using CryptoNote, a powerful privacy-oriented open-source application layer protocol, the future designers of Monero went on to do their own thing.
Two among these, David Latapie and Riccardo Spagni, named their pet crypto after the Esperanto word for “coin”. The Monero team kept the Cryptonote protocol from the Bytecoin, pairing it with ring signatures, ring confidential transactions (RCT) and stealth address technologies. The goal was to create the first fully untraceable and secure cryptocurrency which puts forward the protection of privacy as its main selling point.
What Is Monero Trying To Achieve?
Monero’s mission is hardly limited to outperforming other privacy-oriented coins, with its goals extended to correcting what its developers see as the weak points of mainstream cryptocurrencies such as Bitcoin:
- Monero treats privacy and anonymity as key areas to be provided for, if the cryptos are to become genuine electronic cash. In the eyes of Monero devs, the traceability of transactions remains an original sin of the majority of cryptos, as this does not allow them to move away from the standards of traditional fiat-based banking. These transactions can be easily traced to its points of origin and recipients since the majority of those taking place among the network users remain public. Monero moves away from this model by making all of the incoming transactions equally probable to come from as many diverse sources as possible. Understanding that peer-to-peer payments should neither involve nor concern third parties, Monero goes an extra mile to protect the relationship between its users and the stuff they purchase or transact with, which is the foundation of its electronic cash ideal.
- Protecting the privacy is not restricted to the parties to transactions, as this equally concerns the nature of a transaction itself. Based on this goal, Monero’s hidden and public ledgers feature support for private transactions not only with regard to the sender, but to the transaction’s destinations as well. The same goes for obfuscating the info on the transaction amounts. Monero is supposed to correct Bitcoin’s “pseudonymity” that is seen as often being mistaken for true anonymity. It also promises fungibility, meaning that its coins are interchangeable and resistant to being tainted by being involved in hacking or theft. The Monero team developed Kovri as a decentralized anonymous layer built around I2P (the Invisible Internet Project) architecture which resembles Tor.
- Monero’s focus on privacy wants to change the rules of the game beyond the scope of “virtual” privacy. For the Monero team, fostering the users’ trust with advanced privacy features extends to protecting their interest outside the domain of transaction traceability and linkability. Monero wants to prevent the extraction of hidden information from the public databases in order to become a cryptocurrency capable of protecting its users before the courts and similar judicial institutions, even from the punishments such as death penalty. At the same time, the developers do not want to limit the access to Monero’s privacy benefits by requiring its users to know its inner workings. The team promises to submit all of the developmental decisions to the audience for the public discussion.
- Monero’s Proof-of-Work model is billed as being more democratic compared to the one found in Bitcoin, supporting Monero’s bid for a higher level of decentralization. Monero’s Proof-of-Work model features the implementation of the CryptoNight hashing algorithm which is used for mining XMR tokens. This tech is supposed to offer a more egalitarian approach to mining since it can be calculated by CPUs and GPUs, while being less friendly to those who use application-specific integrated circuits (ASICs).
How Does Monero Work?
To achieve the desired effects on the transaction process, Monero’s workflow follows a specific path based on its implementation of the CryptoNote technology:
- Upon creation of a Monero account, a user will be given a private view key and a private spend keys, alongside a public address. The spend key can be used to spend payments, while the view key gives insight into incoming transactions. Finally, the public address is used to receive funds. These are used to create the user’s Monero address.
- Next, let us imagine that there is an output which a user wants to spend after it was sent to the one-time public key.
- With the help of an Extra, a TxOutNumber and the private account key, the user can recover their one-time private key.
- The Extra value for sending a transaction to another user is generated randomly.
- The Extra, the TxOutNumber and a recipient’s account public key are used to create the recipient’s output public key.
- The sender can hide the link to his/her output among the foreign keys in the input.
- Double-spending is prevented by including the key image, a special marker which is created from the sender’s one-time private key. There is only a single key image for each expenditure on the blockchain.
- The senders signs transactions with his/her one-time private key, all public keys and key image and adds the ring signature (see below) to the end of the transaction in question.
How Do Monero’s Ring Signatures Work?
In addition to the CryptoNote protocol, Monero’s designers added ring signature technology to Monero to enable more secure and untraceable transactions. Ring signatures are digital signatures and involve multiple signers which need to sign a transaction. This happens without the possibility for an outside party to detect a “genuine” sender. In line with the Monero’s transactional workflow, a sender creates a one-time spend key, with only the recipient being able to find and spend funds distributed with the help of such a key.
The “ring” in the signature technology’s name refers to the ring of potential signers which is created with the help of the user’s account and select public keys. This makes it almost impossible to determine which among the members of a particular group (or a ring) created a signature, thus rendering the outputs resistant to being traced.
What Are Ring Confidential Transactions?
At the same time, the Monero network is prevented from “learning” information about the amounts which are being spent. The users that want to send funds can disclose just the minimum of information which the miners need to validate the transaction, without revealing any information on spent amounts in public. This is secured with the use of Ring Confidential Transactions (RCT) technology.
In addition to committing the amounts to be spent, the RCT will encrypt the information on the amount for each expenditure and make it a part of the transaction. This information will be combined with the shared secret which is included in the transaction. Finally, the amount is calculated by combining the recipient’s private key with the transactional public view key.
Monero’s Stealth Addresses
Stealth addresses featured on the Monero platform are part of the privacy protection package with which the platform aims to protect both parties to a transaction. This is done by obligating the sender to create a randomized one-time addresses for each transaction. In this manner, only the users involved in the transaction know the final destination of a payment.
While stealth addresses make it harder to link the receiver’s funds with their wallet, it is still possible to verify that a transaction has reached a particular address if the sender decides to give access to their public view key.
Based on this, the users can enjoy the benefits of selective transparency, meaning that some transactions may be made visible and others untraceable. This is made even easier due to CryptoNote’s increased flexibility with scalability and management of block sizes, meaning that transactions with Monero’s require more data and cryptographic inputs. Finally, all of these features raised some concerns that Monero might become popular among cyber criminals.
XMR Token Availability
The amount of Monero coins in supply is not capped. Initially, 18.4 million XMR will be released, with the fixed production of 0.3 XMR per minute planned to go indefinitely. The coin’s market capitalization in May 2020 stood at USD 1.6 billion, down from the historic peak it reached in early 2020.
Based on the platform’s focus on decentralization, the mining is done mostly with GPUs, with CPUs being a less efficient option. In order to combat ASIC-based mining, Monero has forked into several tokens: Monero 0 (ZMR), Monero Classic (XMC), Monero Original (XMO), MoneroV (XMV) and others. In addition to mining, one can easily purchase XMR directly from the cryptocurrency exchanges such as Kraken , Binance and others. Once acquired, the coins may be spent with the help of the list of Monero merchants or stored in various desktop wallets.
In March 2020, Monero underwent a hard fork which was supposed to improve its privacy, security, and ASIC resistance. No new coins emerged from this change to the protocol, meaning that only the miners were supposed to upgrade their mining software, while the XMR holders had to update their wallets to the latest version to remain functional.
The Monero project has featured more than 500 contributors so far, making up for the bulk of its developer team.
Meet the Top 3 Coins in the Cryptocurrency Anonymity Race
As Bitcoin becomes more mainstream the idea of a way to cloak transactions are becoming less viable in some people’s opinions. There have been forum posts from community members detailing accounts being closed for using gambling services or making purchases on a darknet market. Consequently, some people have looked to the altcoin scene in hopes of a totally anonymous cryptocurrency.
In the world of cryptocurrency, many believe fungibility is a very important aspect for the future of this technology. Because Bitcoin is pseudo-anonymous and most coin shufflers require a third party, other altcoins are trying to fill the role of private zero-knowledge transactions.
Zcash: ‘All Coins Are Created Equal’
There’s been a lot of talk about a cryptocurrency called Zcash in the virtual money community. The founder of the untraceable digital currency, Zooko Wilcox , launched the public alpha of the project back in January 2020. Zcash is a “decentralized and open source cryptocurrency that aims to set a new standard for privacy and anonymity through the use of groundbreaking cryptography,” according to its website. Wilcox is a well-known cryptographer in the space who created Tahoe LAFS , an encrypted storage system. The project had caused a lot of commotion in the cryptocurrency community when Zcash released its source code on GitHub.
Zcash transactions are untraceable because it uses encryption called zk-SNARK developed by the startup’s team. The transaction metadata within the network is encrypted, and zk-SNARKs are utilized to stop double spends.
“ We believe that privacy strengthens social ties and social institutions, protects societies against their enemies, and helps societies to be more peaceful and more prosperous,” Wilcox said. “A robust tradition of privacy is a common feature in rich and peaceful societies, and a lack of privacy is often found in struggling and failing societies.”
The publication Wired details that investors such as Naval Ravikant and the Digital Currency Group’s Barry Silbert have invested over $700,000 USD into the startup. Zcash has also just recently added a Jack Grigg as a member of the engineering team , who according to the team is “an applied physics Ph.D. student, and by night, a privacy-focused crypto-hacker.”
Dash: the Privacy-Centric Cryptocurrency
Dash is an open source digital currency, released in 2020, formerly known as Darkcoin. The network uses Darksend to help anonymize the transaction process by mixing coins. Darksend has implemented a few variations but is originally conceived from the CoinJoin concept. The creator of Dash, Evan Duffield, said he created the coin because he realized Bitcoin wasn’t anonymous enough.
“ I discovered Bitcoin in mid-2020 and was obsessed ever since. After a couple of years in 2020, I started really thinking about how to add anonymity to Bitcoin,” Duffield explains. “I came up with maybe ten ways of doing this, but I soon realized that Bitcoin would never add my code. The developers really want the core protocol to stay the same for the most part and everything else to be implemented on the top of it.”
Darksend uses what Dash calls Masternodes to handle the mixing services. Masternodes have also helped the community form a voting mechanism hard-coded into the network. The network takes in transactions by combining identical inputs from multiple users into a single transaction with several outputs. The privacy-centric Dash also uses a protocol called InstantX, which sends transactions nearly instantaneously within the network. Dash’s value has risen to the top five cryptocurrencies in the overall coin market capitalizations and at one time reached $15 USD per coin. The digital currency is currently worth roughly $4 with an approximate market cap of $24 million.
Monero: The CryptoNote
Monero is another strong competitor in the land of anonymous cryptocurrency that uses a method called CryptoNote . Monero is not a clone of Bitcoin and was derived from Bytecoin, an early altcoin. There are some significant differences compared to both Bytecoin and Bitcoin within the Monero architecture such as target block time, and emission speed. The virtual money also has a strong anonymity feature as well, and research has claimed its service CryptoNote may be superior to coin shuffling.
The Monero daemon utilizes the CryptoNote technology within the currency’s network. The method used stealth addresses mixed with one-time ring signatures, which work to cloak transactions. Ring signatures were invented by Ron Rivest, Adi Shamir, and Yael Tauman giving the world of cryptography a new type of key process. The method is similar to group signatures, but there is no way to reveal the anonymity of single users within the group of users. Monero says that it has improved upon the CryptoNote feature and the currency offers an opaque Blockchain with a system called viewkey. The team says this makes the system optionally transparent and unlike any digital ledger out there today.
Monero is currently valued at roughly 80 cents a coin and sits at the number 12 market capitalization. In April, the cryptocurrency turns two years old and has persevered as many anon coins have fallen by the wayside. Another interesting fact about Monero is that it is a trading pair on the U.S. exchange Poloniex and is paired with every major coin on the platform. There are not many Altcoins that has been used as a trading pair besides Litecoin.
Anonymous Transactions Will Continue to Increase
ZCash is currently under development and has yet to show the world its methods, but it has been said to be a challenger due to the nature of its design. The community will judge its value when the release of this coin comes into public view. Both Dash and Monero have been around for some time with many other anon tokens nipping at their heels. Despite this, there are some who will not use altcoins and are waiting for better anonymizing features in Bitcoin to emerge.
Currently, those who are against altcoins still use third party coin shufflers located on the deep web or will use something like Dark Wallet or Samourai with their Bitcoin transactions. Nevertheless, anonymity and privacy will likely play an increasing role in the cryptocurrency world. With government’s and central banks prying into our affairs it is very likely these type of privacy networks will only grow more popular.
Do you think anonymous cryptocurrencies are important? Let us know in the comments below!
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Images courtesy of Pixbay, Shutterstock, Dash, Zcash, and Monero websites
What Is Monero (XMR) Cryptocurrency?
A lot of cryptocurrencies have launched in recent years. Many aimed to enhance privacy and anonymity, although their success varied. A few of these cryptocurrencies allow public viewing of all transactions, while others make privacy optional. And still others keep the privacy feature as strictly implicit.
The cryptocurrency Monero has achieved a high level of popularity and acceptance for its privacy-oriented features. This article explains the key concepts, features, and challenges of monero. (See also, The Rise of ‘Private’ Cryptocurrencies.)
What Is Monero?
Launched in 2020, Monero (XMR) is an open-source, privacy-oriented cryptocurrency that is built and operates on the blockchain concept. These blockchains, which form the underlying technology behind digital currencies, are public ledgers of participants’ activities that show all the transactions on the network.
Monero’s blockchain is intentionally configured to be opaque. It makes transaction details – like the identity of senders and recipients, and the amount of every transaction – anonymous by disguising the addresses used by participants.
Along with anonymity, the mining process for monero is based on an egalitarian concept – the principle that all people are equal and deserve equal opportunities. When launching monero, its developers did not keep any stake for themselves, and banked on contributions and community support to further develop the virtual currency.
Monero supports a mining process where individuals get rewarded for their activities by joining mining pools, or they can mine moneros individually. Monero mining can be performed on a standard computer, and does not need any specific hardware such as the application-specific integrated circuits (ASICs).
Monero runs on all leading OS platforms, including Windows, macOS, Linux, Android, and FreeBSD. (See also, The 5 Weirdest Cryptocurrencies.)
How Does Monero Improve Privacy?
Monero alleviates privacy concerns using the concepts of ring signatures and stealth addresses.
Ring signatures enable a sending participant to conceal his identity from other participants in a group. Ring signatures are anonymous digital signatures from one member of the group, but they don’t reveal which member signed the transaction.
To generate a ring signature, the monero platform uses a combination of a sender’s account keys and clubs it with public keys on the blockchain, which makes it unique as well as private. This enables the ability to hide the identity of the sender, as it is computationally impossible to ascertain which of the group members’ keys was used to produce the complex signature.
Stealth addresses add additional privacy, as these randomly generated addresses for one-time use are created for each transaction on behalf of the recipient. The use of these stealth addresses enables concealing the actual destination address of a transaction, and it hides the identity of the receiving participant.
Additionally, Ring Confidential Transactions, or RingCT, enables hiding the transaction amount. After achieving success in hiding the identities of senders and receivers, the RingCT functionality was introduced in January 2020, and is made mandatory for all transactions executed on the monero network.
How Is Monero Different from Bitcoin?
Bitcoin, the most popular cryptocurrency, works on a protocol that attempts to shield the participant’s identity using pseudo name addresses. These pseudo names are randomly generated combinations of alphabets and numbers.
However, that approach offers limited privacy as both the bitcoin addresses and the transactions are registered on the blockchain, opening them to public access. Even the pseudonymous addresses are not fully private. A few transactions carried on by a participant over a time span can be linked to the same address, allowing the possibility of public, government, family, and friends to become aware of an address owner’s trends, and hence, his identity.
Another advantage of monero over bitcoin is fungibility, which means that two units of a currency can be mutually substituted and there is no difference between the two. While two $1 bills are equal in value, they are not fungible, as each carries a unique serial number. In contrast, two pieces of 1 oz. of gold of the same grade are fungible, as both have the same value, and don’t carry any distinguishing features. Using this analogy, a bitcoin is the $1 bill, while a monero is the gold piece.
The transaction history of each bitcoin is recorded on the blockchain. It allows identifying bitcoin units that may have been linked to certain events, like fraud, gambling, or theft, which paves the way for blocking, suspending, or closing accounts that are holding such units. Imagine receiving a few bitcoins today that were previously used for gambling, and they are banned in the future, leading to a loss.
Monero, with its non-traceable transaction history, offers participants a much safer network where they don’t run the risk of having their held units be refused or blacklisted by others.
While these privacy advantages have fueled the rapid adoption of monero, they have also brought challenges. The non-traceability and privacy features of monero allow them to be used for disreputable purposes and at questionable marketplaces, including those like drugs and gambling. Markets on the dark web, like AlphaBay and Oasis, have seen an increased use of monero.
Recent reports by CNBC cite the case of hackers creating malicious software that infected computers to mine monero and send it to North Korea. Essentially, monero is open to be used for illicit activities and for evading law enforcement, as it remains outside of capital controls with no traceability.
The Bottom Line
The privacy-rich attributes have helped monero become the 13th largest cryptocurrency in the world based on its market capitalization as of February 2020, according to CoinMarketCap. One can trade in monero on leading cryptocurrency exchanges like Kraken, Poloniex, and Bitfinex. However, its privacy features have also led to questions about its use in illegal activities. (See also, The 6 Most Important Cryptocurrencies Other Than Bitcoin.)
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
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