Introduction:

Recently, there has been a lot of attention brought to the privacy aspect of cryptocurrencies. It is a popular topic right now and one that is commonly misunderstood or undervalued.

A common belief is that privacy coins are for drug dealers, libertarians, and anarchists. This may have been the group of earliest adopters because of their need for privacy, but the user groups have expanded significantly to include consumers and corporations. . The recent growth, interest, and mainstream adoption of these coins is fueled by the relentless attack on our privacy.

Privacy is defined as the ability to control information about yourself and knowing what to do with it and know its value. Privacy has been acknowledged as human right for many decades, and it is currently being taken away from us systematically and deliberately. Governments now have the ability to tracking us, internet companies can profit from selling our information with little or no resistance. We have been conditioned to accept these micro invasions for the sake of innovation, security, and fraud protection. Handing over privacy may be a slippery slope, and some have decided to stop participating.

At some point, it was uncovered that bitcoin was not as private as we thought because Bitcoin allows anyone to view historical transactions. Easily accessible historical transactions is Bitcoin’s solution to the double spend problem of digital currencies. Anyone can use a blockchain explorer and trace a transaction back to it’s genesis block. If a third party was capable of tagging your identity to an account, they could potentially track where your assets were flowing. Exchanges took advantage of this vulnerability to blacklist tokens that were hacked; rendering the tokens worthless. This vulnerability could be abused by parties attempting to assert control on your accounts. Potentially, an authority could have the capability to track your assets and claim that your asset may have at one point been used in an illegal manner and request that your accounts be blacklisted, making them worthless.

Privacy coins are attempting to address bitcoin’s fungibility problem. Fungibility can be thought of as being substitutable or interchangeable. A very famous quote from Andreas Antonopoulos explains fungibility very elegantly, he is quoted as saying “ The money in my pocket, is the same as the money in your pocket”. Ideally, cryptocurrencies would be as fungible as fiat cash; there is no transaction history if you just pay someone in cash. Privacy coins are attempting to obfuscate (make unclear) transaction histories while also avoiding any double spending.

In this post I will discuss some of the existing methods of obfuscating transactions and the and the major players in privacy coins.

Privacy Techniques:

Coin mixing

Coin mixing is the practice of sending your coins to an intermediary that accepts coins from multiple parties and jumbles them up and sends them back to you, for example, if you send five of your bitcoin to a coin mixer you will receive back someone else’s bitcoins that add up to five bitcoins. This method is the most obvious and low-tech method of obfuscating the transaction and is laden with issues. The most serious issue that may arise using this method is theft, the coin mixer could just keep your coins.

Ring Signatures:

A ring signature is a type of group signature that makes use of your account keys and a number of public keys that are pulled from the blockchain. Using ring signatures, you can see the transactions but you can’t identify who was the sender. Only the receiver of the transaction holds the private key and is aware of the sender. Ring signatures are intended to create a plausible deniability; basically creating confusion around who sent the transaction. Ring signatures are still not 100% private because the receiver is still aware of the sender and the transmitters are still visible in the ring. Ring signatures are much safer and reliable alternative to coin mixing because ring signatures are built into the protocol and don’t require third party trust.

Zk-snarks:

Zk-snarks is the Zcash protocol that Ethereum is porting over to enhance their own security. Zk-snarks is an advanced cryptographic protocol based on zero knowledge proofs. A high level explanation of zero knowledge proofs one party can prove to another party that the statement is the input is true without revealing anything about the input except that it is true. Zero-knowledge proofs guarantee the validity of transactions without revealing additional information about them.

Market Leaders:

1. Monero

Monero is a fork of Bytecoin that utilizes ring signatures as its primary security feature. One of Monero’s biggest advantages over other coins is their dedicated development team, community and heavy focus on privacy. Monero is consistently adding security features, or is planning for increased security features. Monero is not based off of bitcoin so it has been developed from the ground up for security, this is a double edged sword because it demonstrates development team strength but creates a barrier for adoption. Most popular wallets/nodes, are built for the bitcoin protocol, and since Monero is not based off of Bitcoin, these wallets and applications can not accept Monero. Monero has built their own web wallet for users but it has been hacked. Wallet developers believe in Monero and want to incorporate the coin into their platforms but have found it very challenging, and some have even given up. Monero gained lots of support and popularity when Alphabay started accepting it as payment.

1. Zcash/Etheruem

Zcash is backed by leading scientists, researchers and investors from the cryptography and cryptocurrency worlds. Zk-snarks is so revolutionary that Ethereum wants to introduce it into their platform. The zero knowledge proof is the basis of security for this coin. Zcash has an excellent development team, that is well funded through venture capitalists and mining rewards. Zcash is a very promising coin and is also very privacy focused, it will be interesting to see how the Zk-snarks and Ethereum integration will unfold. Zcash also pioneered the slow-start mining protocol, and is the only coin to be traded from the genesis block. The only disadvantage of Zcash that I can perceive is that only a handful of technologists or cryptographers fully understand the implementation, therefore, it could slow it’s progress.

1. Dash

Dash has recently went through another extensive re-branding, from Darkcoin to Dash. Along with the image makeover the business model has also shifted from focusing on security to mass adoption. Dash uses built in coin mixing at masternodes, which coincidentally are also it’s apparent weakness. As we all know it is easier to attack anything that is centralized.

Conclusion:

The intention of this post was to review the reason behind the privacy concerns in cryptocurrencies, attempt to explain the common privacy methods, and review some of the market leading privacy coins available. When I first heard of privacy coins, I didn’t really understand them or the reason for their existence so I did some research and quickly gained a major interest and respect for what these coins were attempting to achieve. There is great innovation going on in the privacy space, and it is great for all of us. I am super excited to see how Zk-snarks plays out. I hope you guys will find this post useful and maybe gain an interest in these “dark coins”! I encourage all of you to dig deeper into these technologies!

If you made it this far I’m super impressed! Thanks for reading!