Privacy coins are those types of coins that are designed to promote and maintain the anonimity of every transaction in cryptocurrency. This is the opposite of transparent blochchains technology like bitcoin, where the details of every transaction is available for the public. The aim of privacy coin is to provide users with more confidentiality by leveraging on various cryptographic thechniques. These coins offer users great control over their details which helps them protect their identities.
Some examples of privacy coins may include; Zcoin Dash, Monero, Verge etc.
Privacy coin defined :-
Privacy coins are cryptocurrencies that obscure transactions on their blockchain to maintain the anonymity of its users and their activity. Participants within a transaction will know the amount transacted and parties involved. However, the same information will be unobtainable to any outside observer.
The anonymity that privacy coins provide offer a potentially appealing outlet for money laundering or other criminal transactions. As such, privacy coins are a point of contention in the ongoing debate around cryptocurrency privacy and regulation.
Source
This page lists the most valuable privacy cryptocurrencies and tokens. They are listed by market capitalization with the largest first and then descending in order. Link
Details that can be found on blockchain transaction records, like bitcoin.
- The transaction Id or hash.
- The address of the sender and receiver. (May be containned in the hexadecimal string)
- Time stamp (the time the transaction was made )
- Amount. (Amount of the coin that was sent).
- Change address. (An unsent transaction output (UTXO) if there is an unsent transaction, it will be returned to the change address).
How some details on a bitcoin transaction can be used to erode your privacy.
- Common input ownership :- If a bitcoin transaction shows more than one input, one can assume they both originated from one source. The more inputs you make, the broader your transaction behavior becomes.
- KYC (Know Your Customer) :- Because some exchanges now conduct KYC in compliance with regulatory agencies. When you send a bitcoin from a centralized exchange platform, with whom you have filled for KYC, they can easily tie your transaction to your KYC details already with them. Some may also demand for the details about the withdrawal address.
- Wallet Fingerprinting :- This is applicable to some wallets. They handle their transactions in a special way, which gives a general overview of the transaction.
- Address reuse :- When you make use of one bitcoin address more than once, you may be tied to that bitcoin address which is already in the public space. The more you use it, one can also deduce the services you normally pay for through the aggregate public bitcoin address.
Again, if you add a bitcoin address to your social media platform as a means of payment or to receive tips, one can easily reveal your identity.
The design of privacy coin.
Privacy of users have not been taken care of by blockchain transactions. Reasons for privacy coin. They apply various designs features to see that they eliminate any thing that will link a transaction to a user. Such approaches may include;
Stealth address** :- This approach allows users to create unique address for every transaction, making it difficult for a anyone to link the transaction to any user.
- Ring signature :- This allowas a group of users sign a transaction together, making it difficult to identify the user that initiated the transaction.
- Coin mixing :- Here, they mix coins from different users, making it very difficult to identify the original sorce if a particular coin.
- Confidential transaction :- This feature allows the transaction amount to be hiden from the public.
Advantages of privacy coin.
- Financial confidentiality :- This is one of the qualities of privicy coin,it enebles individuals and cooperate bodies keep their fanancial transactions and details away from the public.
- Privacy enhancement :- This is the primary advantage of the privicy coin. They help provide enhanced security. Here, a user can transact successfully without revealing sensitive details like; amount, names of sender and receiver.
- Security :- The security used in privicy coins are more sophisticated. Making it very difficult to find vulnerabilities.
- Anonymity :- They guarantee anonymity of users, promotes financial confidentiality and shielding users from surveillance.
- Protects Users from price analysis :- it protects users from price manipulation based on transaction patterns.
Disadvantages of privacy coins.
- Limited adoption :- It have not been widely accepted, which have affected its usage on a daily.
- Problem with regulatory bodies :- Privacy coins have not been probed by government bodies, this is because, it may be abused or misused for things like tax evasion and money laundering.
- Lack of scalability :- Scalability can be affected when organizations or users increase computational complexity and transaction size.
- Rediuces transparency to government :- regulatory bodies of the government charged with the responsibilities of auditing companies or individuals find it difficult accessing the basic information they may need to discharge their duties.
Conclusion
As we have seen, privacy coin has it's advantages and disadvantages. As such, it divided the blockchain community into two. While some argue that; privacy is a foundamental human right, others think it can't be allowed if it must cover people's bad deeds.
This is evident by the way countries reacted to it. While it is still obtainable in many countries, South Korea baned trading of privacy coins in 2018.
On the other hand, Japan banned it outrightly. Moreso, in 2020, some exchange platforms in Australia began delisting of privacy coins.
These attcks on privacy coin by regulatory bodies have forced some coins like Dardkcoin to review its privacy nature, that in 2015 it rebranded to Dash coin.
Finally, i think an outright ban is not good. I am of the opinion that users should be allowed to make their choices of which coin to trade with their money.