Most cryptocurrency users believe anonymity is its primary advantage, allowing transactions to be performed incognito without leaving a personal “trace”.
However, over time, it has become clear that cryptocurrency’s anonymity is more of a myth than a reality.
Of course, your cryptocurrency wallet address does not directly disclose your identity. However, if you discover someone’s specific address, all of their transactions can be traced through it.
Thus, numerous blockchain developers aimed to create truly anonymous cryptocurrencies, and several projects have successfully achieved this goal.
What Are Anonymous Cryptocurrencies?
Their details are hidden from third parties.
They are digital currencies built on networks that conceal all data pertaining to user transactions.
This includes information like sender identity, recipient identity, date and time of transfer, and transaction amount.
To guarantee complete transaction privacy, anonymous cryptocurrencies rely on various technologies.
- The zk-SNARK algorithm enables transaction participants to verify transaction validity without disclosing their personal information or account balances. This innovative approach ensures participants’ privacy and anonymity in transactions.
- Hidden address technology is utilized to create a one-time random address for each transaction, without being linked to particular users.
- Ring signature technology generates a single signature from a group of crypto users’ signatures.
- Outsiders can identify that a group member signed the transaction, but their specific identity remains unknown. “Mixer” or CoinJoin technology combines multiple transactions from different individuals into one. This process mixes the transaction streams, making it impossible to determine which user conducted a specific transaction.
Anonymous transactions have several disadvantages, including higher fees, a possible refusal by some exchanges to list anonymous cryptocurrencies, and a notable increase in transaction times.
Popular Anonymous Cryptocurrencies
Horizen (ZEN)
The platform utilizes zk-SNARKS technology to offer a high level of privacy. This technology is also employed by the Zcash cryptocurrency to guarantee complete anonymity for transactions conducted on the network.
The anonymous token can be found on cryptocurrency exchanges such as Coinbase, Bittrex, and Binance. Furthermore, many of the project’s solutions are open source, which guarantees the security of Horizen’s work.
What’s intriguing about Horizen is its capacity for scalability and efficient transaction processing. Developers report that a single Horizen blockchain can handle up to 1,000 transactions per second, with the potential for up to 10,000 simultaneous blockchains.
Theoretically, this means that Horizen could facilitate the processing of up to 10 billion transactions per second.
Monero (XMR)
Among anonymous cryptocurrencies, Monero (XMR) currently ranks first in terms of market capitalization.
XMR is available for purchase on various exchanges. Monero can also be traded for stablecoins and other crypto. The privacy measures of this cryptocurrency are based on the use of hidden addresses that serve as proxy addresses for the intended recipients. Upon receiving digital coins, they are transferred to the user’s designated wallet address.
Monero protects the privacy of recipients and ensures that transactions remain confidential. It provides enhanced privacy through Ring Confidential Transactions (RingCT), which conceal wallet addresses and transaction amounts.
RingCT builds on the effectiveness of ring signature technology by grouping cryptocurrency users into key holders, thereby anonymizing both transactions and amounts.
Open source code is a significant advantage of this cryptocurrency project. It enables programmers to verify whether the system has vulnerabilities and whether the transaction data is truly inaccessible to third parties.
Zcash (ZEC)
Zcash is a groundbreaking anonymous cryptocurrency that employs an enhanced privacy mechanism called zk-SNARKs (non-interactive zero-knowledge proofs). It is an integral component of the Zcash secure payment protocol.
Instead of transmitting personal information, such as a wallet address, for a cryptocurrency transaction, zk-SNARK generates a mathematical equation as proof of ownership of the funds.
DASH
Dash is among the top 10 anonymous cryptocurrencies that utilize the PrivateSend (coin mixing) technology. You can purchase this digital coin on the majority of major cryptocurrency exchanges.
DASH ranks as the second-largest anonymous coin in terms of capitalization. Similar to Monero, Dash is open source, allowing users easy access to its program code on GitHub. This ensures its security through the constant detection of vulnerabilities by a dedicated community of programmers.
It is important to note that transactions are not automatically private. However, you can send cryptocurrency anonymously by using the “PrivateSend” feature. This function combines your cryptocurrency with transactions from other users before sending the desired amount to the recipient.
Verge (XVG)
{cryptocurrency} is a unique and anonymous cryptocurrency that has maintained its position in the market for years. In 2018, Verge was recognized as an official payment method on the largest adult entertainment platform because of its complete anonymity. To achieve anonymity, Verge utilizes the powerful privacy tool of the Tor network for transactions instead of developing its own cryptographic solutions.
Blockchain node operators are presented with a lot of information, which may include the IP addresses of transaction participants. Verge eliminates this tracking. Furthermore, the use of Tor routing ensures that a transaction is protected with triple encryption.
Where are Anonymous Cryptocurrencies Used?
Anonymous crypto coins have a bad reputation as vehicles for illegal (or dubiously legal) transactions, but are the illegal use cases all there is to those coins? Let’s take a closer look.
Black Market
Anonymous cryptocurrencies are often associated with criminal activities, such as arms and drug trafficking. However, it is surprising to note that such currencies are rarely used in such activities. The majority of black market transactions still occur in US dollars, with Bitcoin and Ethereum being the most commonly used cryptocurrencies. Anonymous cryptocurrencies are rarely used in illicit transactions due to the complexity of the technology, their limited prevalence, and the low technical capability of modern criminals.
Online Gambling
The primary application of anonymous cryptocurrencies is in online casinos and betting businesses. Frequently, regulatory procedures and local regulations make it challenging for gambling firms to operate. However, in the 21st century, many of these firms have transitioned to online platforms. Anonymous cryptocurrencies enable users to bypass local regulations and access markets in countries where gambling is prohibited.
Money Laundering and Tax Evasion
In recent times, tax and anti-money laundering laws have been strengthened worldwide. This trend is making it challenging for affluent individuals to avoid increasing taxes. Additionally, the use of cash is becoming increasingly difficult. Against the backdrop of leaks from offshore havens like the Panama Papers, the utilization of anonymous cryptocurrencies for money laundering and tax evasion is gaining significant prominence.
Investments
Aside from their obviously illegal or questionable uses, anonymous cryptocurrencies often serve as investment assets. Monero, for instance, experienced a growth of over 1,500% in 2017. They can be traded on the majority of cryptocurrency exchanges, making them a compelling option for investment.
Anonymous coins can also be used for legal (or illegal, but beneficial) purposes, such as:
- Protecting Financial Privacy: Privacy coins can be used to safeguard the financial privacy of individuals who prefer to keep their financial transactions private.
- Privacy coins can be used to avoid censorship and restrictions on financial transactions imposed by governments or financial institutions.
- Prevent Identity Theft: Privacy coins can be used to prevent identity theft by ensuring financial transactions remain anonymous.
- Supporting Free Speech: Privacy Coins can support free speech by enabling individuals to make anonymous donations to organizations that advocate for free speech.
Conclusion
As previously noted, many cryptocurrencies are not as private as they may seem. Monero is your best option for maintaining true privacy in your transactions. With widespread usage and a robust infrastructure, Monero’s development team is committed to achieving complete privacy for users’ data and transactions.
Additionally, the completely anonymous cryptocurrencies mentioned can also be used to make any transactions private. For example, you can trade Bitcoin for Monero, and once you have converted it, no one can trace your funds. Similarly, you can exchange Monero for Bitcoin, and the previous transactions of the cryptocurrency will remain undisclosed.
However, the availability of truly anonymous digital currencies on exchanges is diminishing, as regulatory measures in the cryptocurrency sector continue to escalate.