At the time of Bitcoin’s creation, it was said that Bitcoin is a new form of money that provides anonymity, is decentralized and does not require the so-called “trusted third party” to manage transactions. Over time, as the first users began to understand what blockchain is and what it is, more and more crypts were created. Initially, they were little different from Bitcoin itself – such as Litecoin, whose main difference is the blockchain extraction time and the amount of coins in circulation, or Dogecoin created as a funny version of BTC.
The popularization of blockchain technology made new people come to the market, who had their own idea of using the block chain. In this way, the second generation of cryptocurencies were created, whose blockchain was rewritten, with Ethereum at the forefront.
While being on the topic of “generations” of digital currencies, it is also important to mention the third generation of cryptocurrencies, which were created to solve problems that previous projects could not cope with. Such a problem was (and is) scalability, the answer to which IOTA tried to give IOTA, i.e. for a variety of cryptocurrencies not based on blockchain, but on Tangle technology. Thanks to the new approach to the issue, transactions can be free of charge and the scalability is almost unlimited.
How about privacy in all this?
Bitcoin itself was supposed to be a new means of payment, which would be friendly to the society and allow for anonymous payments. Life verified that it’s not quite possible to be anonymous paying BTC, that’s why cryptocurrencies were created, whose main goal is to protect privacy.
This is a flagship project when it comes to protecting users’ privacy. Monero uses a system of enforced privacy so that no user can be identified. With signatures, the sender’s input data is mixed with ten other input data so that third parties cannot be certain which address sent the transaction. The Monero protocol also implements the RingCT function that hides the amount of funds sent. Monero is being gradually phased out of crypto exchanges, including the Polish Bitbay, due to the high degree of anonymity, which is often used by hackers and criminals. Of course, there is also a large community of users of cryptocurrencies who simply value privacy and do not want to use their digital resources for any bad purposes. Such users are recommended to withdraw this cryptovalut from the stock exchange, because the decision to remove XMR can also be made by other platforms.
Crypto was introduced to the market in 2014. What makes it different from Bitcoin is that every aspect of usability – speed, transaction costs or management – is at a higher level. Dash provides privacy to its users by mixing all transactions with each other, which makes tracking payments very difficult. However, please note that the PrivateSend option is optional and should be enabled beforehand.
He evolved in 2016 from the original Zerocoin. In order to ensure the anonymity of the transaction, Zcash uses the Zerocoin protocol and the so-called “proof with zero knowledge”. Transactions in the Bitcoin network are fully transparent, while Zcash allows to generate two addresses: public and private. The public address works similarly to BTC addresses, and the private address is used to hide the sender, recipient and amount of the transaction. To confirm such transactions Zcash uses a cryptographic method called zk-SNARK. All transactions are visible in the public chain, and information about the parties and the amount of the transaction is encrypted.
Privacy in this network is not cryptographically protected, but is indirectly protected by TOR and I2P routing, i.e. a network with a distributed organization that divides data into packets and encrypts the transmission. Privacy safeguards are not embedded in the blockchain code. The Verge network also does not hide transaction amounts. The cryptographer lost a lot of trust after successful attacks of 51% in 2018. It turned out then that the team’s words about Verge’s superiority over other cryptos are unheard of. One of the enthusiasts and promoters of the project was John McAfee himself, but this was mainly due to the desire for profit.
Komodo project, which was created as a result of the SuperNET forum on the already mentioned Zcash . Anonymity is provided in this case by Zero Knowledge Proofs technology. Thanks to this technology transactions can be fully private – with hidden data about the sender, recipient and amount. Additionally, the Delayed Proof of Work (dPoW) protocol provides greater security. Using this protocol makes any attempt to attack will be blocked, because in order to manipulate Komodo, an attacker would also have to change the Bitcoin chain.
Private cryptocurrencies problems
As you can see, cryptography and the growing digital currency market provide us with many tools for hiding transactions and protecting privacy. Industry professionals are aware that the privacy of transferring funds is one of the most important issues for users. At the same time, it is also one of the biggest problems to solve.
In 2017, research on the Monero showed that it is possible to link transactions by an oversized ring signature. The project developers quickly addressed this problem by introducing the RingCT protocol and introducing a minimum size of signatures. Another threat is that it turned out that predicting the right result in the signature could be easier than expected.
Centralisation of masterminds in the Dash network may, in turn, lead to the fact that masterminds who have access to private transactions will make the privacy of this cryptovcurrencyperson threatened. It is also unknown whether the new protocol of the Zcash team – zk-SNARK – will prove to be a system without flaws and errors, as it is a relatively new method of cryptography.
Future of crypto privacy
It would seem that the future of the cryptocurrencies protecting users’ privacy will be promising. After all, they provide solutions to the growing problem of the privacy of fund transfers. Today, banks are a complete denial of what Monero’s most private cryptocurrency is. If the community were to decide what is right and wrong, the development of these projects would probably go in the right direction.
Today, however, we know that representatives of banks and world governments have the decisive voice. If they have any problem with the cryptocurrencies, they can easily outlaw them. Then it will not matter whether it is Bitcoin or Zcash – it will affect the whole market. However, it is hard to believe in such a scenario and it is unlikely to happen. It doesn’t change the fact that when the adoption of a cryptocurrencies is more advanced, governments may see a threat in private crypto.
Linking BTC transactions with individuals is not a problem, but encrypted transactions will already pose such a problem for the government. Today Monero is associated with darknet and crime, which is often the main argument against digital currencies. Investors who farm private cryptographers must be mindful of governments’ approach to cryptographic legislation.