Anonymity vs. Privacy
delving into the details of various cryptocurrencies, let’s take a moment to consider
how anonymity and privacy work in the blockchain world.
blockchain-based cryptocurrencies offer some degree of anonymity for users
because they allow users to operate under pseudonyms. However, anonymity and
pseudonymity are not the same thing as privacy. Bitcoin transactions can be traced, as can those for many
other coins and tokens that were not designed with privacy in mind. Addresses
can be linked and transaction amounts can also be traced. If someone can reveal
the true identity linked to an address, privacy totally disintegrates.
the very nature of a public blockchain makes transactions traceable. All transactions
that occur on an open blockchain can be viewed by any person that has access to
the blockchain. The degree by which they are traceable depends on the
cryptography employed by the project team. Public coins not focused on privacy
tend to be linkable and traceable, while privacy coins use a variety of stealth
tactics to break one or both of those characteristics.
Public Coins and Utility Tokens
privacy comes with advanced cryptography and is why most of the cryptocurrencies
in use today offer no privacy features beyond basic anonymity, or rather
pseudonymity. They are happy being public, in the sense that traceable and
linkable transactions on their blockchain doesn’t affect the product, only
possibly the end user.
public cryptocurrencies and tokens include:
- Bitcoin: The cryptocurrency that put
cryptocurrency on the map. While Bitcoin offers anonymity, it does not
offer much in the way of true privacy. Transactions are linkable and
traceable by design.
- Litecoin: Litecoin was created as a
response to what some Bitcoin users perceived as unacceptably slow
transaction speeds and storage problems. Compared to Bitcoin, Litecoin offers
considerable improvement in transaction rates and storage efficiency.
However, Litecoin does not offer any major privacy features that aren’t
available in Bitcoin, as privacy is not a design goal.
- Ethereum: Ethereum was conceived to
extend blockchain use to areas beyond financial transactions. Ether is
probably the most popular alternative to Bitcoin at the moment, but it
does not offer any special privacy features at this time.
- Ripple: XRP is a token developed for
use on the Ripple exchange, which also supports other cryptocurrencies. Ripple
was premined and then XRP was given away for promotion, and because Ripple
is designed to provide resiliency against attacks on the blockchain, XRP
may become more popular as the threat of Bitcoin hacking increases.
However, apart from resistance to hacking, XRP offers no special privacy
the projects described above, there are popular tokens designed to be private
by default by hiding transaction details. These cryptocurrencies are still
public in the sense that they have public open ledgers, but transaction
information is obfuscated in varying degrees to protect the privacy of the end
users. It is also important to point out that there is a difference between secrecy
and privacy. Every human has the right to privacy and fighting for that
right doesn’t mean you have something to hide.
private cryptocurrencies include:
- Monero: Monero provides privacy at
all times through two features: Ring Signatures and Ring Confidential
Transactions (RingCT). Ring Signatures make it difficult to trace the
parties involved in a transaction because transaction signatures are
shared by a large group of people; as a result, associating specific users
with a transaction is very difficult. RingCT (which, technically speaking,
is actually a special type of Ring Signature, rather than a distinct
feature) provides additional privacy by obscuring transaction amounts.
- Particl: PART is a token created by Particl for use on its privacy
platform and decentralized marketplace (which also supports many popular
cryptocurrencies). Particl is a utility token with extremely robust
privacy in mind. Built on the latest version of Bitcoin, Particl enhances
the protocol with Confidential Transactions (CT) and RingCT. Like Monero,
transactions are untraceable and amounts are unlinkable. However, unlike
Monero, Particl gives the privacy control back to the user. The PART token
provides multiple layers of privacy protection as it can seamlessly switch
between public and private while never leaving the owner’s control and
never compromising their right to privacy.
- Dash: One of the first
privacy-focused cryptocurrencies to emerge, Dash (formerly Darkcoin) seeks
to prevent transaction tracing through a technique called coin mixing.
Coin mixing is a third-party technique that may optionally be used with public
cryptocurrencies, including Bitcoin, to add some privacy, but Dash incorporates
mixing by default. The major criticism of Dash from a privacy perspective
is that it depends on “masternodes,” which is not advanced cryptography,
rather third-party mixers. If you don’t trust the masternode operators or
the central servers many reside on, it is difficult to feel confident in
the privacy of Dash.
- Zcash: Zcash’s privacy strategy is
essentially to erase the “memory” — that is, the transaction history — of
coins whenever a transaction occurs. Like Monero and Particl, by obfuscating
transaction history, Zcash makes it impossible to trace transactions. ZEC
uses an advance cryptographic technique called zk-SNARKs to make their coins
private. And like Particl, Zcash is developing uses for its privacy beyond
cryptocurrencies are often associated in the popular imagination with privacy,
in reality, most cryptocurrencies provide only basic levels of pseudonymity.
Essentially, crypto-coins like Bitcoin offer the same level of privacy that you
get if you buy something using cash in a store where no one recognizes you. In
this scenario, your transactions are anonymous, but the transaction amounts can
easily be traced. And if someone is able to determine your identity, all
privacy quickly evaporates.
a handful of cryptocurrencies, such as Particl, fall into a different category.
Designed to provide true privacy and not just anonymity, they include special
features that make it effectively impossible to trace users’ identities and,
for some of the coins, the transaction amounts. While some of these private
cryptocurrencies have trade -offs (like masternodes in the case of Dash) that
make them less attractive from a privacy perspective, others achieve privacy in
a fully decentralized way.
Disclaimer: Particl is a client of BTC
Media, which owns Distributed.com.