A privacy coin is a type of cryptocurrency that prioritizes user anonymity and privacy by obscuring transactions on its blockchain. Here's a quick guide.
How Do Privacy Coins Work?
If anonymity and privacy are a top priority, privacy coins are a must-have. Each privacy coin uses different strategies to anonymize transaction data and wallets.
Stealth addresses require the sender to generate a new address for every transaction sent.
This decreases the chance of a transaction being linked to a receiver. Monero (XMR) uses a specific version of this called DKSAP.
CoinJoin is another privacy coin strategy. It's a coin mixer that merges transactions from other traders into one transaction. Then it spreads them to users using new addresses.
Zero-knowledge proofs allow crypto holders to prove if a transaction is valid without giving up sensitive information (who's involved, account balances, etc.)
Unlike most crypto, private coin transactions are stored in encrypted form instead of a public ledger.
Are Privacy Coins Legal?
Some countries like South Korea have banned trading privacy coins completely. But the countries that haven't banned them aren't promoting them either.
The United States government has taken a different approach; they're looking for ways to remove the anonymity and privacy of private coins.
Sometimes exchanges have to fall in line. If regulators ban a coin, exchanges sometimes halt trading so they won't get shut down. Other exchanges pull the coin off their platform entirely.
The argument for regulation of privacy coins is they're most likely to be used in criminal activities.
But criminals still prefer Bitcoin over other coins because it's easier to move around.
Popular Coins
Monero (XMR) is the largest and most well-known privacy coin. It has a robust suite of privacy features.
Zcash relies on zero-knowledge proofs. Unlike Monero, enhanced privacy isn't always active. Investors can send crypto publicly, or in a "shielded" transaction using zk-SNARK protection.
Dash is probably the least "private" out of the privacy coins.
It does have some aspects of anonymity like PrivateSend. But being a fork of Bitcoin, it isn't natively anonymous.
If investors transact with Dash, transaction details like wallet balances and addresses are publicly available.
Wrapping Up
Do thorough research on all the coins you're interested in.
If you have money in any of these coins, you should always keep up with price changes, updates, and security breaches.
With privacy coins, it's especially important to keep up with any new bills or politicians promoting regulation.
Make sure to define your trading strategy. Set a goal, risk level, and time frame. Set stop losses to protect yourself if need to get out.
And stay vigilant when protecting your crypto! Use FLOW to support focus and concentration throughout your day.
