Privacy coin

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Privacy coins are a subset of cryptocurrencies that leverage cryptography to provide close to true anonymity for transactors, at least closer than bitcoin and other coins. Monero (XMR), Dash (DASH), Zcash (ZEC), and Horizen (ZEN) are among the most actively traded and widely recognized privacy coins.

Their privacy features make them controversial because, seemingly, they would be utilized in crimes, impeding market surveillance and law enforcement efforts.

Background

In the original bitcoin white paper, Bitcoin: A Peer-to-Peer Electronic Cash System, Satoshi Nakamoto notes that the use of anonymous public keys provides a level of privacy analogous to what is available in the traditional regulated banking model in which banks are responsible for keeping transaction data confidential. A key attribute of the bitcoin blockchain is the public nature of transactions, making it imperative that the identities of the transactors be private, even to the counterparties when possible. Section 10, "Privacy," of the white paper admits that simple anonymity of keys may not provide sufficient privacy for all users.[1]

CoinMetrics, a cryptocurrency data analysis firm, reported on September 1, 2020 that privacy coins had not supplanted bitcoin for transactions. In fact, according to the "Privacy Issue" in Coin Metrics' State of the Network: Issue 66, "For every transaction on one of these privacy assets [Monero, Zcash and GRIN] there are 16 done on Bitcoin and countless more on assets that offer even less privacy."[2]

References