Are All Cryptocurrency Privacy Coins Created Equal?

Are All Cryptocurrency Privacy Coins Created Equal?  | Sep 27, 2018 15:40

Those familiar with the cryptocurrency landscape are likely aware there are a number of tokens – dubbed privacy coins – prized for the anonymity they provide users. Unlike Bitcoin, which disguises a user's identity but has a public ledger and transparent wallet, alt-currencies such as Monero (XMR), Zcash (ZEC) and Dash (DASH), securely mask both the sender's and receiver's identity.

Though beneficial for individuals who legitimately don't want their financial transactions to be easily made public, these coins are also notable for their use by individuals at the shadier end of society such as terrorists, drug dealers and other criminals. As such government regulators continue to work on ways to blunt the effectiveness of these cryptocurrencies, though not always with great success.

But even with their vaunted clandestine capabilities, for a privacy coin to be truly effective, it must deliver on its promise – true confidentiality. And that hasn't always been the case. Recently Monero developers revealed there’s a major bug in the alt-currency's wallet software, which allows attackers to drain XMR from exchanges at the cost of a few transaction fees.

XMR Vs. DASH Vs. ZEC: Which Will Prevail?

So which privacy coin is most effective? Melanie Mohr, thinks Monero is the true privacy coin, recent glitches notwithstanding. The CEO and founder of e-commerce platform YEAY, as well as Creator of WOM, notes that XMR has a clear grassroots development community behind it, something that's been in existence since its early days.

This allowed a precursor of the token, ByteCoin, to be code forked when flaws in the original platform were revealed. A fresh genesis block was created and became XMR. Says Mohr:

XMR hides balances, transaction history, and receiver address via stealth addresses. The sender is also hidden by using ring signatures, and transaction amounts are also encrypted via RingCT. XMR are also working on Kovri to hide geographical location and IP addresses via garlic encryption and garlic routing. It is evident that XMR are the leaders within the privacy coin space and privacy is their main focus, with privacy being a default not an option. Also, XMR is actively hard-forking to achieve ASIC resistance.

Mohr also debunks claims that Zcash technology is superior. Though she notes that zk-SNARKs, ZEC's underlying technology is an interesting step for cryptographic proofs, she also makes this point:

I do not agree with every block that gets mined the founders should get a percentage of the block reward. This is known as Founders Reward, which started at 20% of the block reward, which gradually decreases over 4 years is something I cannot agree with. ZEC have a company behind it with private investment, and privacy is optional which is not really used, and chain analysis allows user tracking. There has also been numerous FUD occasions around the ZEC team communicating with secret agencies and such.

Dash was the first cryptocurrency to market with a distinct privacy feature points out Ryan Taylor, CEO of Dash Core Group. He makes the case for the token's PrivateSend functionality:

Dash’s privacy feature is very similar to the transaction mixing that is available with Bitcoin - we just provide it at lesser expense, and in a more user-friendly, secure, and effective fashion. While less than 1% of Dash transactions utilize PrivateSend, it's a convenient and cost-effective way of providing increased privacy to the user, all while maintaining a full ability to audit the ledger.

However, Mohr believes the main focus of the DASH community is to simply gain mainstream adoption. It's her view that privacy is not their primary goal nor objective. For them privacy is merely an option, not the default.

With DASH, to send a private transaction PrivateSend is used which is a modified version of CoinJoin. Masternodes are in charge of masking coins to ensure privacy, and masternodes can be obtained with 1k DASH. When the PrivateSend transaction is sent to the masternodes, the masternodes see the recipient, sender and amount in clear view, meaning it’s not that private, and if an entity was to control a large portion of the masternodes they can use this information to their advantage.

During the first 48 hours of DASH's launch, 2 million tokens were insta-mined, explains Mohr. Only later in its development the total supply of tokens was reduced from 84 million to 18.9 million. Typically when a coin's total supply is reduced, the circulating supply is also decreased.

This didn't happen with DASH. The original 2 million insta-mined coins remained at 2 million. That means that when there were 84 million tokens, the 2 million were 2.38% of the total supply. When that was downsized to 18.9 million, the 2 million became 10.58% of the total supply. She warns:

Keep in mind there is only 8.3 million circulating supply, so clearly the network works in favor of the individuals who control those 2 million insta-mined coins, and generate a large income from being multiple masternodes. If privacy is an option, then private transactions are treated as suspicious transactions rendering the true ability of a privacy coin.

While Monero is among the top-10 most popularly traded cryptocurrencies, Quoc Le, CEO of a public blockchain infrastructure provider QUANTA believes Zcash will ultimately prevail.

Its superior technology (zk-SNARKS) more than just completely hides transactions (a feature that it is optional). The technology has the potential to be adopted by Ethereum with Vitalik's support, to enable Ethereum to scale transaction rates from 15 tps today, and up to 500 tps (increase in 30X+). By considering using zk-SNARKs to mass-validate transactions already, Vitalik Buterin will help Zcash adoption by giving it mainstream coverage.

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