June 11, 2021

Privacy Coins Explained

There are thousands of virtual currencies in the market. However, not all the coins work in the same way.

There are thousands of virtual currencies in the market. However, not all the coins work in the same way. There is a category that is known as privacy coins. As the name suggests, privacy coins are digital assets that focus on privacy. 

At the moment there are some popular privacy coins that are worth taking into consideration. Nevertheless, not all digital assets have privacy features despite governments claiming the contrary. In the next sections, we are going to share with you which are the most useful privacy coins and why you should care about them. 

Disclaimer: the information shared by AltSignals and its writers should not be considered financial advice. This is for educational purposes only. We are not responsible for any investment decision you make after reading this post. Never invest more than what you are able to lose. Always contact your professional. financial advisor.

What are Privacy Coins?

Privacy coins are one of the different types of virtual currencies currently available in the market. We have privacy coins, exchange coins and utility coins. Privacy coins focus on privacy. When we use Bitcoin (BTC) or Ethereum (ETH), all our information is available for third parties. 

Let’s not forget that Bitcoin and Ethereum are public blockchains. We can see in real-time all the transfers that are being processed right now.  Although they do not have a name and surname, we can see which is the amount transferred, which was the amount in the wallet and which was the recipient wallet (and the amount of crypto it now holds).

This is certainly inconvenient and it can generate many problems. Indeed, these wallets could easily be tracked and linked to a specific name and surname or IP address. This is why it becomes very important to use a digital currency that would protect our identities and information. 

Monero (XMR)

Monero is the largest privacy coin right now. It offers users the possibility to send and receive XMR coins without having to be worried about sharing their information. The transactions can only be seen between those users that send and receive funds. 

For example, if I send money to you, then I can only know how much I sent you and you can only know how much you receive. On the Bitcoin network, this would not be possible. Everyone would be able to see how much funds I have in my wallet, how many BTC you have in yours and the transfer that we processed. 

With XMR, each of the coins is fungible. That means that it is not possible for blockchain analysts to understand which were the previous transactions of an XRM digital asset. Thus, it cannot be censored. Some BTC addresses have been blocked by exchanges and other platforms. 

ZCash (ZEC)

ZCash (ZEC) is another virtual currency that protects users’ privacy. Although it is not as private as XMR, it is certainly useful if we want to protect our identities. Zcash was created by Zooko Wilcox and it has been operating in the market for several years. 

This digital asset works with zk-Snarks, which are known as zero-knowledge cryptography technology. This feature makes it possible for ZEC to be processed without having to be worried about the information we share about our wallets.

As per the official ZCash website, the virtual currency works in the following way:

“Zcash is a privacy-protecting, digital currency built on strong science. With Zcash, people can transact efficiently and safely with low fees. Shielded Zcash ensures transactions remain confidential while allowing people to selectively share address and transaction information for auditing or regulatory compliance.”

Litecoin (LTC)

Litecoin is not the typical privacy coin. Indeed, this is still a normal virtual currency such as Bitcoin or Ethereum. It has a public blockchain that can be analyzed and traced. But how does Litecoin work? Well, the team behind Litecoin is working on implementing MimbleWimble. 

This is a technology that is expected to make LTC fungible and offer privacy to users that want to send and receive LTC coins. While LTC coins, like Bitcoin, are not fungible, it is possible to block some addresses. 

By using the MimbleWimble technology, LTC users should not be worried about their transactions not being accepted or being labelled as unwanted. LTC is expected to become the largest virtual currency in the world with privacy features for users. However, it might need yet some time before the MimbleWimble solution gets implemented on the Litecoin network and for exchanges or wallets to integrate it.

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