Second generation privacy coins are getting a lot of attention as surveillance technologies and capital controls tighten up in a time of economic trouble. In this article, we’ll cover a number of these privacy protocols and explain why you may want to put them on your watch list.
Upon the initial creation of Bitcoin, it didn’t hesitate to proclaim itself as being an anonymous form of digital cash. Indeed, it would go on to become the most popular cryptocurrency and many others would follow its lead. Whatever the intention of these altcoins maybe, Bitcoin has no doubt started a trend.
Among several qualities that it prides itself on, Bitcoin’s anonymity has been, shall we say, called into question. Over the years, we would notice cracks in its seemingly perfect construction.
As it turns out, Bitcoin is not as anonymous as it claims. It is true that your name and location do not come as attachments to your Bitcoin wallet. However, every single transaction that sends through the Bitcoin network ties directly to a public address. Suppose you decide to purchase your Bitcoin from a service, such as Coinbase, that is attached to your real name. In this particular case, it isn’t hard to link your transactions back to your identity.
This frightening possibility is the main reason for the creation of a variety of privacy coins. Ones that put all their focus on making transactions secure and anonymous. However, a coin that self-advertises as being “private” does not necessarily mean that it is. The best of the best always rely on legitimate innovations in cryptography. These include such things as ring signatures and zero-knowledge proofs for confidential transactions. Some of the worst privacy coins will claim to be “private,” but are functionally vaporware.
The importance of privacy in crypto
At the risk of sounding as though I’m stating the obvious, privacy is a fundamental right. It’s practically common knowledge at this point. We deserve secrecy when it comes to personal information and especially when it comes to finances.
In spite of this, it has become a commoditized currency that is the subject of trading all over the Internet. Reclaiming it is not going to be an easy task. What’s more, the world is in a position where it is so close to experiencing a loss of digital privacy. As a whole, society is facing what feels like an overwhelming amount of occurrences of data breaches.
In 2019 alone, data breaches would rise roughly 17% from the previous year, reaching over 1,470 reported cases. According to an IBM security report, a regular data breach costs the average U.S. company up to $8.2 million. Of course, these waves of security breaches are not limited to the U.S.; this epidemic is global.
There is hope, though. I hope that we will eventually reclaim our privacy and secure our information better than we ever could have before. To reiterate an earlier point, it won’t be easy.
The field of blockchain technology enables data encryption measures on a widespread scale. The global society has never seen anything like it before, which should indicate how impressive it is. Blockchain technology includes words like ‘immutable’ and ‘decentralized’ in a majority of its definitions. The most popular blockchains like Bitcoin and Ethereum are open, public, and, of course, transparent.
The blockchains and cryptocurrencies that focus on privacy, though, continue to capture the headlines and the attention of many. Consumers, businesses, regulators, the list goes on. We’ve seen a wave of new privacy coins gain traction recently while more established coins, like Monero, continue to evolve; together, they make up the second generation of privacy coins.
Second generation privacy coins to keep an eye on
It’s safe to say that in this day and age, privacy is more sought after than ever before. Because of this, privacy coins are becoming very important to the protection of identity and transactional data and we’re seeing the second generation of privacy coins take hold. Overall, it showcases one of the finest use cases for cryptocurrency.
From here, let’s dive into some of the best privacy coins to watch for this year. Whichever you decide to invest in is up to you, but take comfort in knowing that there are multiple choices for varying needs.
1 – Monero
The initial launch of Monero (XMR) took place in the spring of 2014. The coin’s original name came from that of the BitMonero project. Many see Monero as perhaps one of the most – if not the most – popular privacy coins in the crypto market. Monero utilizes an obscure public ledger and an array of anonymity features to give to its users. With these features, users have complete privacy control over both their identity and transactions.
The Monero network operates primarily on a peer-to-peer system, much like Bitcoin. However, unlike Bitcoin, it functions as private digital cash. All the while it provides protection from any form of data tainting through the participation of previous transactions.
In the case of Bitcoin, every transaction on the network is on public display. That basically means you can check the balance of a public address, as well as its entire transaction history. With Monero, on the other hand, you can check to see that a public address exists. However, you are unable to see its balance or history without using a corresponding private key.
What makes it special
There are two core cryptographic elements that make Monero’s system of operation work:
- Stealth addresses: With Bitcoin, the sending of coins is always from one address to another. What sets Monero apart is that each transaction creates a ‘stealth address’. The sender will deposit the funds into the secret address, which only the recipient is able to access. This address is only visible to those who are participating in the transaction.
- Ring signatures: With only stealth addresses, the sender of a transaction has the ability to see when exactly the recipient acquires their Monero. This right here is where Monero’s ring signatures play their part. In essence, ring signatures mix all of the transactions on the Monero network together. Each transaction will select funds at random from other transactions within the same block. That way, no one participating in the network will be able to determine the transaction’s original source.
The cryptocurrency uses this combination as a way to make sure that linking past transactions to a single address is impossible. At the same time, it makes transactions virtually untraceable. A key component in Monero’s formidable intent on becoming a widespread privacy coin is the software, Kovri. Monero uses Kovri as a way to give its users the ability to hide both their IP address and location.
Privacy is a great feature to have. However, in order to actually be useful, it also has to be easy for the layperson to use. In this particular sense, Monero gets high marks. Monero is the only coin on this list where all transactions, by default, are private. Every other coin requires enabling a specific feature. Alternatively, there is a requirement for undergoing a specific process for private transactions.
2 – QURAS
The founding of QURAS (XQC) took place back in the earlier part of 2017. It is being lauded as a second-generation ‘Privacy 2.0’ blockchain. One that facilitates transactions that are anonymous and private within public smart contracts. Unique only to QURAS, the protocol utilizes a mixture of leading privacy technologies, zero-knowledge proofs, and ring signatures. With this concoction, it can offer the highest level of privacy protection to all of its users.
On the subject of recent updates, its mainnet intends on launching sometime this month. In addition, there has been a major partner in the works that expand its community into Africa. As for what’s on the horizon, QURAS has plans on integrating non-fungible tokens and moving forward with transaction staking. Moreover, they plan to test-launch a decentralized file storage feature, all while starting development for faster encryption.
The primary objective of QURAS is to become a catalyst for mainstream and enterprise adoption this year.
What makes it special
In contrast to Monero and several other privacy coins, QURAS has its own blockchain protocol. Because of this, it gives the project an advantage in the form of comparatively greater development leverage. By combining smart contracts and privacy features, QURAS effectively operates at a virginal intersection of the greater blockchain space. This, in turn, gives it incredible potential.
The privacy coin gives users and enterprises an array of options in selecting the suitable privacy level for any transaction. They can choose from transparent, partially-private, or completely anonymous. Making transactions anonymous means that only the participating parties are able to view the transaction. Meanwhile, the smart contract resides on the public QURAS blockchain. By using a ‘best of public and private worlds’ blockchain, QURAS gives enterprises a special opportunity. They can utilize the blockchain for efficiency gains, value creation, and incentivized responsibility. At the same time, they are protecting confidential information.
What makes QURAS so unique is the self-sustaining ecosystem it was successful in building. Here, the project owners receive anywhere between 20% to 40% of all their smart contract transaction fees. What’s more, QURAS made a recent announcement regarding its native token, XQC. They state that over 100 stores across Japan will accept XQC as a form of payment once its mainnet goes live. As soon as the mainnet officially launches, XQC will become the most widely accepted alternative cryptocurrency in the country. It will only fall second to Bitcoin as an acceptable form of crypto payment.
There was once a time where the focus of QURAS was primarily on the Asian market. Nowadays, though, it vows to be mindful of regulatory compliance. It seeks the support of regulators in its continuous efforts to expand.
3 – PIVX
PIVX is an open-source, decentralized cryptocurrency that concentrates mainly on privacy, security, anonymity, and instant transactions. An interesting thing about PIVX is it was originally a fork of DASH in February of 2016 and its original name was ‘Darknet’. It is the first proof-of-stake privacy coin to ever implement the Zerocoin protocol into its system. This would effectively give the cryptocurrency an edge in privacy over many other proof-of-stake cryptocurrencies.
Earlier this year, there was a release by PIVX that many claims to be “the most advanced QT core wallet in the cryptoverse.” This project continues to make great strides, setting its sights on releasing a roadmap soon. One that will cover the rest of 2020, as well as 2021.
What makes it special
Because it utilizes the Zerocoin protocol, PIVX users are able to indulge in a variety of benefits. One of which includes the ability to hide your coin balance, stealth source, and receiver addresses. In addition, there is a 2.5-second transaction speed and a transaction history that is completely untraceable.
This privacy coin is gradually capturing the attention of the greater part of the crypto community. Its primary area of focus is the protection of privacy, as well as personal freedoms. This intent is what’s helping the PIVX surge over 50,000% since rebranding at the start of 2017. News reports from last summer cite PIVC and other proof-of-stake coins as being vulnerable to a major staking bug. However, PIVX was quick to denounce the vulnerability allegations. They would even issue a reply claiming that neither PVIX or its client’s fund are in any sort of danger.
PIVX sets itself apart from other privacy coins in a variety of ways that go beyond its protocol. For example, the privacy coin is self-funded and self-governed and it has no finite coin supply, plus no pre-mining. On top of that, it gives its users multiple reward opportunities. It does so by permitting the staking of their holdings in either a masternode or a staking wallet. This is a truly unique option that a lot of people commend PIVX for. Additionally, as a previous fork of DASH, the privacy coin possesses all the features that DASH currently has.
4 – Bitcoin
The creation and launch of this popular digital currency were back in January of 2009, making it a decade old. While it has been stated that Bitcoin is not entirely anonymous, there is a reason it’s still on this list. There are numerous ways in which you can privatize your transactions on the network. With a bit of extra work, it is possible. Another reason it is on the list is that it’s the most widely-acceptable cryptocurrency.
AngelList founder, Naval Ravikant, writes about Bitcoin:
“Bitcoin takes powers from the central actors and returns it to merchants and consumers, savers and borrowers. Bitcoin brings back some pseudonymity in the transactions and can be irrevocably traded like cash. And finally, it points a way towards a single currency – it is a bug, not a feature, that we have multiple global currencies with exchangers and transaction fees in between.”
Many often refer to Bitcoin as a pseudonymous cryptocurrency. This basically means that while Bitcoin addresses do not link to a real identity, transactions on Bitcoin are public. That is to say, they are on display in the blockchain. If someone is able to link your identity to your Bitcoin address, then they can view every historical transaction you ever made on the network. Likewise, every transaction that you will make in the future.
What makes it special
If you want to properly utilize Bitcoin as a privacy coin, then you have two different options to choose from.
The first option is to purchase bitcoin anonymously. A lot of people will buy bitcoin through the use of a centralized exchange, such as Coinbase. These exchanges will typically require users to provide both their real names and addresses. In practice, this is very similar to writing your name on your Bitcoin address with a Sharpie marker.
Luckily for users, there is an abundance of peer-to-peer services that permit you to purchase Bitcoin without your real name. Examples of these include platforms like Paxful, BitQuick, and LocalBitcoins. These services match buyers and sellers of bitcoin and will sometimes include anonymous payment options. Amazon gift cards, cash in-person, the list goes on.
The second option is to buy your bitcoin from a centralized exchange. Following this purchase, you then use a service that employs CoinJoin. This utilization will help detach the connection between the address you are buying bitcoin from and the one you are sending it to.
Let’s assume that you send bitcoin from a Coinbase wallet to a darknet market. In this particular case, the transaction is not private. This is because anyone who knows your Coinbase address can see that you are sending funds to the darknet on the public ledger. The way in which CoinJoin works is actually quite simple. Rather than sending your Bitcoin directly to your destination, a CoinJoin service will approach it differently. It will mix your transaction with a combination of your transaction with a separate transaction. Alternatively, several other transactions.
5 – Grin
If you have a keen interest in the new generation of privacy coins, then you should watch Grin (GRIN) closely. It is a new coin, launching only in January of last year, and focuses heavily on privacy without applying censorship. According to their website, the developers aim to have Grin be usable by everyone. And this is regardless of borders, culture, skills, or access.
At this point in time, it would not be wise to use it for private transactions. It is a new coin, after all. As such, there aren’t that many places where it functions as an acceptable payment. Moreover, there are several UX kinks that the developers still need to work out.
Be that as it may, Grin is a privacy coin that is worth noting. It is among the newer privacy protocols that utilize the MimbleWimble protocol. It effectively provides transactions with both privacy and scalability. Nic Carter of Coinmetrics tweets the following:
“If Grin is successful, it will be linearly inflationary and disempowered in a few key aspects. Imagine: Monero = crypto Swiss bank; Grin = confidential emailable cash transactions.”
What makes it special
The name “MimbleWimble” derives from a magic spell in the Harry Potter series. Its initial proposition was in the #bitcoin-dev IRC channel. The way in which Bitcoin works is essentially all transactions visible on a public ledger. This effectively allows nodes on the network to validate transactions. Grin, by using MimbleWimble, doesn’t actually utilize a system of public addresses. It is instead able to conceal the exact amount of transactions on the network and the users’ identities. It does so with two vital methods: 1) Confidential Transactions, and 2) CoinJoin.
In the case of Confidential Transactions, the amounts in a transaction on Grin are blinded (in other words, hidden). That way, the sending or receiving amount can equal out. And it can do this without ever revealing how much actual money there was. MimbleWimble also enables CoinJoin by default. This means that individual transactions are put together into a larger transaction. As a result, this helps hide where transactions are coming from and where their destination is.
A notable downside to Grin’s MimbleWimble implementation is that a transaction’s sender and recipient have to be online. Otherwise, the transaction will not go through. That makes it a lot less convenient than that of Monero, which allows asynchronous transactions. Furthermore, there is currently no ecosystem consisting of tools or users, which raises difficulties.
6 – Beam
Launching in early January of 2019, Beam is a competitor against Grin in MimbleWimble implementation. The key difference between the two coins ties into their respective developments and funding. Grin’s development and funding is by volunteers, similar to Bitcoin or Monero. However, Beam’s development is by the Beam foundation and it is venture-funded. Similar to Grin, though, Beam implements interesting new privacy technology. Still, it has yet to achieve widespread adoption. For this reason, it is not quite ready for use.
In a post, Jameson Lopp writes:
“If you’re interested in cutting edge cypherpunk protocols you should be keeping an eye on Grin and Beam. . . If the tech works then it ought to be a pretty good way to make private payments.”
What makes it special
Not unlike Grin, Beam also takes advantage of Confidential Transactions and CoinJoin in order to make transactions anonymous. Additionally, it adds an extra step in the creation of decoy unspent transaction outputs to each CoinJoin phase. Beam was also able to develop a system of decentralized addresses. The intent of this is to prevent users from leaking any IP addresses.
In terms of usability, Beam has the potential to be superior to Grin. For now, though, both coins share the same hurdle: the complete lack of adoption. This is courtesy of Beam creating a way that allows transactions to send asynchronously. However, unlike Grin, Beam was successful in building a graphical-interface wallet that operates on various devices. These include iOS, Mac, Windows, Android, and Linux.