It has become obvious that a large majority of investors purchase crypto for profit. Whether they are investing regularly, staking for passive income, or trading, people usually don’t go look beyond the coin’s profit-making capability.
However, many crypto enthusiasts appreciate them for their utility and the incredible advantages they bring for transferring value over the internet. One of these important innovations is the anonymity of transactions.
But while a sizeable majority thinks that Bitcoin transactions are anonymous, this is quite far from the truth. Instead, we need to look at the best privacy cryptocurrencies for genuinely anonymous transactions.
This article will go over some of the basics of privacy-centered coins, explain some of the protocols that make anonymity possible and their pros and cons. More importantly, we will provide you with a list of the top privacy coins that have a lot of potential regarding their technology and market growth.
What are privacy coins?
As we briefly mentioned in our intro, Bitcoin transactions are not anonymous. Popular cryptocurrencies like Bitcoin and Ethereum are instead considered to be pseudonymous. This means that while transaction data isn’t directly linked to a particular ID, it can still be traced back to the participants.
Another caveat is that thanks to blockchain technology, both wallet balances, and transaction data remain accessible at all times. This information can make crypto holders a primed target for hackers and criminals.
Privacy coins try to solve this problem by completely obfuscating both the transaction data and the participant’s addresses. To this end, different privacy-centered coins use various methods of cryptography to offer the highest levels of privacy possible.
However, this property has often put privacy coins under the scrutiny of law enforcement agencies. Governments consider them as a facilitator for criminal activities, which has triggered regulative measures in their disfavor.
In the past, we’ve seen several governments attack privacy coins specifically, requesting them to be delisted from cryptocurrency exchanges. Consequently, investing in them requires even more due diligence than with other cryptocurrencies.
In addition to the common risks of investing in cryptocurrencies, there’s an increased danger of them being delisted or even banned, which could cause their value to suddenly plummet.
With that said, privacy remains something badly needed in a world where every online interaction can be tracked.
How do the best privacy coins preserve anonymity?
Privacy-focused cryptocurrencies use a wide variety of cryptography strategies to provide anonymity and hide transaction data. The most popular types are:
- Ring signatures – these digital signatures mix up the sender and the recipient addresses with past transactions. This makes it virtually impossible to distinguish who actually signed the transaction, or how many coins were sent.
- Stealth addresses – these one-time addresses are generated each time there’s a transaction on the network. This way, transactions cannot be linked to previous ones, preventing the observer from tracking them back to their origin.
- Coin mixers – these anonymization strategies mix the addresses from a pool of participants before they provide a result. By joining multiple transactions, it becomes impossible to see who sent the coins to whom.
- ZK-Snarks – these are a variation of the zero-knowledge proof cryptography. In zero-knowledge, it is assumed that one can prove the knowledge of information, without ever revealing that information, and without direct interaction between the prover and the verifier. To this end, a secret key is created prior to the transaction.
- MimbleWimble (MW) – this protocol allows for high scalability and privacy by not recording any addresses on the public ledger. By using cut-through and CoinJoin, MW provides a highly compact blockchain that can be used as a layer 2 solution for other networks.
Keep reading to discover how the best privacy cryptocurrencies use these methods in their own blockchains.
Top privacy cryptocurrencies for 2021
Below are some of the best anonymous cryptocurrencies currently on the market. We’ve picked them out following some important criteria such as market cap, adoption, the reliability of their privacy layer, and liquidity.
1. Monero (XMR)
Monero is, without a doubt, the most popular privacy coin available. Created in 2014, it has firmly remained in the top 30 of cryptocurrencies by market cap since its creation.
It is based on the popular CryptoNight mining algorithm, which was meant to be more democratic than Bitcoin’s SHA-256, making it easier for GPUs to mint new Monero coins. This was implemented to provide more incentive for miners and achieve better decentralization.
The main goal of the Monero network is to provide the highest levels of privacy and security, even if this means decreased speed and ease of use. To achieve this feat, Monero uses a combination of cryptography methods, including:
- Ring Confidential Transactions – which are an improvement of the aforementioned ring signatures concept and are used to hide the details of a Monero transaction.
- Stealth addresses – single-use addresses to prevent transaction traceability.
- Bulletproofs – improvements to RingCTs that reduce the size of the transaction considerably.
- Three different wallet keys, instead of the usual two:
Worth noting is that the Monero blockchain is opaque by default. This means that none of the transaction details or amounts can be viewed, making it one of the top privacy cryptocurrencies.
3. Dash (DASH)
Dash is one of the more popular Bitcoin forks and was created in 2014. In addition to the original proof of work (PoW) consensus, the Dash blockchain added a second proof of stake (PoS) layer aiming for better scalability and decentralization.
The Dash blockchain introduced the public to the concept of Masternodes, which are powerful servers whose security is backed by large amounts of Dash holdings. To prove their commitment to the network, Masternodes need to stake 1000 DASH coins.
They host full copies of the blockchain, facilitating advanced features like:
- InstantSend – instantly send Dash coins with very low commissions.
- PrivateSend – is the opt-in privacy feature.
- Keep track of the governance of the network, etc.
The PrivateSend function of the dash blockchain uses the CoinJoin transaction mixer. CoinJoin runs a sequence of transactions, mixing them with a pool of other DASH transactions, making it impossible for an external observer to trace the transaction history.
Dash combines decent privacy with ease of use with fast transactions, which makes it one of the best privacy cryptocurrencies.
Watch the video below if you are interested in the technical details behind the PrivateSend protocol and how CoinJoin mixes the different transactions.
3. Decred (DCR)
Decred was launched in 2016 to alleviate the centralization from huge mining farms and give back some of the governing power to the users of the network. To achieve this feat, it uses a hybrid consensus, combining both PoW and PoS systems.
Decred introduced a ticket-holding method where DCR holders vote on future developments and updates of the blockchain protocol. Doing so grants them the right to win up to 30% of the rewards that result from mining Decred.
Considering the harsh competition, this coin didn’t make our list of best staking coins for 2021. Nevertheless, it still provides some good return on investment if you wish to hold DCR coins for longer periods of time.
The privacy layer on Decred was recently added and can be used through the official Decredition wallet of the coin. Similar to Dash, it uses a transaction mixer to hide the transaction history of your coins. Take a look at the video below on how to use this feature.
4. Zcash (ZEC)
Zcash is often considered to be the main rival of Monero, although the latter seems to be winning the popularity battle. Created in 2016 by cypherpunk Zooko Wilcox-O’Hearnm, Zcash was originally a Bitcoin fork.
The blockchain added an important improvement to the Bitcoin code, the ZK-Snarks protocol that we mentioned briefly.
Transactions on the Zcash network can be either transparent or shielded. In shielded transactions, only the fact that the transaction was executed is recorded on the public ledger. The addresses and amounts, on the other hand, remain hidden from the public.
Users can opt in to use the privacy feature and hide the transaction details from the public. An important detail is that this opt-in feature can create some confusion as to the level of privacy transactions can provide. While all types of transaction combinations are possible, only shielded-to-shielded transactions provide true anonymity to the users.
Zcash makes our list of best privacy cryptocurrencies as it was the first blockchain to introduce us to ZK-Snarks. This protocol has proven very popular and might extend its reach to the growing DeFi ecosystem in the near future.
5. Horizen (ZEN)
Yet another coin using ZK-Snarks, Horizen is a fork from Zclassic, which is itself a fork from Zcash. Consequently, it inherits the privacy features of ZEC, including shielded transactions.
Launched in 2017, Horizen uses a hybrid consensus system, mixing PoW and PoS to secure its network. In addition, the blockchain implements the novel sidechain concept to its PoS consensus mechanism.
These PoS sidechains are pegged to the main PoW blockchain and can interoperate seamlessly between them. This allows the Horizon platform to offer a highly scalable privacy solution to its users.
Using the Zendoo platform, developers can create their proprietary PoS sidechains. These will directly benefit from the privacy-oriented solutions and the high levels of security of the main ZEN blockchain.
Because of its scalability and sidechain ecosystem, ZEN is one of the best privacy cryptocurrencies in terms of growth in the current bull run.
6. Haven Protocol (XHV)
Haven is a Monero fork, and as a result, inherits all of the privacy features of its parent blockchain. The similarities end there, however, because Haven proposes some unique functionalities in the blockchain space.
The Haven Protocol blockchain supports two different coins Haven (XHV) and Haven Dollars (xUSD). XHV is subject to value fluctuations and volatility like most cryptocurrencies. The xUSD, on the other hand, is a stablecoin pegged 1-1 to the USD and backed by FIAT reserves.
The users can switch between both coins on-chain, for very low fees, and allowing them to hedge themselves from the volatility of the market. This is done through a mint-and-burn process where users “burn” XHV tokens to get xUSD and vice versa.
In the future, the team behind Haven Protocol will add additional pegged currencies such as the EUR, GBP, or commodities such as gold and silver.
7. Beam (BEAM)
To wrap up our list of best privacy cryptocurrencies, we need to mention Beam, a scalable confidential cryptocurrency that was launched in 2019.
Beam uses a PoW protocol and provides confidential transactions by default. To solve the scalability problem of its PoW consensus, Beam utilizes the MimbleWimble protocol to reduce the size of the blockchain and hide transaction details.
In a nutshell, MW doesn’t provide addresses, which means that transactions are fully anonymous. Only the transaction participants can view the data, which will be discarded once it’s not relevant to future transactions.
The fact that Beam supports Atomic Swaps allows us to consider it as one of the best privacy coins that could find mass usage in DeFi.
What is the Bitcoin Taproot upgrade?
Even though we provided an extensive list of the top privacy cryptocurrencies, you might still be wondering about Bitcoin’s privacy. After all, Bitcoin remains the most valuable and popular crypto on the market. Consequently, transferring BTC anonymously is something that might attract a large number of investors.
Fortunately, the Taproot update is just around the corner. This upcoming Bitcoin protocol update is bound to bring some much-needed privacy to the king of cryptos. Here’s an overview of the enhancements it will provide:
- Increased privacy – Taproot will enable Bitcoin to use a new signature method known as Schnorr signatures. In layman’s terms, the update will make complex transactions that require multiple signatures indistinguishable from regular ones.
- Decreased transaction fees – because the size of complex Bitcoin transactions will be reduced, transaction costs will be lowered as well.
- Better wallet functionalities – the new types of signatures will increase the flexibility of Bitcoin transactions. It will become simpler to set more complicated translation conditions, akin to smart contracts.
All in all, Taproot is one of the most anticipated updates for Bitcoin since SegWit. Its successful implementation could turn Bitcoin into one of the best privacy cryptocurrencies.
In this article, we talked about the importance of private cryptocurrency transactions and provide you with a list of the best privacy cryptocurrencies including:
- Haven Protocol
Additionally, we gave you an overview of the upcoming Bitcoin Taproot update, which will enhance the privacy of BTC.
Hopefully, this post will come in handy whenever you need a point of reference on the best privacy coins and their different protocols.