Privacy-focused Cryptocurrencies Explained

One of the core principles of cryptocurrency is that it should be free from government control and in the hands of the people. Decentralization is the most often cited tool to achieve this, but anonymity is another important component.

Bitcoin, in its infancy, was once touted as an anonymous digital currency, but as it surged in popularity, it became clear it was traceable on the public blockchain. Since then, a range of privacy-focused crypto coins have emerged, with Monero (XMR), Zcash (ZEC), and Dash (DASH) being three of the most prominent.

Monero (XMR) privacy features and how it works

Monero (XMR) is arguably the gold standard in privacy-focused cryptocurrencies . It employs advanced cryptographic techniques to shield transaction details effectively, including ring signatures, stealth addresses, and RingCT. Ring signatures mask the true sender by mixing the sender’s signature with other random Monero users. Stealth addresses automatically generate unique one-time addresses for each transaction, concealing the real receiving address. And RingCT hides the actual transaction amounts.

Line graph of Monero
XMR price over one month

These powerful privacy features make Monero transactions practically untraceable and unlinkable. Every Monero transaction takes advantage of this suite of privacy tech by default —enhanced anonymity isn’t an optional feature like with some other coins. This commitment to privacy has made Monero popular for people who value financial confidentiality, but it has also attracted controversy and regulatory scrutiny over the potential to enable illicit activities. Nevertheless, Monero remains the top privacy coin by market cap.

Despite the headwinds against Monero, there is a strong community behind it. Throughout 2023, Monero’s diverse developers and users actively collaborated to enhance the project, creating a strong, cooperative environment that drives many improvements in line with Monero’s foundational principles of privacy and decentralization.

Zcash (ZEC) privacy features and how it works

Zcash (ZEC) is another leading privacy cryptocurrency branched off from Bitcoin’s codebase but with additional privacy enhancements. It was the first digital currency to implement zk-SNARKs, an advanced form of zero-knowledge cryptography. This allows transaction data to be fully encrypted on the Zcash blockchain while still enabling secure verification.

Line graph showing Zcash
ZEC price over one month

What’s unique about Zcash compared to Monero is that privacy is optional. Zcash has two types of addresses – transparent t-addresses that work similarly to Bitcoin and private z-addresses that take advantage of the zk-SNARKs encryption. Transactions can be sent transparently between t-addresses, fully shielded between z-addresses or a combination. This flexibility is designed to ease Zcash’s compliance and adoption alongside legacy financial systems. However, this does mean that not all Zcash activities are private.

Dash (DASH) privacy features and how it works

Initially launched as “Darkcoin” before rebranding, Dash (DASH) began with a strong emphasis on privacy but has shifted focus over time to ease of use as digital cash. One of its biggest strengths today is that it offers quick, low-cost payments worldwide. It’s also easy to use and still provides many privacy benefits.

Line graph showing Dash price
DASH price over one month

Dash implements CoinJoin, a method of mixing multiple Bitcoin payments from multiple spenders into a single transaction to obscure the trail of individual transactions. Dash incentivizes users to run “masternodes” that power features like CoinJoin. However, unlike Monero and Zcash, the masking of transactions isn’t automatic and requires multiple user steps. So, in practice, only a tiny percentage of Dash transactions take advantage of the privacy options.

Monero vs Zcash vs Dash

Monero offers the most comprehensive anonymity and has the most active transactional usage among the three major privacy coins. Its privacy-by-default approach makes it the clear choice for those seeking maximum financial confidentiality. However, this has also made XMR the most difficult to acquire as exchanges delist it to comply with regulations.

Zcash’s unique zero-knowledge cryptography arguably offers even stronger theoretical privacy than Monero when fully shielded. But its optional privacy means only a tiny percentage of ZEC transactions are private. Still, some prefer Zcash’s opt-in anonymity as a compromise to improve regulatory compliance over Monero.

Dash initially attracted attention as one of the first privacy coins, but its privacy features are no longer a core focus or key differentiator. It now mainly competes based on its speed and usability for payments rather than anonymity. However, Dash still offers more privacy than fully transparent coins when its mixing features are utilized.

Ultimately, Monero, Zcash, and Dash each take different approaches to balancing privacy and practical usability. Regarding privacy alone, Monero is the clear leader and preferred choice among those who prioritize it. But Zcash and, to a lesser extent, Dash still offer significant privacy advantages over standard coins for those willing to take the extra steps to use those features. As privacy-focused cryptocurrencies, all three coins remain relatively niche in adoption compared to coins like Bitcoin and Ethereum but still strongly appeal to users who value privacy.

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