“To be left alone is the most precious thing one can ask of the modern world.” – ― Anthony Burgess
“If privacy is outlawed, only outlaws will have privacy”. – Phil Zimmerman
Privacy is an undervalued theme in the cryptocurrency arena and it is often overlooked by users and investors alike. Many people mistakenly believe that the use of cryptocurrencies guarantees privacy and anonymity, but in reality, most cryptos provide only pseudonymity, meaning that transactions can still be traced to individual wallet addresses. As the need for privacy grows in today’s digital world, cryptos like, Monero, Pirate Chain and Dero are gaining more attention for their privacy-centric approach. These projects prioritize privacy by using techniques like zero-knowledge proofs, ring signatures and stealth addresses to obscure transaction data and protect user privacy.
Transparent cryptocurrencies are problematic for their users because they lack privacy and anonymity in their transactions. Bitcoin and Ethereum for example, have a public ledger that tracks all transactions, which means that anyone can see how much money you have, who you transact with, and how much you spend. This creates a security risk as potential attackers can see your transaction history and figure out your wealth. It can also lead to discrimination and judgement if people know how much you spend and on what. For example, your boss can check how much money you have and if how you utilize this money meets their expectation of you or not.
Transparent cryptos can also limit the fungibility of the coins because some coins may have a tainted history because they were involved in illegal activities, which means they can be blacklisted or refused payment, even if the coins current owner had nothing to do with the illegal transactions. Therefore the lack of privacy and anonymity in transparent cryptocurrencies can lead to a loss of financial privacy and security, the stigmatization of users, and limits the fungibility of coins. This is why privacy-focused cryptocurrencies have emerged as alternatives to transparent cryptos.
“The way things are supposed to work is that we’re supposed to know virtually everything about what they [the government] do: that’s why they’re called public servants. They’re supposed to know virtually nothing about what we do: that’s why we’re called private individuals.”
― Glenn Greenwald
Some people argue that privacy-focused cryptocurrencies can be used for illegal activities, such as money laundering and illicit transactions. But the reality is, that privacy is a fundamental right that should be protected, and the use of privacy enhancing technologies in cryptocurrencies allows for greater financial freedom while maintaining individual privacy. Privacy is critical feature that protects user’s data, enhances security, and enables financial freedom. Leaked financial data can reveal sensitive information about an individuals life. It is also worth noting that traditional fiat currencies are used for widespread illegal activities.
“Cryptography is the ultimate form of non-violent direct action”- Julian Assange
Privacy coins or what some like to call ‘Freedom Coins’ such as Monero and Pirate Chain are more like digital cash as they enforce privacy, untraceability and fungibility for all transactions by default at the protocol level. When you invest in an asset, it is either fungible or non-fungible. For example, cash, gold and silver are fungible assets. Each unit of account is interchangeable and indistinguishable with other units of that same currency or commodity. On the contrary, real-estate, land, artworks are all highly indidualisitic and examples of non-fungible assets. Bitcoin falls into the non-fungible category as there is a digital record with a permanent history. There may come a time when you deal with somebody on the Bitcoin blockchain who is not as honest and skueaky clean as you are. In any transparent coin like Bitcoin or Ethereum, reputation transfers as well as value. Your unblemished reputation can be besmirched by executing a random financial transaction with somebody who has been up to no good. The consequences of you receiving tainted Bitcoin from somebody else could result in you not having access to your coins on an exchange. This could lead to further investigation, censorship, seizure of funds all because the cryptos you used lacked fungibility. We believe that the Freedom Coins mentioned above can be like a private, numbered Swiss bank account. The only difference being that you manage it yourself.
There are numerous privacy coins in the crypto market but only a select few meet the criteria for us to entrust time, energy and capital into them. They must have the characterisitics to become sound money ie. a store of value, a unit of account, a medium of exchange and fungibility. Such projects have been created in an organic and honest way ie. launched fairly, no Initial Coin Offering (ICO), no Initial Exchange Offering (IEO), pre-mine, miner/developer tax. True innovative coins were created voluntarily and in a decentralized way. Monero is the most established privacy coin in the market and perhaps ticks all the criteria boxes most conclusively. Monero uses a combination of ring signatures, ring confidential transactions (RingCT) and stealth addresses. These conceal the sender, amount, and receiver in the transaction, respectively. All transactions on the network are private by default; there is no way to accidentally send a transparent transaction.
Pirate Chain is the first cryptocurrency to implement a mandatory, private-only usage of Zero Knowledge-Succinct Non-interactive Argument of Knowledge (zk-SNARKS). This technology refers to a proof of construction, where one can prove possession of certain information without revealing said information and without interaction between the two parties. Zero-knowleadge proofs in the form of zk-Snarks are a newer form of cryptographic tech than ring signatures and allows for an extremely high degree of annonymity. Pirate Chain offers the best of both worlds – mandatory privacy combined with cutting edge zk-Snarks. Dero is a crypto asset that enables private smart contracts (making it a competitor to Ethereum which we alerted readers to in 2016: https://theimpartiallens.com/digital-disruptors/). It is fast, private by default and uses different technology to Monero and Pirate Chain. We see the different quality offerings in the privacy space as a hedge to any potential technological roadblocks the others may face in the future. There are one or two others in this ecosytem that we like but will discuss in the future.
With the crypto market winter appearing to have ended with recent positive price action since the turn of the year, we believe privacy coins offer investors a compelling opportunity. We see private money out-competing surveillance money in the future. Monero is the leader in this space and it is true digital cash. It has unique qualities and advantages over Bitcoin that people may awaken to in the not too distant future. How many people have and continue to buy Bitcoin and believe that they have bought private, anonymous, digital cash? Just because it is decentralized, does not mean it is private. People will eventually want to own private digital cash and not be tracked by big data corporations and bad actors. Buy the rumour, sell the news. The rumour is that privacy and fungibilty is where capital is headed to in the crypto market.