Anonymity and Privacy in The Crypto Sector - The Necessity

One of the prominent and unique selling propositions for cryptocurrency over the fiat counterparts was the infamous claim of being anonymous and private. This was also the major driving force for mainstream adaptation in numerous industries and payment streams.

Though many studies later came out stating that is not entirely true, cryptocurrencies do hold a level of anonymity and privacy; wherein if an entity or an individual is trying to trace the transactions, it’s going to be cumbersome or near impossible. Even the cryptocurrency with the highest market cap, Bitcoin has also come under the scanners more than often. To be fair Bitcoin is more Pseudonymous in nature. Though in recent time there are multiple strategies being implemented to boost its privacy and anonymity.

Cryptocurrency Attributes: Anonymity vs Privacy

Though most naïve users tend to blanket the terms anonymous and privacy in the crypto world, they hold few differences with the context of cryptocurrency traits.

Privacy

A cryptocurrency’s privacy features can be narrowed down under two key processes; trust and control. Trust the other peer with whom the transaction is taking place, or the intermediate entity such as an exchange to keep your data private. But at the same time one should possess control over what data can or cannot be shared with a third party.

Anonymous

At times when privacy can be achieved to some extent, anonymity a key aspect in which the identity of all parties involved in the transaction is unknown and cannot be traced by any enforcement agency or even the exchange platform for that matter.

There are plenty of crypto exchanges providing the best in the industry exchange, but most of them fall back when it comes to the anonymity aspect. In order to utilize their platform a user has to provide the necessary KYC (Know your customer) and other financial information which in turn negates the whole purpose of cryptocurrency utilization.

Anonymous and Private Crypto Exchanges

Crypto exchanges are one major entity that  facilitates transactions whether it be crypto to crypto or toggle between fiat and crypto. The reason exchanges require their platform users to furnish their personal information is to regulate the whole operation and provide a level of credibility. But then again the users have to sacrifice the control of their personal information to the exchange, which is again a third party entity.

One solution around the problem is that exchanges provide anonymous usability as an option similar to what exchange platforms like Bitzlato have been providing. They do not mandate the KYC criteria to their exchange users. But, does the crypto community welcome this strategy? Well, their numbers do speak for that, the exchange has grown into a sought after crypto exchange with a monthly turnover of staggering $30 million and over a 1.5 million registered users.

One of the strategies opted by any entity to grow and in a systematic way and build trust in their users is through referral programs. But it’s only fair that the participants in the referral initiative are rewarded for their contribution. To understand this strategy a little better here’s a look at the Bitzlato referral program. Wherein a personal referral link can be generated either on the p2p exchange or the Bitzlato exchange. For P2P-exchange referrers get 32% of the service fee for the transaction after new users register through the referral link. The referrer also gets 8% of the service fee for the transaction, if the referral adds a sub-referral. For Bitzlato exchange the users get 90% of the service fee.

Altcoins- The Big Four in Privacy

Though there are a myriad of cryptocurrencies in existence that claim to be private and anonymous, we’re taking into account the top altcoins with considerable market cap. With those parameters in place these are the big four altcoins known for privacy

1.   Monero (XMR)

Monero is at the top of the list in providing privacy and anonymity. The altcoin uses blockchain’s private and public keys. Unlike bitcoin even if someone were to know your public address, it would not be possible for them to know how much Monero is available.   The users carry out transactions with stealth addresses, a random one time address that prevents the linking ability and can only be decrypted with a secret view key. The transaction also uses ring signatures or Ring confidential transactions (RingCT) which conceals the quantity of tokens exchanged. As of date (May 2020) Monero is the 16th largest cryptocurrency in terms of market cap with $ 1.04 billion [1].

2.      ZCash (ZEC)

With ZCash transactions, only the peers with an absolute encryption key would be able to view it on an open blockchain ledger. The coin uses zk-SNARK (zero-knowledge succinct non-interactive argument of knowledge) a technique that allows two peers to successfully complete a transaction without revealing their identity. This indicates the absence of a record containing sender or receiver address. The market cap of ZCash stands at $372.09 million [1] as of May 2020.

3.      Verge (XVG)

Similar to Monero or ZCash, Verge too focuses on anonymity and privacy; wherein the user’s transaction data is private and untraceable. Verge accomplishes this with the integration of Tor network and I2P in the wallet.  The Tor network is a widely used IP obfuscation service which shields the peers involved from network monitoring. By 2018 a major upgrade termed the Wraith protocol that enables users to control the data being visible in the blockchain explorer by switching between private or public ledgers. Though not as huge as the other altcoins in the list, its market cap is $52.05 million [1].

4.      Dash (DASH)

Back when Dash was introduced in January 2014, it was a rather unique solution to the privacy issues that prevailed. This altcoin uses Coinjoin, a strategy to achieve anonymity. Dash users call it the PrivateSend, wherein multiple transactions from multiple peers are clubbed and recorded as a single transaction. This provides Dash users an added level of privacy. Though the market cap has fallen in the last couple of years, the current (May 2020) $ 676.9 million [1] makes it a serious contender in the altcoin market.

The Verdict

Even after all the methods and techniques by altcoins and exchanges to ensure the anonymity and privacy of the crypto users; there is an increasing concern from crypto users globally, regarding the future and possibilities. The regulations of Government bodies in most countries are not favourable towards mainstream adaptation. But exchanges like Bitzlato continue providing their users the freedom to transact and get business done, all the while holding up its promise of providing the aforementioned attributes of being anonymous and private.