Anonymous cryptocurrencies – future of cryptocurrencies or a temporary phenomenon?
Since the time of Bitcoin has become a thing, many communities and companies decided to expand the cryptocurrencies to more specialised categories, usually focusing on a very specific factor: speed of transfer within a blockchain, price of such transaction, method of mining, specialised functions (like smart contracts or possibility of making bets) or finally – keeping anonymity.
Although part “crypto” in word cryptocurrency stands for cryptography – which by itself is supposed to provide thanks to encryption safety and some standards of anonymity, most of the cryptocurrency operations are still traceable.
First of all, with the most cryptocurrencies, you send your cryptocurrency to the specific wallet address. Right now, we can track the history of transfers of all coins since the moment these had been mined. Such a solution may be beneficial to give a confirmation of the transfer. At the same time, the possibility of tracing a specific wallet address can be used to prevent sending funds there. As well, the more the transfers to and from a specific cryptocurrency wallet are made, it can be traced in a much easier way. Especially as speaking of online hot wallets from online cryptocurrency exchanges.
This can have of course some positive sides – we already had some cases, where accounts on cryptocurrency exchanges had been blocked, as it was determined that account owner had been responsible for getting ransom in cryptocurrency or had been hacking other computers/exchanges and stealing coins or tokens.
Still, considering such possibilities, it could be that the idea of cryptocurrency is compromised. Imagine a country, in which there is an authoritarian/totalitarian regime which does not allow democratic opposition or human rights groups to be funded and aided from foreign countries. In this case, tracking cryptocurrency transactions and wallets could lead to the situation, where such NGOs could be totally cut out of any sort of funding.
As well such practices stand against the generally libertarian idea of cryptocurrencies, independent from governments, and organizations.
This is why such anonymous cryptocurrencies aka privacy coins as Zcash and Monero, which you can buy on our online crypto exchange came into existence. Both of these cryptocurrencies allow you to transfer them into their blockchain into two modes – transparent, like with the most popular cryptocurrency, Bitcoin, and private modes.
In the case of Monero (XMR), the private mode is based on several elements:
- Ring signatures – which shuffle users public keys making identification of a particular user
- Increased cryptographic security – hacking the blockchain would require computing power unavailable as for now, even for the most advanced quantum computers, which exist for now only on paper
- Kovari – this safety measure is mixing routing and encryption hiding Ips and location of devices used for the transaction.
Zcash (ZEC), has its private mode using one element, which had been developed using results of research by MIT, Technion, Tel Aviv University and UC Berkeley. This element is zero-knowledge proof transaction known as zk-SNARK hiding all the information about the transaction (sender, receiver, amount) leaving just the time of transaction visible.
Anonymous blockchain transactions, as provided by these cryptocurrency transactions with enabled the privacy features are at this moment virtually untraceable – so then the goal as set by these coins creators was made.
Sadly, the effectiveness of these privacy cryptocurrencies in hiding the data was met with a lot of enthusiasm from authorities. In Japan, for example, exchanges selling these cryptos are having significant problems with getting a license. Right now, in France, a country where in recent years there had been several terrorist attacks, officials are advocating the same solutions as in Japan, for sake of fighting money laundering and tax avoiding.
Unfortunately, as France is one of the biggest and most important members of European Union, if such opinion will prevail and become a national law, this could mean that the whole category of private cryptocurrencies could be at risk. even though on cryptocurrency exchanges like Linkkoin customers buy Monero online only via a public mode, with obligatory verification.