How cryptocurrencies ensure privacy and anonymity of transactions

11 May 2018

Blockchain-powered digital currencies have been developed with a view to make the process of transacting between the parties easier and more convenient. Besides, a great number of cryptocurrency creators at the inception of their projects set a goal to ensure privacy and anonymity of deals among the participants as a key differentiator from conventional payment instruments. In this post we will review just some of the general technologies used by cryptocurrencies to protect privacy of the parties.

Zcash

Zcash ensures privacy of transactions for its users through the cryptographic protocol dubbed ‘zk-SNARKs’, an acronym for zero-knowledge Succinct Non-Interactive Argument of Knowledge. In a nutshell, the zero knowledge proofs enable participants of the blockchain to send a transaction without unveiling the full details, just the fact that the information sent is true.

Private transactions are sent from z-addresses and are known as ‘shielded’ transactions, while public transactions are sent from t-addresses and are known as unshielded transactions. The volume of private transactions performed on Zcash amount just to 5.05%, which means that participants using this type of protection are visible and easily sorted out for attackers, who may select private addresses as their potential victims. Thus, transactions sent from z-addresses to other shielded addresses are completely private, and transactions from one t-address to another t-address are completely public.

Monero

Monero was created as a fork of Bitcoin but with a view of making blockchain and cryptocurrency transactions more private. This platform uses a number of features enabling participants to hide their information and details, remaining completely anonymous within the blockchain.

Monero provides Ring Signatures, Ring Confidential Transactions (RingCT) and Stealth Addresses for protecting the privacy of transactions. Ring Signatures are signatures involving a group of participants (usually up to 5), confirming the transaction, and only the sender and the recipient have the spend key used to spend the funds associated with it. Ring Signatures make it impossible to trace back any transaction to a specific holder.

RingCT ensures anonymity of amounts in the transactions on the network. It is based on the cryptographic proof just as ‘shielded’ transactions on Zcash. The generated cryptographic proof only testifies that the input and output amounts are equal, and no actual figures and details are unveiled.

With the Stealth Addresses users of Moneor may disconnect themselves from the blockchain and use a one-time address for every transaction. While a major part of Monero participants has public addresses reported to the blockchain, the transactions mostly occur through the unique Stealth Address.

NavCoin

NavCoin positions itself as a decentralized cryptocurrency, ensuring privacy of transactions for the participants through the use of the two blockchain systems. NavCoin is based on Bitcoin’s blockchain and uses its own Nav subchain. Through the two blockchains NavTech system guarantees to its users that they may send transactions with complete privacy protection.

Dash

Dash is a fork from Bitcoin blockchain with a focus on privacy as well. The cryptocurrency has those features similar to Bitcoin, and offers ability for the users to perform instant and private transactions. The system has two processing tiers: first tier includes the Proof-of-Stake protocol and the second tier includes Masternodes – both tiers serve the purpose of validating the transactions. The instant transactions are sent through the second tier of processing.

As for the private transactions, they are processed through the CoinJoin technology, where several transactions are attached together for ‘joint payments’, where the value and the place of transactions involved are not public and completely private for all third parties.

Technologies used by these cryptocurrencies are widely used general methods for ensuring anonymity of the parties’ information and details. Zk-SNARKs is a very common method, for instance, for such cryptocurrencies as Komodo, ZenCash, PIVX and Zcoin. In fact, many cryptocurrencies do not feature something unique at the core of their privacy allegations, as they are interconnected either in virtue of their Bitcoin affinity or Zerocoin technologies adoption. Many experts in the industry believe that Monero should be called a leader in privacy protection featuring unique offering and technology, while other skeptics believe that Monero has a number of flaws putting its users under a risk of cyberattacks and other misfortunes.