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What Are Privacy Cryptocurrencies?
Privacy-oriented cryptocurrencies are digital currencies with features that enhance privacy and anonymity. Many people are concerned about how governments and enterprises use their personal information and data, so they naturally want less scrutiny of their private lives.
However, many privacy-oriented tokens have been removed from popular exchanges due to governmental and law enforcement concerns in many jurisdictions. Decentralized (DEX) and unregulated exchanges and self-hosted wallets are thus slowly becoming the only means for acquiring or using privacy cryptocurrencies.
Here's a rundown of the top five most popular privacy-oriented cryptocurrencies, which have several built-in privacy features. These projects claim to offer enhanced security features or options that help to keep users' identities and activities concealed.
Regulators in many jurisdictions have put privacy tokens and privacy-enhancing techniques on notice because they are all too often used for illegal activities. In the U.S., cryptocurrency mixing service providers have been arrested, and their services shut down. The European Parliament finalized a regulation in April 2024, setting the stage for a ban on hosted privacy-oriented tokens and techniques and tightening regulations for crypto-service providers. In most cases, users are still allowed to self-custody these assets and use them in peer-to-peer transactions.
Key Takeaways
- Several projects have emerged that employ certain techniques designed to protect user anonymity.
- Many use mixing techniques like CoinJoin, encrypted addresses, randomized transactions, or others to disguise transactions.
- Many privacy tokens are designed to address people's concerns about their private information and data.
- Unfortunately, there are always bad actors ruining something good for everyone else. Most of these tokens have been used in illicit transactions, so law enforcement and regulators are targeting developers and providers.
1. Monero (XMR)
Monero (XMR) is a cryptocurrency designed primarily for the ability to help anonymize users. Monero transactions are much more difficult to trace because they use ring signatures and stealth addresses. These methods help to hide the identities of the sender and the receiver. Additionally, Ring Confidential Transactions, or RingCT, helps to conceal the transaction amount, providing more privacy.
Trading at $129.23 as of May 5, 2024, Monero was #48 by overall market value, coming in at roughly $2.4 billion.
2. Zcash (ZEC)
Zcash (ZEC) defines itself as "If Bitcoin is like http for money, Zcash is https," underlining its enhanced security and privacy features. Zcash has implemented a cryptographic tool called Zero-Knowledge proof and grants participants an option to shield transactions. It allows participants to transact without any of them revealing their addresses to the other(s). Zero-Knowledge proofs also hide transaction amounts.
Zcash ranked #171 in the list of cryptocurrencies with a market cap of $378 million and traded at $23.19 on May 5, 2024.
3. DASH (DASH)
Created in 2014, DASH is a cryptocurrency that allows users to choose whether or not their transactions are anonymous and private using a protocol known as CoinJoin. The feature works by obscuring the origins of your funds. Choosing to use the feature will slightly raise the transaction fee.
DASH achieves this through a mixing protocol utilizing an innovative decentralized network of servers called master nodes. Another feature DASH offers is Instant Send, which can process transactions as fast as a credit card.
On May 5, 2024, Dash ranked #186 by market cap with a total value of $347 million. At the time of writing, it traded at about $29.47.
Cryptocurrency tumblers and mixers are increasingly used for money laundering and other illicit activities. Law enforcement and regulators in many jurisdictions are targeting these service providers as facilitators, so it's best to use caution and learn the rules in your country when considering a cryptocurrency or service that uses mixing techniques.
4. 0x0.ai (0x0)
A controversial cryptocurrency tumbler, 0x0.ai is a cryptocurrency and digital asset platform that allows users to anonymize their transactions and identities by pooling transactions. These transactions are then mixed, and cryptocurrency is distributed to other users.
On May 5, 2024, 0x0 traded at $0.36 and ranked #231 by market cap, with a total value of $313 million.
5. MimbleWimble (MWC)
MimbleWimble is a privacy-focused token with core features that allow complete control over your privacy. All transaction amounts are encrypted by default, and no addresses or other private information are stored on the blockchain. On the MimbleWimble blockchain, transactions appear as random inputs and outputs. Between the encryption, lack of addresses, and built-in randomness, there is no way to track users.
On May 5, 2024, MWC was #305 by market cap, with $182.5 million, and tokens traded at $16.66.
What Is the Best Privacy Cryptocurrency?
Monero is the most popular privacy crypto, followed by ZCash and Dash. Each appeals to different users.
What Is a Privacy Cryptocurrency?
A privacy cryptocurrency uses techniques to provide users with more anonymity and privacy.
Do Privacy Coins Have a Future?
Privacy coins are being targeted in many jurisdictions because they can be used for nefarious purposes. Exchanges who rely on regulatory compliance are beginning to remove them, but decentralized exchanges that don't fall under any jurisdictions still list them. Privacy coins are likely not going anywhere as the people that want them will find ways to use them.
The Bottom Line
Privacy tokens have a place in the world, as privacy is something many people long for. These cryptocurrencies promise a life away from government and enterprise snooping that many people desire.
However, privacy for average law-abiding citizens means more privacy for criminals, so it's difficult to say whether privacy cryptocurrencies will be available in the future.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any privacy cryptocurrencies.