The core principle behind blockchain technology is that it allows safe, secure, decentralized, yet trackable transactions to take place. While there is intrinsic anonymity in the process, the transactions themselves are recorded in a public ledger and therefore accessible to anyone. So, what do you do if you want to engage in completely private transactions that are untraceable? That’s where privacy coins come into play.
What Are Privacy Coins?
Privacy coins allow their users to engage in confidential transactions not recorded on a public blockchain. Using privacy coins allows the transaction to take place while hiding the identities of both the payer and payee. Additionally, specifics of the trade, including the cost of the transaction and the contents of one’s “wallet,” remain inaccessible.
Why Are Privacy Coins Necessary?
Many financial exchanges fear that criminals would use privacy coins to engage in illegal activity, leaving no trace of their transactions. While this is possible, it is not likely. Still, this fear of criminal activity remains pervasive to the point that the Japanese Financial Security Agency (FSA) has recently moved to ban cryptocoin transactions that allow anonymity to both sellers and receivers. This level of invasiveness is unprecedented, and the consequences of it on cryptocurrency as whole is unknown.
So, why would anyone need to engage in a transaction that is secret and inaccessible to the public? A person looking for complete privacy and anonymity is not necessarily a criminal. Instead, the person wants greater security than traditional cryptocurrencies, their exchanges and other financial exchanges can provide.
Between widely publicized hacks of banks, securities exchanges, ecommerce sites and social media platforms, users are right to believe that their personal and financial security is at risk. If people’s online transactions are completely anonymous and untraceable, then they are not at risk due to security breakdowns in other areas where they engage financially. Hackers cannot use stolen social security numbers, bank accounts, etc. to decrypt transactions that they cannot find.
Another reason for using privacy coins is simply to take the concept of decentralization to its logical conclusion. As long as transactions are recorded and accessed publicly, then there must be an authority that maintains and oversees them. This allows regulatory bodies, which have their own agendas, to maintain some level of control. The recent actions by the Japanese FSA show exactly why one would want their engagements completely private.
True decentralization can only occur when such exchanges can take place freely and anonymously.
Examples of Notable Privacy Coins
There are numerous purveyors of privacy coins – here are the eight most popular:
The Future of Privacy Coins
Increased security, privacy and decentralization are increasingly popular concepts with traditional and cryptocurrency investors and the public. Privacy coins, along with stablecoins, have the potential to meet cryptocurrency users’ needs, and they are a type of coin to watch.