Privacy coins enhance user confidentiality by leveraging cryptographic technology to obscure financial transaction data. You can protect your data by utilizing privacy coins to evade on-chain fraud.
Privacy coins have an aggregate market cap of around $6.5 billion, representing less than 1% of the total cryptocurrency market cap. This provides an early opportunity to make large gains when selecting the right privacy coins to invest in. The use case of privacy coins is vast, as most people are eager to invest in a security blanket to protect themselves from a relatively unregulated form of finance like cryptocurrency.
Front-running sectors can be risky, but some people are willing to take that risk with their high-conviction picks. Let’s delve into what privacy coins are, Benzinga’s top picks, and how to get started investing in cryptocurrency today.
What Are Privacy Coins?
Privacy coins are digital assets that enhance anonymity and confidentiality. These cryptocurrencies solve major problems with potential invasion of privacy from corporations and government entities. While some believe cryptocurrencies like Bitcoin and Ethereum offer anonymous and private transactions, all transactions using these cryptocurrencies are publicly viewable for all to see.
Personal data protection is the main goal of privacy-oriented coins. These coins combat the new era of centralized organizations collecting and distributing data unknowingly from individuals.
How Do Privacy Coins Work?
Different privacy coins capitalize on various technologies but all align with the primary goal of user privacy. Privacy coins allow you to perform untraceable transactions by hiding a wide range of transaction details such as transaction amounts and addresses.
Disposable addresses (new addresses generated for each transaction), stealth addresses (addresses that take the place of and hide your public address), and ring signatures (technology that allows signing transactions on behalf of a group without revealing your identity) are all used to enhance user security.
The 4 Most Private Cryptocurrencies
Privacy coins have been around for sometime now, with many top privacy cryptos being over 5 years old. Let's take a look at the hottest coins in privacy and what sets them apart:
1. Monero (XMR)
Monero (XMR) sets itself apart from other privacy coins by automatically making every user anonymous by default. XMR prides itself on making the sender, receiver and amount of every transaction hidden. This is done by combining Stealth Addresses, Ring Signatures and RingCT software to maximize privacy.
2. Zcash (ZEC)
zec
Zcash$31.01*
*prices delayed up to 10 minutes-2.56%
24HDisclosure: eToro USA LLC; Investments are subject to market risk, including the possible loss of principal.
Zcash is a Layer 1 (L1) blockchain that leverages zero-knowledge proofs to shield private information and transaction details of transaction parties. This project is currently moving away from the traditional Proof-of-work (PoW) consensus algorithm that it currently uses. Zcash predicts that switching to a Proof-of-stake (PoS) algorithm and adding rollups will provide their token more utility moving forward.
3. 0x0.ai: AI Smart Contract (0x0)
0x0 is a relatively new project that provides privacy through Linkable Spontaneous Anonymous Group (LSAG) technology, allowing you to mix your coins for anonymity. Like Zcash, 0x0 also uses ZK technology as a further measure of confidentiality. Additionally, they offer an AI auditing tool that protects you from security risks by analyzing and flagging smart contracts for validity and performance issues.
4. Oasis Network (ROSE)
Oasis (ROSE) is a Layer 1 PoS smart contract platform that provides privacy infrastructure for Web3 projects. ROSE uses a complex modular design with a Layer 2 known as “Paratime,” allowing for privacy-focused smart contracts. This project is EVM compatible and pledges to scale emerging Web3 sectors (most importantly AI) into mass adoption by providing highly demanded security.
What to Look For When Choosing a Privacy Coin
When choosing a privacy coin, there are a few key factors to consider. Of these, the technology, developers, security, and use cases are among the top considerations.
- Unique technology: Innovative technology is being developed daily in competition for this lucrative industry. Search for coins with patented technology that set themselves apart from competitors. Investing early into unique technology that is leveraged for privacy can be beneficial for an investor. Some of the newest technologies implemented into privacy coins include artificial intelligence (used by 0x0.ai) and zero-knowledge proofs (used by Zcash).
- Doxxed and trusted developers: Familiarizing yourself with the people behind these projects will give you a better understanding of the project and help you avoid becoming exit liquidity for venture capitalists and other early investors. Investing in projects led by reputable developers gives your investment a much higher success rate instead of buying into the hype of a fake project.
- Security measures: Understanding the network’s security measures is essential before using it. This information gives you insight into audit history, network security, and the token’s codebase. This type of information can be found on crypto screeners and cross-referenced with information from the project’s whitepaper.
- Use-case: Just because a project you want to invest in has trusted people behind it and appeals to an audience, you must ask yourself how practical the token is. Mass adoption and versatile use cases drive demand and price action. Finding projects with notable partnerships and user-friendly software is key when deciding where to put your money.
Are Privacy Coins Legal?
Privacy coins are generally legal in countries that recognize crypto as a legitimate financial vehicle. Investing in privacy coins is legal in the U.S. for now, but that is subject to change per governmental regulation. Countries that accommodate privacy token adoption have KYC (know-your-customer) and AML (anti-money laundering) frameworks that coins must follow.
As seen in China and Iran, privacy coins are viewed as posing risks to financial transparency and national security. Privacy coins have faced delistings from centralized exchanges including Coinbase due to compliance and regulatory risks. This makes purchasing privacy coins more difficult, as these assets are sometimes required to be purchased from decentralized exchanges.
The Bottom Line
Privacy coins have proven their vast utility and are a growing narrative that follows the push for decentralized finance. Most people support privacy-oriented projects but privacy coins must overcome regulatory backlash from data-hungry enterprises to garner mass adoption.
Frequently Asked Questions
Which privacy token is best?
Monero (XMR) dominates the privacy sector with a market cap of roughly $2.5 billion. This project uses Ring Confidential Transactions and stealth addresses to facilitate untraceable transactions.
Do privacy coins have a future?
Yes, privacy is here to stay. Privacy coins have taken a hit from legislative oversight but remain a key player in the world of DeFi. These projects are backed by determined users who rely on their unique utility.
Are privacy coins a good investment?
Like all crypto investments, privacy coins are highly volatile and come with their own set of risks. However, the potential upside on your privacy sector investment may outweigh the risk if diligent research is conducted before investing.
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About Sean Rocker
Sean has been educating himself about the crypto space for many years and has been actively invested in crypto since 2019. He has passion for staking crypto and researching low market cap projects with specific interest in the AI, DePin and DeSci sectors. He currently attends Wayne State University’s College of Nursing and is striving for a Doctor of Nursing Practice degree.