Privacy Coins: Monero, Zcash, PirateChain & BEAM
Image by Jan Alexander from Pixabay
“Arguing that you don’t care about the right to privacy because you have nothing to hide is no different than saying you don’t care about free speech because you have nothing to say.”
~ Edward Snowden
Today we live with encroaching surveillance, hailed as necessary to keep us “safe” by governments worldwide. Most notable historically in the United States, as a response to the attacks of 9/11, was the hastily signed into law 300+ page “Patriot Act.” Those who hold personal privacy as a basic human right have long-sought sanction in cryptography.
Though hiding transactions has been discouraged by exchanges, there are still legitimate reasons for and, therefore, a robust market for confidential transactions using privacy coins. The possibilities for prejudice and targeting of individuals for any number of reasons is always a concern. For instance, Ryan Taylor, The CEO of Dash (A cryptocurrency built from a fork of BTC with a privacy option called “PrivateSend”), says, privacy “...is also a safety issue for users that could be targeted by criminals that become aware of a user’s holdings by tracing their transactions.”
Fungibility, the quality of one unit of a currency indistinguishable from another, is an essential standard for judging a cryptocurrency.
The creator of Litecoin, Charlie Lee, explained: “This is what makes money powerful because every coin or any bill is the same—it’s fungible. Currently, that’s not the case with Litecoin and Bitcoin. There are stories you hear that people deposit some coins to Coinbase, and their account gets banned because the coins are linked to a dark market, for example.”
Litecoin (LTC) is in the process of a significant upgrade to increase its fungibility through implementing a version of the MimbleWimble protocol as an opt-in privacy function.
Bitcoin has been regarded and esteemed worldwide since its inception as a revolutionary advancement, establishing an equitable means for the exchange of value, peer-to-peer, excluding corrupt, power-bloated legacy institutions. It was, however, never anonymous but pseudonymous. Keep in mind that all transactions on the Bitcoin blockchain are entirely transparent and trackable since all are recorded in a public ledger. Bitcoin addresses can be thought of as account numbers. Transactions may be traced by connecting these account numbers to their users.
This inherent lack of privacy is not just BTC but nearly all cryptocurrencies, which has led to the innovation and rise of privacy coins, offering complete anonymity. Transactions through these coins are private. No one may access information such as the sender’s or receiver’s address or the transaction amount.
Governments worldwide are now also becoming aware of privacy coins. The IRS has expressed concern for how they might be used for nefarious means. In August of 2019, a Request For Information (RFI) was issued seeking help from private contractors in tracking and identifying privacy-focused cryptocurrency transactions. On June 30th, 2020, a new request for information was made by the agency.
The IRS states:
“This RFI is associated with a pilot IRS Criminal Investigation Division (CI) program...requesting information about systems that will allow developers and testers to conduct investigative research of distributed ledger transactions involving privacy cryptocurrency coins (e.g., Monero (XMR), Zcash (ZEC), Dash (DASH), Grin (GRIN), Komodo (KMD)...”
As a reward for help tracking privacy coins, the US government has offered upwards of $650,000 to private companies.
Let’s take a look at Monero and Zcash since they are generally the two most well-known privacy-focused cryptocurrencies and explore a newer addition to the genre, Pirate Chain, that’s enjoying some enthusiasm now. Then we’ll take a look at BEAM and its unique method of offering privacy.
The World’s Most Popular Privacy Coin
Not the first in history, but the earliest of our three, Monero has the highest market capitalization of any privacy coin, at $7.1 billion at the time of this writing. Originally launched as a fork of Bytecoin in April 2014 and called BitMonero, rebranded “Monero” (XMR), is “money” in Esperanto, a language intended for international use.
Monero uses the CryptoNight Proof-of-Work protocol using ring signatures to hide the ledger of transactions, which by default is public for the blockchain. This also means it is impossible to know the total of XMR coins held by a particular node.
Unlike Bitcoin, Monero does not have a fixed number to be mined. Instead, it is slightly inflationary. After 18.5 million coins are mined, the supply increases by approximately 0.87% the first year, with this percentage going down each consecutive year. At the current rate, it will take 117 years for initial distribution to double, and for this to double again, it will take 234 years. Like Bitcoin, the reward for mining is halved every four years.
The most popular privacy coin may also be the world’s most infamous. The notorious WannaCry hackers converted their ransomware stash into Monero. It was also the most popular cryptocurrency used on AlphaBay, the largest marketplace on the darknet.
Despite its popularity with nefarious types, a recent study by a team of researchers revealed that it is possible to extract individual transactions, making it less private than some may believe. It seems even the US Homeland Security may now be able to track Monero transactions. Contracted for $2.4 million by the DHS Science & Technology Directorate, CipherTrace spent a year working on the toolset to track stolen or illegally used funds.
Monero advocates tend to be dedicated. According to Cryptwerk, over 881 merchants now accept the world’s most popular privacy coin and the Monero community prepared a funded proposal to Tesla suggesting the electric carmaker include it as an option, especially now since the whimsical billionaire has just tweeted that Tesla is suspending acceptance of BTC as a payment alternative for the purchase of their cars.
The Most Well Known zk-SNARKs Coin
Launched in October 2016, by Zooko Wilcox-O’Hearn, based on the Zerocoin protocol, with a current total market cap of $2.7 billion, ZCash (ZEC) uses the highly regarded Zero-knowledge proofs (zk-SNARKs) method. Even Ethereum’s Vitalik Buterin has encouraged the development of zk-SNARKs technology, though it was in a different context - as a way to address scaling issues for Ethereum. Through this method of cryptography, shielded transactions may not be traced to either interacting parties. Zero-knowledge proofs make it possible to prove specific facts about otherwise encrypted data and verify that certain facts are true about that data without revealing additional information.
ZCash is a privacy-as-an-option coin since it also allows users the option to disable the shielded transaction function, presumably for purposes including auditing, KYC, and for using certain exchanges or brokers.
In 2019 The Electric Coin Company, the firm behind Zcash, announced they were incorporating sharding into the Zcash blockchain to address scalability issues. Their senior engineer, Nathan Wilcox, expounded on his high aspirations for ZCash at the Zcon1 conference, saying, “I think we should make Zcash usable by 10 billion people by 2050 if we can.” Only the future will show how close Zcash comes to this number. So far, Cryptwerk reports that over 767 merchants worldwide accept Zcash.
The zk-SNARKS Purist
Pirate Chain (ARRR) was developed in mid-2018 by some of the Komodo team. The Komodo website outlines how Monero’s ring-signature protocol may leave traces of metadata, which the Zero-Knowledge Proofs (zk-SNARKs) protocol does not. Pirate Chain has mandatory transaction privacy using zk-SNARKs. The lack of a public send option makes it the largest shielded funds pool of any project using zk-SNARKs.
Pirate Chain fans are also quite dedicated to the project, with a modest current market cap of $1.25 billion and volatile pricing. It has a total maximum supply cap of 200 million coins, operating on an independent blockchain secured by delayed Proof of Work (dPoW) which guards the protocol against double spends and the possibility of 51% attacks.
Recently researchers from Carnegie Mellon University conducted test trials of ZCash and Monero traceability. They found that 99.9% of Zcash transactions and 30% of Monero transactions may be tracked. Pirate Chain, which does not allow non-private transactions, maybe the most impenetrable in light of these weaknesses.
The Next Generation Privacy Coin
The newest and most promising of our privacy coins, Beam (BEAM), launched on January 3rd, 2019. Beam has a maximum supply of 262,800,000, which it is projected to reach in about 127 years. It has a market cap of $130.6 million. It operates on a Proof of Work validation and mining system, but its blockchain is more compact and lighter, making it easier to download data, synchronize and verify. As a result, it’s also much faster and therefore scalable.
Beam is the first Mimblewimble based privacy cryptocurrency, including a confidential DeFi platform and an ecosystem where developers may build dApps. The breakthrough protocol, Mimblewimble, was named after a spell from the Harry Potter series that prevents characters from revealing secrets. Mimblewimble works distinctly differently from both Monero’s ring signatures and the zk-SNARKS protocol of ZCash.
Mimblewimble obscures all details about transactions, including user inputs, outputs and amounts transferred. It has no identifiable or reusable addresses. Only transaction participants may see wallet addresses unless specific information has been chosen to be revealed to a particular party. Otherwise, every transaction is private by default. So there is no option to disclose information publicly as with ZCash or Dash.
Through Mimblewimble, Beam also uses the Dandelion protocol with decoy outputs, which further hide the pathways of transactions on the network, making them virtually untraceable. It does this by randomizing the pathways where transactions are dispersed on a decentralized network.
As Alex Romanov, CTO of Beam, says, “The less they know, the better you sleep.”
In conclusion, Beam offers better scalability than other PoW privacy coins, a unique built-in optional auditability, and confidential DeFi, making it more than just a privacy coin. Perhaps the best way we have back to private finance in a world of public surveillance. Follow us at Beyond Enterprizes to keep up to date on this and other essential innovations in blockchain and technology.
