How Crypto Technologies Deal with Privacy Challenge

Zcash and Monero lead the way in privacy innovation

by Ivan Penkov
18 May • 5 min
In Analysis

In the era of social networks and widespread surveillance, privacy becomes an increasingly scarce asset and there are not only criminals and drug abusers seeking it. Everyone needs some privacy in their dealings. But the headline cryptocurrency Bitcoin cannot guarantee the anonymity of a transaction, as wallet addresses can be traced. There are a handful of other coins, however, that aim to solve that issue, with the main contenders in the privacy coin space being Zcash and Monero.

 

Zcash

Zcash employs a new privacy method not used in any other coin before. It implements the Zerocash protocol, an evolution of the Zerocoin protocol (used by Zcoin), which was introduced in 2013. Zcash and Zcoin both use zero-knowledge proofs to guarantee zero-knowledge financial anonymity, but Zerocash can make transactions up to 98% smaller than Zerocoin. The method used in Zerocash is known as zk-SNARK (zero-knowledge Succinct Non-interactive ARgument of Knowledge). zk-SNARKs allow for completely unknown addresses and transactions with small proof sizes.

 

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Transactions in Zcash cannot be traced to the genesis block. It is the most anonymous coin out there. This also creates the threat of mining more coins than claimed to be. There is also the requirement to always have a trusted setup when doing upgrades in Zcash, which could be seen as an attack vector.

Zcash is new and untested. It has yet to prove itself as a viable technology.

 

Monero

Monero has been working for a while already. It ensures privacy by utilizing Ring Signatures, which mix transactions. TheRing Signature is composed of the actual signer, combined with past transactions to form a ring. These past transaction outputs, that are drawn from the Monero blockchain, function as decoys in the ring signature transaction. The technology helps the sender mask the origin of a transaction by ensuring that all transaction inputs are indistinguishable from each other. Such privacy method is also used by Bitcoin mixers but coins coming from such services are usually blacklisted.

 

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There are some issues with Monero, like the mixing of more coins requires a large transaction size, which slows down the transaction speed. In Zcash, your transaction is hidden amongst all outstanding transactions, so the privacy at Zcash does not affect transaction speed.

Also, there is no blocksize limit, nor reward halving in Monero like there is in Bitcoin and Zcash.

Monero has upgraded its privacy feature to include Confidential Transactions (CT) by Gregory Maxwell. It is called RingCT, which is CT combined with Ring Signatures. RingCT hides the amount of each transaction and it also makes the payments unlinkable.

 

Zcoin

Zcoin is the first full implementation of the Zerocoin protocol, which could eventually hide transactions and address balances without requiring to trust mixers. Currently, Zerocoin does not hide transaction values, but uses fixed denominations for minting (1, 10, 25, 50, 100).

 

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Zcoin is not a fork of Zcash. In Zcoin all coins with history could be burned and then you can prove your burn to the network to receive new coins with no history. You burn old coins to get new coins. That is how the minting process is done and that is how you break the link between the old coins and their associated history. Blockchain analysis cannot detect the link between the old coins that you have burned and the new ones that you have redeemed.

 

Other privacy coins

In Dash, the privacy feature is called PrivateSend, known as DarkSend before. Dashis a fork of Coinjoin,claiming to have added some improvement features .

Joinmarket is a decentralized implementation of Coinjoin on Bitcoin. In Joinmarket, there is no central server to find counterparties to mix your coins with. In Dash, the PrivateSend makes users connect to a masternode for mixing. These masternodes are logging all inputs and outputs. Those logs can be used to deanonymize users. Also, most of the masternodes are hosted on cloud services, so governments can get all logs if needed.

Dash is formally known as Darkcoin and before that, it was called XCoin. When creating XCoin, the founder created a huge premine (two million coins) for himself. This event made him one of the richest holders of Dash now.

Another privacy coin is PIVX (Private, Instant, Verified, Transaction) which is just a hard fork of Dash without the premine.

Wrapping it up, the real innovation in privacy is in Zcash and Monero. Dash and Pivx are just a Coinjoin mixing service with a centralized operation (masternodes). Those two coins do not hide the addresses nor the amounts of their transaction,s which makes their anonymity feature far less superior than that of Zcash and Monero.