Privacy coins are an important pillar in the cryptocurrency space. Privacy is one of the attainments sought by many who believe in the goals of the blockchain revolution. While Bitcoin utilizes the Dandelion layer to hide the IP addresses of the parties involved in a transaction, most people’s transactional behaviors and network activity can be monitored to the point of a persistent attacker being able to discover a node’s IP address.
We live in a world where people are willing to pass over private information for the sake of convenience. However, not all people fall into this category; in fact, there’s a rising tide of individuals who are becoming privacy-conscious. For this market, privacy coins are the go-to cryptocurrency. However, it’s interesting to note that research in private cryptographic interactions has primarily been focused on advancements layered atop the Zerocoin Protocol. Novel solutions have been recently presented by some well-known cryptocurrencies like Monero, Dash, and Zerocash, but it’s worth noting the caveats of each.
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The Caveats of Privacy Coins
Monero and Dash are competing to hold the crown of the privacy coins with the highest market cap. The success of these projects has somewhat hinged on the great communities they’ve attracted, but it goes without saying that both protocols deliver effective privacy solutions. However, there is not a perfect privacy coin.
Dash: Dash’s masternodes are responsible for various roles, including the much-desired PrivateSend. The masternodes essentially function as mixers on behalf of users; thus, a key caveat is that those in charge of the mixing may abuse the power to acquire information of the parties involved in transactions. Additionally, Dash does not utilize zero-knowledge proofs; consequently, the transaction links are not broken.
Monero: Monero utilizes a unique infrastructure that integrates CryptoNote and Ring Signatures. The network is able to provide default privacy for transactions without needed a mixer, and Monero also ensures transaction amounts remain hidden. However, Monero too does not break transaction links and merely obscures them. Another key challenge faced by Monero is that transactions are extremely heavy and thus require great waiting periods to be processed.
Arguably, the greatest assertion against Monero is that the means used by the network to hide transaction value also hinder supply audits. Thus, a network exploit that leads to excess coin minting can go unnoticed.
Zcash: Zcash utilizes zkSNARKS, a cryptography mechanism that is still in an experimental state due to its novelty. the underlying technology, though, allows Zcash to offer extreme anonymity in transactions, including the ability to completely break transaction links. Moreover, the network throughput is more scalable than the competition.
The drawback of Zcash is that advanced nature zkSNARKS means only a handful of people can address the system’s advancement. In fact, the anonymity of transaction values can potentially lead to exploits that lead to excess coin emission that can go unnoticed. In fact, such a scenario has already taken place.
Zcoin: Zcoin utilizes the Zerocoin Protocol, which utilizes battle-tested RSA Factoring. The benefit of this is that this one of the most well-research technologies. Despite this, the vast portion of Zcoin transactions is not anonymous. This is because Zcoin transaction can be done through Zcoins or the protocol’s Basecoins. Zcoins need to be minted and can only be minted in fixed denominations. Thus, a vast portion of network users simply opts to transact Basecoins, which are not anonymous.
While Zcoin may provide an anonymous cryptocurrency, the network’s transactional volume is mostly invisible Basecoins.
There is no Perfect Coin
Each privacy coin offers certain pros and cons. While Dash is one of the most scalable networks, it integrates masternodes for mixing. Monero attempts to dodge Dash’s caveat at the cost of having extremely slow transactions; it also provides no means to audit supply.
Zcash is an advanced protocol and it faces the key dilemma of Monero: no means to audit supply. Thus, the Zerocoin Protocol, which has been around for the longest time, offers more reliability in the network with its auditable supply. The present utilization of the Zerocoin Protocol, though, fails to be used for anonymity as proven by Zcoin network transactions.
Thus, the founder of PIVX, another leading privacy coin, aims to build upon what works in the existing privacy coins. The Veil Project integrates the Zerocoin Protocol along with Monero’s RingCT mechanism for Basecoins.
The Pursuit for the Best Privacy Coin
Veil Labs, a team of veteran developers and blockchain architects, aims to deliver VEIL, the most practical privacy coin. Rather than dabbling with experimental technology which may place the network at risk, Veil will utilize the Zerocoin Protocol; however, Veil Labs existence will be to ensure all the caveats of existing application of the Zerocoin Protocol are addressed.
First, by applying RingCT to the Basecoins, all coins within the Veil network will have a privacy feature. So, even if users avoid minting VEIL from Basecoins, they’ll be able to transact anonymously with Basecoins. However, the goal is to ensure minting isn’t seen as a burden. To achieve this, Veil Labs has the ambitious goal of allowing users to make multi-block transactions which address the currency problem of having to mint and then transact Zerocoins in only fixed denominations.
While protocol improvements are a key pillar of Veil’s existence, the project’s final milestone is to deliver a privacy coin that has the user experience the masses would be willing to adopt. If the network is scalable and easy to use by the masses, then whether a Crypto user is concerned about privacy or not, the protocol serves a convenient means of transacting. Addressing user experience is a key overlooked factor in most blockchain projects; thus, Veil Labs consideration of delivering a blockchain friendly to the masses is a pivotal shift that blockchain development has so desperately needed.
The Pursuit for the Privacy Coin was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.