To many cryptocurrency enthusiasts, one of the largest draws to the industry is the anonymity that decentralized digital currencies gives investors. Bitcoin, the first and leading digital currency, allows for anonymous payments and transactions to be completed at a faster rate than other currency trades. The blockchain which undergirds a digital currency serves as a public ledger, documenting all of the transactions but retaining that crucial anonymity.
And yet, there are digital currencies, including monero, dash, and others, which claim to have a focus on privacy that extends above and beyond that of the industry generally. (See also: The 6 Most Important Cryptocurrencies Other Than Bitcoin.) How do these currencies work, and what is it that makes them secretive?
Blockchain and Anonymity
While bitcoin and other digital currencies have developed a reputation for anonymity, some investors remain concerned about the role of the blockchain in preserving that anonymous status. If all transactions are recorded, including the sender, receiver, and amount transacted, it seems there would be at least a theoretical danger that this information could be accessed by an outside party.
The sense of anonymity that is associated with currencies like bitcoin, therefore, comes from the "fact that wallets are not connected to our names," according to a report on Steemit. While wallets are not given specific investor names, they can often be traced back to individual users through transaction history, service providers, IP addresses, and similar means.
In order to counter this issue, so-called "mixers" were created. Mixers are, in this case, a collective of people who come together to share tokens, mix them up, and then redistribute them. This makes it more difficult for individuals to be linked with specific tokens. However, other currencies are going even farther to protect users' anonymity.
Dash and Monero
Two of the leading privacy cryptocurrencies are dash and monero. Dash began life as darkcoin in 2014, created with a feature allowing users to pre-mix their coins during transactions. This process came to be known as "darksend," later called "PrivateSend," and it remains a feature of dash to this day. It is seen as a step up from third-party mixing services, but it could still potentially be traced by expert analyzers.
Monero, on the other hand, arose from the CryptoNote protocol and came to being with an emphasis on increased privacy. It utilizes a ring signature system in which multiple users share a set of keys which confirm transactions without revealing which of those users were party to the transaction. (See also: Monero: For Black Markets Where Bitcoin Isn't Anonymous Enough.)
Zcash, a third privacy-focused currency, aims to be a proof-of-work currency with no transaction records at all. The transactions will be completely encrypted on the blockchain using "zero knowledge SNARKS" to ensure accuracy.
Each of these currencies is exploring new ways in which the blockchain and cryptocurrency worlds can interact to provide users with newfound anonymity.