What are Anonymous Coins
The blockchain is not anonymous by default. Some coins offer better security features than others.
There was a strange coincidence on the markets in the past weeks. Just as there was talk of the IRS looking through Bitcoin transactions, the price of Monero shot through the roof. One of the main reasons for this is that Monero is a truly anonymous coin. And while there is an element of speculation in the market price, the appeal of Monero remains.
Is Bitcoin Truly Anonymous?
Beyond the unreadable Bitcoin addresses, the coin itself is not fully anonymous and can be traced back to users' real identities. All Bitcoin transactions and public addresses are visible on a simple Blockchain explorer- and sometimes, they can be traced back to the user's real identity. Moreover, sending funds from one known address to another also taints the new address.
And while some users do not require full anonymity, others prefer built-in security features within a coin.
Monero's Safety Features
Monero is constantly updating its safety features. As of September 2017, starting with block #1220516, all transactions would be protected by the Ring Confidential Transactions algorithm. Currently, more than 95% use the RCT as an extra option, but after the hard fork, all Monero transactions would be protected that way. And this is one additional factor for the price spike leading up to the blockchain update.
Anonymous cryptocoins, once moved through a couple of wallet addresses, would become really untraceable. Plan ahead when moving anonymous coins off an exchange- set up an intermediary wallet if possible.
What is CryptoNote?
CryptoNote is a technology that unites several coins allowing anonymous transactions. The theoretical work on this technology happened back in 1983, but the rapid rise of Bitcoin led to its final implementation to hide the sender or receiver of a transaction.
This means that for Monero and similar coins, the blockchain explorer looks quite different, with no public addresses visible, and only limited data about the transactions.
Тhere is a whole family of coins that use the CryptoNote technology, with the most prominent one being Bytecoin, a project with a large coin supply and a very low price, used to facilitate small anonymous transactions. Monero also belongs to this family of coins. There may be more custom coins created, but their adoption depends on the community of users.
Is Dash Anonymous?
Dash, one of the leading cryptocurrencies at the moment, claims its transactions are untraceable within the system due to mixing in masternodes. Dash has a PrivateSend feature, a remnant of the time when the token was called DarkCoin, and the feature was DarkSend. Essentially, PrivateSend is a built-in feature for third-party coin mixing services, and Dash can also be used non-anonymously.
But masternodes could preserve logs of the mixing process, and that may reveal the true path of the transactions, if ever read. Unlike Monero and Zcash, which use advanced cryptography, Dash only mixes up transactions on an otherwise transparent blockchain.
Is ZCash Really Anonymous?
The other contender for a true anonymous coin is ZCash. And when users choose to use the encryption option, the blockchain has all the information of the transactions locked. Nothing can be seen except for the time stamp of the transaction, due to the zk-SNARKS technology, that encrypts the information and provides checks to avoid double spending.
So ZCash may be offering the highest anonymity right now.
The Problem with Anonymous Coins
The problem is that all of those coins are anonymous only within their ecosystem. And some may be connected to illegal activities, as there are claims about Monero.
Otherwise, a simple thing such as using an online exchange may make tracing a transaction to a user's identity a bit easier- though still somehow involved.
But it is still quite a relief to know that for some coins, your wallet address will not hang out on the Internet for all to see.
The Verdict on Anonymous Coins
For small-scale buyers, the appeal of Monero may not be related to its anonymous features, but only to the potential for a rise in price. Otherwise, the anonymous option is a personal choice. Avoid buying lesser coins with low trading volumes to avoid volatility. Stick with the better-established anonymous coins that have a transparent community.
Anonymous coins also have solid developer teams that can handle the complex cryptographic issues. So they are in a way more reliable than new tokens showing up all the time.
Anonymous coins show no more volatility than other types of tokens, and Zcash has been mostly stagnant for years. Monero has had spikes in price before, but not incomparable to other coins or tokens.
Remember never to lock up more money in cryptocurrencies than you are ready to lose, in whole or in part, due to market risk or technological problems.