In the early years of the Bitcoin network, cryptocurrency was considered completely anonymous. However, over time, technology experts learned to track and de-anonymize Bitcoin transactions. In response, developers of some new cryptocurrencies decided to implement the ability to send truly anonymous transactions in their currencies.
There are three popular anonymous cryptocurrencies: Dash, ZCash, and Monero. Let’s compare the mechanisms for enhancing confidentiality used in these currencies.
Dash. CoinJoin Method
In the Dash network, transactions can be of two types: regular and transactions with increased confidentiality using the optional “PrivateSend” feature. This feature is based on the CoinJoin method, which involves splitting one transaction into several and mixing them with each other.
It is worth noting that the CoinJoin method provides privacy for transaction flows and makes direct tracking difficult, but does not guarantee complete anonymity.
Zcash. Zero-Knowledge Protocol
Zcash became the first cryptocurrency capable not only of increasing the confidentiality of transactions but also of truly anonymizing them. Zcash transactions are published on a public blockchain, but the sender, recipient, and transaction amount can be hidden. This is achieved using the zk-SNARK protocol, based on the principle of zero-knowledge proofs. Thanks to this protocol, not all information is recorded on the blockchain, making it practically inaccessible for retrieval from the network.
Like Dash, Zcash has regular and private transactions, but their implementation differs. Zcash has two types of addresses: shielded (z-addresses) using the zero-knowledge proof protocol, and public (t-addresses), similar to Bitcoin. However, moving coins between these addresses can reduce the overall anonymity of transactions.
Monero. CryptoNote Protocol
Monero cryptocurrency uses the CryptoNote protocol, which hides the sender, recipient, and amount when sending a transaction. This is achieved using ring signatures, stealth addresses, and the fungibility of Monero coins. Special private keys are used to confirm transactions. This makes Monero the most anonymous cryptocurrency currently available.
To date, there has been no precedent for hacking or decrypting Monero transactions, although some researchers point out flaws in the mixing algorithm, suggesting that some Monero transactions may be decrypted.
Unlike Dash and Zcash, Monero does not have any public non-anonymous transactions at all.
Conclusion
Monero is currently the most technologically advanced cryptocurrency in terms of confidentiality. Only in Monero are there no possibilities to reduce anonymity. Other aspects of the considered currencies were not taken into account, including the regulators’ attitude towards them.
We have considered only the three largest anonymous cryptocurrencies, although there are other currencies aimed at maintaining confidentiality and protecting personal data, and their list will likely grow in the future.