Many people assume cryptocurrency’s biggest perk is anonymity.
Or can your activity still be traced somehow?
Is Crypto Anonymous?
In short, cryptocurrency as a whole is not 100% anonymous.
This is a common assumption but is nonetheless untrue.
Let’s get into why this is the case.
Image Credit: FXTM Thailand/Flickr
It is true that cryptocurrency can usually offer higher levels of privacy and security than traditional money.
Cryptocurrencies existon a blockchain, a ledger of both public and encrypted data.
However, enhanced security and privacy do not give way to total anonymity.
Image Credit: FXTM Thailand/Flickr
This record is permanent and immutable, meaning it’s not going anywhere once it’s added.
This gives crypto an element of transparency and trustworthiness but can pose risks, too.
Your address, phone number, and other sensitive information are also not listed.
But the sending and receiving addresses of the transaction are.
Take exchanges, for example.
So, before making your first trade on such platforms, your identity is already known.
But are there exceptions to this rule?
Which Cryptos Are Most Anonymous?
While cryptocurrency isn’t entirely anonymous, there are assets designed to prioritize privacy above all else.
These are known as privacy coins; the most common example isMonero (XMR).
Monero (XMR)
Monero is a proof-of-work cryptocurrency created in 2014 via a Bytecoin hard fork.
Monero obfuscates transactions using an array of technologies, namely ring signatures and stealth addresses.
Monero’s stealth addresses are essentially one-time burner addresses that a sender can use for a single transaction.
This allows the recipient to display a public address that cannot be used for identification.
In short, only the sender and recipient know where the transaction funds end up.
In addition, ring signatures are used to sign Monero transactions.
A typical ring confidential transaction consists of a group of users, one of which provides the ring signature.
Using this technology, each Monero transaction is untraceable, maintaining user anonymity.
However, Monero has been heavily criticized in the past.
Firstly, it has been speculated that Monero transactions may not be totally untraceable.
However, these vulnerabilities have long since been resolved.
Because of this, several major exchanges have de-listed Monero for trading, including Huobi and Kraken.
Zcash (ZEC)
Next up, you’ve got Zcash.
ZEC uses zero-knowledge proofs (ZKPs) to make blockchain transactions private.
Using ZKPs, a Zcash transaction can be verified on the blockchain without needing to be publicly displayed.
Instead, typically public information is encrypted.
Zcash uses two kinds of wallet addresses: transparent and shielded.
Many prefer Monero over Zcash because it is decentralized.
There area number of other privacy coinsout there today, including Dash, Verge, and Decred.
As we’ve seen with Monero, privacy coins are pretty controversial.
But why are these particular cryptos such a point of contention?
What risks do they pose?
But there’s another element to these cryptos that is far more nefarious.
Of course, no cybercriminal wants to have their illegal activity tracked back to their identity.
Staying anonymous is paramount for these malicious actors.
Using privacy coins, cybercriminals can more effectively stay under the radar when committing illicit acts.
But with the rise of privacy coins, namely Monero, this isn’t as much of a problem.
While such assets are great for maintaining privacy, their design undoubtedly gives them a shady side.
