Top 7 Privacy Coins in 2021
If stricter crypto regulations strike us this year, investors will have to evade regulatory measures by turning towards digital assets with anonymity features. In this blog post, we will take an in-depth look at the top 7 privacy coins in 2021 and how they help users hide important transaction information.
Cryptocurrencies are the internet’s currency, and as such, privacy is a fundamental feature that helps users with concealing their identities. Blockchain technology only protects a user’s identity to a certain degree. For people who wish to stay completely hidden on the blockchain, privacy coins represent a measure that requires serious consideration.
Despite the fact that privacy coins have a notorious reputation and that many believe that they are used solely by drug dealers, the truth is far different. Privacy coins have a purpose in situations where crypto enthusiasts seek to protect their physical safety, evade strict KYC measures, and uphold their privacy on a technology that is 100% public.
In this article, we will explain why privacy coins are important and showcase the top 7 privacy coins in 2021.
What are privacy coins?
‘Privacy coins’ is a loose term for decentralized cryptocurrencies that facilitate anonymous transactions over the blockchain. Although traditional cryptocurrencies like Bitcoin do not reveal the identity of a user, features inherent to blockchain technology make it easy for other individuals to track the trace of a transaction - sometimes to the point of finding out who the user sending the transaction is.
Since blockchain technology is only pseudo-anonymous, developers have thought of creating special cryptocurrencies utilizing cryptographic methods in order to enhance transaction anonymity.
While the degree of traceability (rather lack of) differs from project to project, all privacy coins seek to make it almost impossible for a sender or receiver to be doxxed.
Tornado Cash is a decentralized and open-source privacy solution for the Ethereum network that helps users hide their traces on all ERC-20 token transactions. The protocol essentially works by mixing tokens held in smart contracts.
Privacy coins use cases
There are many reasons why privacy coins should be employed in both special and everyday use cases. Per the cypherpunk movement, transactions should always remain private and utilize strong cryptography measures to stay hidden both offline and online.
The obvious problem with blockchains like Bitcoin and Ethereum is that every single transaction can be traced back. Through a blockchain explorer, anyone can find out every interaction made by an address.
By using a privacy coin, you can hide your trace forever. No one would be able to tell that you have interacted with a decentralized exchange like Uniswap, a DeFi platform like Aave, or a major centralized crypto exchange like Coinbase.
But using this type of cryptocurrency or related anonymity platforms does not come without its own set of problems.
Let’s say that you have recently used a privacy coin like Monero or a mixer like Tornado Cash. A blockchain analyst or regulatory agency might flag your address since they do not know why you have used either service. This would prevent you from cashing out via official fiat gateways, limiting you to OTC deals.
Naturally, you would not be barred from utilizing any fiat gateway or exchange in the case that you confirm that you have used Monero for legitimate means, like protecting your on-chain privacy. But if you have used it for illegitimate means, like money laundering or tax evasion, it would be hard to have your address unflagged.
Why are privacy coins popular?
Privacy coins have lost their charm over the years and have sadly not lived up to their true potential. But despite not being as popular as in the last bull run, privacy coins are still in high demand, and investors have even begun to speculate on them - fearing that future crypto regulations will turn investors to privacy coins.
So to start off, this speculative demand is the first reason why privacy coins are popular. Any announcement created by a bank, government, or another institution relating to curtailing crypto or banning them entirely will help spike their popularity.
But let’s not forget the fundamental reason why crypto enthusiasts are interested in privacy coins: anonymity. With on-chain analysis becoming more advanced by the year, crypto users are starting to get interested in hiding their payment history and turning their transactions untraceable.
Darknet markets also have a huge impact on the demand for privacy coins. Experts even believe that drug markets on unreachable internet websites account for their primary use case. We should not forget that these markets are, despite the silk road’s fall, still alive and well and that both sellers and buyers anonymize their identity by using coins like Monero.
Last but not least, we have another taboo topic: tax evasion. If authorities seek to increase taxes in order to make crypto less desirable to the general population, almost everyone will jump onto privacy coins in order to hide how much crypto they own. Even today, you will find investors who use anonymous cryptocurrencies to obfuscate their trace for tax avoidance reasons.
Top 7 Privacy Coins in 2021
Interested in investing in privacy coins or using them? You can find a list of the top 7 privacy coins in 2021 in our list below.
1. Monero
Monero enjoys amazing popularity, mainly due to its rich and old history. As a matter of fact, Monero’s name has the same level of fame as other big cryptocurrencies like Bitcoin and Ethereum.
According to data from Coinmarketcap, Monero is a top 20 cryptocurrency with a $3.9 billion market cap. Despite being old, XMR is a cryptocurrency that (for unknown reasons) tends to move first in the market.
In terms of privacy, Monero owes its success to features such as ring signatures and stealth addresses. Unlike other projects, Monero enforces anonymity on a fundamental level and does not provide it as an optional feature.
The project started off as a Proof of Work-based Bytecoin fork in 2014 that anonymizes transactions by making it impossible to figure out who the original receivers and senders are.
Monero has done such a great job in the realm of privacy coins that the IRS decided to offer a $625,000 bounty for anyone that could break the project’s privacy measures. That fact alone should tell you why XMR is the number one choice in this special niche.
2. ZCash
ZCash is a cryptocurrency resembling Bitcoin that also features privacy-oriented features. Do note that privacy is only optional and that the ZCash blockchain divides transactions into those that are private (z-addresses) and those that are transparent (t-addresses).
To foster anonymity, ZCash utilizes a cryptographic technology called Zero-Knowledge Proof that enables users to ‘shield’ their transactions. In practice, the feature boils down to having users send and receive transactions without being able to see the address of the opposing party. The tech also hides the transacted value to all outsiders.
Coinmarketcap reveals that Zcash is ranked #51 on the crypto leaderboard with a market cap of $1.3 billion. To put it bluntly, the project is a less popular alternative for those who do not wish to use Monero.
3. DASH
DASH, otherwise known as digital cash, is another cryptocurrency that comes with a special privacy feature. Even though the project’s top priority (and feature) remains to be speed, DASH offers an interesting method of anonymizing transactions that is on-par with Monero and ZCash.
To send a transaction privately, users employ the PrivateSend feature. More costly than standard transactions, PrivateSend helps users by mixing coins without relinquishing custodial access. The mixing part is done by masternodes, users who enjoy their position by staking a remarkable number of DASH coins.
Per Coinmarketcap, DASH is ranked #41 on the cryptocurrency leaderboard with a market cap of $2.2 billion. The asset used to be one of the most popular cryptocurrencies in 2017, but its value and demand faded away over the years.
4. Grin
Do not fret; there are new privacy coins that are not Monero, ZCash, or Monero as well.
The advent of an innovative blockchain technology called Mimblewimble has birthed Grin, a privacy coin that sets the highest standards of anonymity by not storing addresses and transaction amounts at all.
Mimblewimble is a type of Proof-of-Work implementation in which only the network’s participants can overlook transactions. There are no identifiable nor reusable addresses, and all transactions look like randomized pieces of transactions to outsiders looking to take a peek into the blockchain.
Essentially, the model creates a compact blockchain history that is easier to download, verify, and synchronize. Since nodes remove redundant transaction information, there is no way for anyone to discover the sender or receiver of a blockchain payment.
Grin is truly advanced, but its complexity appears to create a counter-effect that fends off new users. The token launched in 2019 and has since not reached any notable levels of adoption. Per Coinmarketcap, Grin is ranked #530 on its leaderboard and has a market cap of only $30 million.
5. Verge
In this list, Verge (XVG) is a unique privacy coin that stands out by utilizing a different model for securing transactions. For its uses, the project does not take advantage of traditional tools like zk-SNARKS or coin mixing.
When it comes to Verge, you should know about two important concepts: The Onion Router (TOR) and the Invisible Internet Project (I2P). This two-part system uses routers to relay information across multiple nodes in a peer-to-peer (P2P) Setting that is made possible by I2P tunneling. Both innovations are anonymous and hide the identities of all network participants.
Verge is another cryptocurrency that used to be popular during the ICO era. Market data shows that the project has lost its previously high appraisal and XVG’s valuation fell short of recovering. Per Coinmarketcap, Verge is ranked #117 with a market cap of $314 million.
6. Horizen
Horizen is a ZCash fork that works similarly in the sense that its transactions can be either transparent or anonymous. The core difference is that Horizen does not hide the transacted value, failing to establish a core part of privacy.
Nevertheless, we have to note that Horizen is one of the securer and more anonymous blockchain networks due to its large number of nodes. The project’s team claims to have a robust multi-tiered node system with more than 40,000 different node operators.
Horizen (ZEN) is ranked #96 on Coinmarketcap, with a market cap of $515 million.
7. Beam
Last but not least, we have another privacy coin that adopted the MimbleWimble technology. We already know what MimbleWimble does, so it would be preferable to talk about the core differences between Beam and its main rival Grin.
Beam is an implementation of the MimbleWimble network that began its development two years after Grin. Beam is more of a corporate project that is headed by a company based in Israel. On the other hand, Grin is a decentralized project that entirely relies on the community and its open-source governance model.
Technologically, the differences lie in coding, mining, and token supply.
Grin developers code with rust, their nodes mine with the Cuckoo Cycle algorithm, and GRIN tokens have a constant and infinite supply where one token is created every single second.
Beam implemented C++ for coding, Equihash for mining, and a limited token supply of 263 million BEAM tokens.
Beam fares a little better than Grin, considering that it is ranked #422 on Coinmarketcap with a market cap of $48 million.
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Final Word
When DeFi and ICOs did not yet exist, blockchain’s most sought-after cryptocurrencies were privacy coins and Store-of-Value assets. Albeit the demand for privacy coins has faded away, they still represent a category of digital assets that will definitely have a strong level of adoption in the future.
Privacy coins are important because first-generation blockchain networks do not possess any features that completely anonymize their participants. Therefore, new developers have decided to implement such mechanisms on their own in order to establish privacy as a fundamental part of blockchain technology.
Experts believe that privacy coins will awaken once crypto enthusiasts start facing serious regulatory threats. If restrictions, taxation, or other forms of pressure increase with the rise of blockchain adoption, investors will surely turn to privacy coins as a form of safe haven.
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