In the crypto ecosystem, there is a subset of projects with a focus on the privacy of transactions. At the center of this subset, there is Monero, the largest privacy-focused cryptocurrency. It was first introduced in 2014, but the story begins a year prior.
As a way to solve the privacy issue, developer Nicolas van Saberhagen released a white paper for a currency called CryptoNote in 2012. Later, a group of developers forked the CryptoNote codebase and launched Bytecoin, which would be forked again a few months after to create Monero.
It quickly gained recognition. Although it took some time to take its space in the market, it eventually became one of the top crypto assets by market capitalization. It’s priced around $130 and ranks #39 in market value aggregators. The price recently took a downturn in response to Binance delisting XMR off its platform. However, it quickly corrected and stabilized. If you want to trade XMR, there are still some platforms supporting these currencies. Alternatively, you can exchange your XMR for a more stable crypto asset — you can be sure that you can convert BTC to USD at any time and not worry about any restrictions.
The Essence of Privacy Coins
Cryptocurrencies are often regarded as anonymous since they aren’t strictly linked to personal information, like traditional bank accounts. However, they are actually pseudo-anonymous. The blockchain of Bitcoin and other coins is a public ledger, so all transactions and addresses are visible to everyone who cares to look. With the appropriate tools, a person can link any transaction and address to the personal identity of both the sender and the receiver. This has been done in the past, in cases of theft and other crimes.
Privacy-oriented coins work by obfuscating the traces that crypto investigators could follow. This way, they successfully hide any possible link between the transaction and the individuals who conduct it. There are a lot of coins focused on anonymity. Some enforce private transactions across the network, like Monero, and some make it an optional feature, like Dash. Here’s a list of the best privacy coins to get familiar with the similarities and differences between them.
Exploring Monero’s Privacy-Enhancing Technology
Monero is widely regarded as the best cryptocurrency focused on privacy. The reason is not only because it enforces privacy on all transactions, reducing the risks all over the network. Moreover, it works on different levels of the process, making sure that at no point will personal information be revealed or leaked. It hides the sender and receiver’s addresses, and even the amount being transferred. All information regarding the transactions is knowledgeable only to the individuals who own it.
Let’s review three of the features that achieve privacy and anonymity in Monero.
- Ring signatures: This technology groups different transactions into one in a “ring.” This way, it’s impossible to trace the address in the “ring” to its original starting point.
- Stealth addresses: To further the obfuscation achieved using ring signatures, the stealth addresses feature generates a new public address for each transaction so that no address can be reused and linked to a particular person.
- Randomized output values: This feature is in charge of obfuscating the amount transferred. It works by mixing the real outputs with fake ones to mislead any investigator looking to trace the transactions.
The Future of Digital Privacy
Privacy coins offer great value to their users. But they are widely targeted by regulators across the world. Authorities fear that the anonymity achieved with these coins can be used by illegal actors to hide their crimes, such as money laundering or tax evasion. However, these fears were also once directed to Bitcoin and public cryptocurrencies.
Over time, regulators realized that Bitcoin can actually help trace illegal funds. They then directed their efforts toward enforcing KYC and AML regulations on these coins through registered exchanges and platforms. This, in turn, moved the focus to privacy coins, which have been targeted by major exchanges to comply with regulation pressures. As we mentioned, Binance, the leading exchange in the market, recently delisted XMR from its platform.
But the reality is that privacy coins are not inherently linked to criminal activities. Moreover, criminal activities can and have been conducted using other types of currencies, even fiat ones, for a long time. Protecting one’s identity and integrity is not necessarily a criminal activity but a personal liberty. In the future, we can expect the crypto community to focus on establishing privacy standards for all blockchains. It’s also necessary to create a framework to tackle this issue.
For example, regulators could focus on passing bills that are directed toward actual malicious actions instead of toward the medium. The medium’s purpose, in fact, is not to facilitate illegal activities but to allow users to rightfully reclaim their financial privacy. The crypto community as a whole will work together to define the best practices in the industry, limiting illegal activities while ensuring privacy for everyone.
Conclusion
The future of Monero, and privacy coins in general, is still uncertain. It is true that it has been used to commit crimes, as regulators worldwide say. However, all types of assets throughout history have been used to commit crimes, as crimes are not inherently tied to the nature of the asset. But no one would think of prohibiting US Dollars, although they are frequently used for money laundering schemes.
Regulators should, and eventually will, recognize the benefits of privacy coins. Then, they can focus their efforts, as they have done in the past, on limiting the illegal activities themselves and not on the medium used for those, as any medium could be dangerous if it’s used by criminal actors.
