Bitcoin Beginners

How Private is Cryptocurrency?

By March 15, 2018 No Comments

Cryptocurrency is a sensation that has taken the world by storm. Ever since the meteoric rise in the valuations of Bitcoin, cryptocurrency has caught the imagination of every investor. Trusted cryptocurrency exchanges have enabled the users globally to trade and store Bitcoins and other cryptocurrencies in a safe manner. The question that we are going to address in this post is — how private are these cryptos? But before we get into that discussion, let’s touch on some basics first.
How Cryptocurrency Works?
Cryptocurrency is a type of digital currency which is built to be secure and, in a majority of the cases, anonymous. It is associated with the internet that uses cryptography, the process of converting legible information into a code that’s nearly uncrackable, to track transfers and purchases.
Cryptography was invented decades ago during World War era to disseminate information in a safe and secure way. Ever since they technology has evolved by combining Mathematical and Computer Science to become an incorruptible way to secure information, communication and money in the digital form.
Another spectrum of cryptocurrency has emerged in the form of Blockchain technology which facilitates the financial transactions in highly encrypted form. The blockchain is a kind of incorruptible digital ledger which eliminates the need for middlemen, the central server and ensures faster transactions in a more secure manner.
Level of Privacy in Blockchain
One of the biggest myth tagged along with Bitcoin is that one can easily carry out financial transactions anonymously. In fact, the Bitcoin blockchain is absolutely transparent, as every transaction, its history, and the amount being sent or received is public and can be viewed easily by any observer. Hence, Bitcoin transactions are pretty easy to trace and link.
However, the Bitcoin address is left “anonymous” and no identifying information (e.g. name, address, etc.) is attached to it. Actually, it is presumed that at some point the user will cash out his or her Bitcoins (e.g. through an exchange) or will purchase an item through accumulated Bitcoins (e.g. from a merchant). And at that point, might risk connecting the identity to the Bitcoin address(es), available Bitcoins in the account, and entire transaction history.
What is Privacy Coins?
Privacy is required for businesses to safeguard their information and business interests. And for personal users, why should we reveal our financial to anyone else? Is it really required? To correct this loophole, Privacy Coins have emerged as the new solution to ensure the end-to-end privacy of users. They are designed to ensure that in case a user who doesn’t want their financial information to go public can easily safeguard it.
Majority of the privacy coins still work upon on a bitcoin-style public ledger, but use technology that obfuscates the path of the transaction. It might still be possible to identify that a certain amount of cryptocurrency was sent from one account to another, but the path leading from sender to recipient is virtually impossible to trace and identify the user. The way in which various privacy coins go about this differs considerably. Privacy Coins majorly use one of the three most common privacy algorithms known as zk-Snarks, Coinjoin, and RingCT.
A white paper published by Zerocash presented a very solid argument in the favour anonymous transactions through Privacy Coins: “Privacy guarantees are designed to benefit legitimate users who do not want their financial details made public. There is a concern, as always, that decentralized anonymous payments will facilitate the laundering of ill-gotten funds by criminal users….however [Privacy coins] barely affects the status quo for criminal users, who already have strong incentives to hide their activity, while it provides notable benefits to legitimate users.”
Hence, users who are sceptical about sharing their financial information with other people over the internet have the option of using privacy coins to fully safeguard the personal data.
Conclusion
In a digital era, where every bit of our personal information is saved in the digital format concerns for privacy and safety of data will only rise which will fuel the importance and rise of robust cryptocurrency technology which is safe and provide end to end data security in a simple and trustworthy way.

Leave a Reply