Since the dawn of the crypto era, Bitcoin has widely been regarded as the front runner in the industry and spearheaded the revolution back in 2009. However, in more recent times, amidst the bear market of 2018, several other coins have emerged from the shadows and thrown down the gauntlet to challenge Bitcoin’s supremacy. This is primarily due to the number of drawbacks Bitcoin possesses – the main concern being addressed here is its lack of anonymity due to the public nature of its blockchain protocol.
Public transaction data coupled with the transparent addresses of users have been used to determine the identity of individuals in the past, whereas the inherent vulnerabilities the protocol possesses could permit various forms of malfeasance. Hence, many investors who were concerned about the privacy of their transactions opted to look elsewhere and came across alternatives that would keep them as anonymous as possible. Hence, privacy coins were born.
Privacy coins were created to address the problems of conventional protocols with regards to the anonymity of their users and maintaining the privacy of user data by integrating blockchain technology. The two most dominant players in the privacy coin space are Monero (XMR) and Zcash (ZEC). Both these cryptocurrencies are widely known for providing privacy of the highest level to their users. These coins integrate different privacy-based features into the blockchain space and, while both utilize a proof-of-work (PoW) consensus algorithm, it is important to note that the implementation techniques used by each coin are unique. Additionally, both coins have addressed the threats of ASIC mining and centralization differently. We shall now address their various features in-depth and elaborate on their unique circumstances.
Zcash (ZEC) works to integrate the Zerocash protocol developed by Dr. Matthew D. Green and was released on Oct 28, 2016. The protocol’s encryption tool is known as zk-SNARKS, which has the ability to validate private transactions in a matter of mere milliseconds. It is important to note that Zcash is not a privacy coin by default and transactions can be carried out publicly if deemed necessary by the user, as the case would be on a conventional network. However, unlike conventional protocols, the parties to the transaction have the option to make their payments private, thereby granting them the ability to ‘shield’ their own information if they so desire. This high level of privacy is possible because Zcash encrypts the data and uses a cryptographic technique called zero-knowledge proofs, which can verify transactions without needing to possess specific details about them. Thus, discovering user identity and obtaining information becomes more difficult for outside parties.
It is important to note that some critics have panned Zcash, citing its ability to migrate back and forth between shielded and unshielded transactions on the blockchain a risk which can lead to a subsequent leak of metadata. This lead the industry expert Peter Black to brand it a ‘corporate coin’ and criticize the centralized nature of Zcash. Zcash also has a unique mining process based on a master key, which is said to be trusted in the hands of six core members of the team. If the company happened to be compromised and an external party was to get their hands on it, they could potentially generate unlimited coins and break the network.
On the other hand, Zcash has won plaudits from its fans for the very flexibility which has generated so much negative attention. Additionally, Zcash is said to be working on integrating BOLT in its network. BOLT is a privacy-centric version of the Lightning Network that aims to incorporate a second layer protocol with a top-level built-in privacy system. This could potentially help to maintain the highest levels of user privacy.
Monero (XMR) was released on Apr 18, 2014. Although Monero, like Zcash, was designed to withhold user information, the two protocols use very different methods to achieve the same. The XRM network uses stealth addresses which is a way of generating an address where one cannot see the account balance. It also uses a privacy feature called RingCT that improves the transactional privacy of users by obfuscating the value of the funds being transferred. The network then disassociates any information that could be used to identify the users from their transaction history. Monero’s transactions are facilitated by a number of privacy-based features, which are:
- XRM utilizes Ring Signatures to obfuscate the origins of a transaction. Ring Signatures are essentially a type of digital signature that can be performed by anyone from a group of designated users that possesses the authorized keys. This is supposed to ensure that transaction outputs remain untraceable and the identity of the transactors remains anonymous.
- Ring Confidential Transactions (RingCTs) are used the encrypt the total value of the transactions taken place.
- Kovri’s function (which hasn’t been released yet) is to hide the IP addresses of both senders and recipients. Kovri is a C++ version of the current I2P network and was designed to dissociate IP addresses from transactions as well as conceal geolocations. This aims to create a higher level of privacy for both senders and recipients. By utilizing both Ring Signatures as well as Kovri, the identity of users is secured simultaneously by two blockchain-based privacy technologies.
- Furthermore, stealth addresses are used to generate addresses that hide the user’s account balance. Stealth addresses also allow users to publish just a single address but grant them the option of receiving payments through multiple unlinked addresses. This means that only the parties to the transaction will have specific knowledge of the payment.
Like Zcash, Monero has also come under fire for its mining centralization, as a very large proportion is consumed by a total of merely 4 pools. Furthermore, it lacks the same levels of adoption as Bitcoin due to development difficulties and the fact that transaction sizes tend to be very large compared to most coins. This has lead to limited merchant tools and no hardware compatibility with Monero. Moreover, researchers have claimed that they are able to correctly identify transactions despite Monero’s promises of uttermost privacy. This can lead to users opting for alternatives if these issues are not resolved.
Monero has also been cited as being the go-to currency for criminals deploying mining malware, according to a report from January 2019. According to Sergio Pastrana and Guillermo Suarez-Tangil from Universidad Carlos III de Madrid and King’s College London, respectively,
“Overall, we estimate there are at least 2,218 active campaigns that have accumulated about 720K XMR (57M USD). Interestingly just a single campaign (C#623) has mined more than 163K XMR (18M USD), which accounts for about 23% of the total estimated. This campaign is still active at the time of writing.”
It is estimated that Monero-related mining schemes account for 84% of all instances of mining malware. Though the Monero community heavily condemns mining malware and cryptojacking, it still remains unwilling to compromise the usability of Monero as a privacy coin that can’t be interfered with by a centralized authority. Due to ASIC being a special concern, Monero generally changes its proof-of-work algorithm slightly with evert hard fork to ensure that ASICs do not have a special advantage when mining XMR.
As highlighted above, there is no clear winner between the two networks as they are unique in their own way and provide different facilities to their users. Monero can be said to be a more robust network, but also comes with higher fees and its unique set of circumstances. Zcash, on the other hand, offers users flexibility and lower costs but possesses multiple drawbacks as well. While neither Monero nor Zcash can absolutely guarantee anyone’s privacy, it is important to note that they are rapidly developing and currently feature as among the best options for privacy coins available in the market. However, it is safe to say that both platforms have a number of drawbacks to fix before they can truly disrupt the crypto space and emerge the frontrunners of privacy coins.
Will Monero and Zcash remain the dominant market forces in the privacy coin space in the years to come? What changes can they make to provide users with a better experience? Please let us know your thoughts on the matter in the comments section below.
[We would like to thank FireIceUK for their inputs and contributions to this article (email@example.com)]