Our fundamental human right to privacy is under threat like never before. The internet age has granted us the sort of freedoms our ancestors could only have dreamed of, but at the same time has left us more vulnerable than we may care to admit.
Governments have always wanted to know what the people they govern are up to and this is as true today as it has ever been. But they have been joined by an equally formidable threat in the form of big tech. Their motives differ, of course. Governments want to know what we’re up to so they can control us and tax us more efficiently. Knowledge is power: the more they know about us, the more predictable and pliable we become.
I don’t know why people are so keen to put the details of their private life in public; they forget that invisibility is a superpower. – Banksy
Big tech’s motive meanwhile is more clear-cut. They want to harvest our data and learn more about us in order to make money. The more they know about us, the more efficiently we can be marketed at. Advertisers are willing to pay big money for the information that big tech is able to get on us.
You’ll have noticed how well they do this. The ads that pop up in your browser that eerily mirror your recent search history are proof enough that you’re every move is being carefully scrutinised by an algorithm somewhere. We may not have to pay to use the likes of Google or Facebook, but they sure as hell make money from us all the same.
Many of us seem blithely unaware of the threat. We have been conditioned to think in terms of ‘sharing,’ putting our lives up online for the supposed benefit of others. ‘To share’ has entered the lexicon, all thanks to the efforts of those in Silicon Valley who want the information we’re only too happy to give out. How can something shared be a bad thing? Aren’t we taught from a young age to share the things we cherish with others? Isn’t sharing caring, after all?
By using such carefully-crafted language, the Mark Zuckerbergs of this world have put lipstick on the pig that is their business model. The more we ‘share’ on their platforms, the more valuable we become from a marketing perspective. There’s no point showing a man in his 50s and advert for cosmetics: unless he really cuts loose at the weekend, there’s not much likelihood he’ll be buying. But if you know that he’s recently been looking at power tools online, or that he follows several woodworking channels on YouTube, then you have a much better chance of showing him an ad that’ll register.
The more time we spend online, the more information we reveal about ourselves and the more monetised we become. Many, it seems, aren’t all that fussed, given how much information they’re willing to give out. We live in a consumerist society, we may as well see adverts for things we actually want, right?
We can’t say we haven’t been warned. Edward Snowden published his revelations about the extent of the NSA’s snooping all the way back in 2013, sparking intense debate about what the limits of government surveillance should be. Then, in 2018 came the Cambridge Analytica scandal, which revealed how the likes of Facebook put our data to work. Both sets of revelations show that our online lives are not nearly as private as we might have thought.
We should care about our privacy, just as we should care about the other rights that so many of us take for granted. As Snowden himself said,
Arguing that you don’t care about the right to privacy because you have nothing to hide is no different than saying you don’t care about free speech because you have nothing to say.
Once our data has been given up, we have little or no say where it goes. If we’re lucky then it ends up in the hands of marketers who then use it to target us with ads. If we’re less fortunate then it could end up being scrutinised by law enforcement, or used by scammers to try and defraud us. Big tech may make claims to keep our personal data safe, but they don’t always manage to do so. The hacking of Ashley Madison users’ data back in 2015 showed just what can happen when highly sensitive personal information falls into the wrong hands.
Whatever we do and wherever we go on the internet, we need to be conscious of our privacy and what losing it could potentially mean. The social media age has made us think that creating fully-fleshed-out online personas is the most natural thing in the world and a way to connect with others around us. The reality is that doing so serves to make money for others and exposes us to a whole spectrum of risk.
The erosion of privacy undermines much else that we should hold dear. Our freedom of speech is threatened if everything we say is subject to scrutiny and criticism. Our reputations can be irreparably damaged if compromising information about ourselves finds its way into the public domain. Our finances could be wiped out if fraudsters are able to obtain information about us that could allow them to access our bank accounts. We all have aspects of our lives and of our personalities that we would prefer to keep hidden from the public gaze. It is not a case of having something to hide, but of having the private life to which we are all entitled, no matter what our station in life.
Privacy and Crypto
The question of privacy extends beyond our personal details and holiday photos. Financial privacy is just as important and the loss of it just as devastating. Would you want anyone to be able to see what you were spending your money on? Dim-witted celebrities and influencers may like to flaunt their wealth to the rest of us, but those of us with a little more sense prefer to be discreet about such things.
We may be able to keep our finances under wraps from those around us, but there are still people paying close attention to what we spend and where that money comes from. Tax authorities spring most readily to mind in this instance, as governments remain as committed as ever to their most time-honoured and trusted form of income. But others are also able to see where our money is going, notably payment providers like Visa, Mastercard and PayPal, whose centralised databases hold vast amounts of data that many a malicious actor would like to get a hold of.
The knowledge that financial data was as vulnerable as all the rest of our personal information was what attracted many people to cryptocurrency. Satoshi Nakamoto’s vision of a peer-to-peer digital cash, free from middlemen and other intermediaries and seemingly beyond the reach of the powers that be was what many had been waiting for.
Then there was the question of anonymity. Transactions between two bitcoin wallets were much harder to track and the wallet users could not be easily identified. Here, finally, was a way to do business without anybody else being able to know all about it.
Now, the bad news: that isn’t the case. Bitcoin is not nearly as private as many people seem to think and, in fact, few other cryptos are either. The likes of Bitcoin, Ethereum, XRP and many, many more besides run on public blockchains, which these days can be easily scrutinised. The blockchain analysis industry has exploded in size over the last few years, as governments, tax authorities and regulators have become ever more alarmed by crypto’s success. These bodies are now pouring money into funding and developing tools that they can use to track transactions on the blockchain.
Firms like Chainalysis are now able to track and trace transactions taking place on public blockchains like Bitcoin’s, meaning that anonymity and privacy are now things of the past. Although there are still ways to enhance the privacy of your bitcoin transactions, these require a lot of expertise and can also incur some pretty hefty transaction fees.
The sad truth is that the powers that be are able to scrutinise your crypto transactions if they so wish and there is little that can be done to stop them. It’s hardly surprising, given what is at stake. Crypto’s market cap is in the trillions of dollars and the sector sees daily volumes in the hundreds of billions: there’s too much money floating around to ignore.
Most crypto blockchains are entirely public – a fact that makes verifying ownership and the integrity of the network much easier, but does of course mean that privacy and anonymity are sacrificed. Then of course there’s the fact that any reputable crypto exchange now has to have know-your-customer (KYC) procedures in place if they want to be able to operate.
What Are Privacy Coins?
There is, however, one option open to those who still want to preserve their privacy while using crypto. Privacy coins are built to defy the best efforts of blockchain analysts and those who employ them. They keep the identities of users and their transactions secret. Through the use of cutting-edge privacy tech, these projects offer a refuge to those who still believe in keeping things under wraps.
There are quite a few privacy coins out there, though their numbers are dwarfed by the more traceable, ‘regular’ cryptos. If privacy is important to you, then these cryptos are definitely something you should consider. We’ve done the hard work for you and picked out five of the best below, all of which go about keeping things on the down-low in their own way.
Monero (XMR) is the daddy of all privacy coins and still the best on the market. It’s a big project, with a market cap of over four billion dollars, making it easily the highest-ranked privacy coin out there. It came into being around 2014 and has been keeping all attempts to break its code at bay ever since. This is all down to its tech, which is pretty damn impressive.
The two principal innovations that Monero makes use of are stealth addresses and ring signatures. Stealth addresses are generated using the public view key and the public send key that are attached to every Monero wallet. The transaction itself is viewable on the blockchain, so that it can be verified by the network, but the receiving address remains completely anonymous.
Meanwhile, the sender of the transaction is protected by the use of ring signatures, whereby a number of other users also sign the transaction, making it impossible to determine who exactly sent it. As a result, the transaction completes with only the sender and receiver knowing where it has been sent to.
The amount sent can also be obfuscated by using ring confidential transactions, thereby making the last outstanding detail of the transaction invisible as well. So far, despite their best efforts, blockchain analysis firms have been unable to crack this web of security that Monero has built up to protect its users.
Apart from the unrivalled privacy tech, the Monero developers have also implemented further upgrades to the network which have made it faster and cheaper to use, with transaction fees now costing just a few cents. This is in stark contrast to the often ludicrously high fees that users of bitcoin and Ethereum are expected to pay for using the network. This in turn has helped fuel the wider adoption of Monero as a method of payment, with merchants around the world starting to accept it in ever-larger numbers.
The focus on network security and privacy has also kept Monero mining out of the clutches of large-scale, centralised mining farms. For those wanting to mine the likes of bitcoin, this can now only be done using an application-specific integrated circuit (ASIC) chip – a pretty serious piece of kit that is beyond the reach of most of us. The team behind Monero have made the project ASIC-resistant by constantly adjusting its algorithm to prevent ASICs taking over the mining. The network has thus remained totally decentralised, with over 80,000 miners hashing away at it across the world.
Nobody has yet made any meaningful progress towards cracking Monero’s code and its dedicated team of developers are constantly working to keep it that way. Perhaps the main threat to its existence is the prospect of it being delisted from exchanges, as has happened in the past. Yet while some US-based exchanges may come under pressure to stop trading XMR, there will likely always be plenty of overseas ones more than happy to carry the best-known privacy coin around.
For many, privacy coins begin and end with Monero. As more people wake up to the fact that their moves on the blockchain are not as unobservable as they may have thought, it’s likely to see ever-increasing adoption.
Next up is Zcash (ZEC), another privacy coin with a billion-dollar-plus market cap. Although it plays second fiddle to Monero, it’s still a robust and well-respected project, which has its own ingenious way of ensuring user privacy.
Zcash came into being in 2016 and is the result of a forking of the bitcoin blockchain. It shares a protocol-defined limit of 21 million coins and uses a proof of work blockchain, though its hashing algorithm is different to Bitcoin’s. Zcash’s goal was to enable private and untraceable transactions and it does so using a specially-developed protocol known as a zk-SNARK.
The detailed working of zk-SNARKs is too detailed to be laid out here, but they essentially encrypt transactional metadata to hide the identities of those sending and receiving. At the same time, the Zcash protocol itself shields the inputs and outputs of Zcash transactions, making it impossible for anyone viewing the blockchain to tell how much has be sent. As a result, all transactional data is obscured from prying eyes.
The cryptography behind zk-SNARKs is known as zero-knowledge proofs, which is a way of verifying a secret without revealing any of the details of the secret itself. This is a grossly simplified explanation and if you want to delve deeper into the tech, then this review will explain things in a lot more detail.
There are two codas to be aware of in relation to Zcash: firstly, it is a much more centralised operation than Monero, with control of the project in the hands of the developers at the Electric Coin Co. Then there is also the fact that the privacy function of Zcash is opt-in and not set as default. Concerns have been raised in the past that if one half of a transaction wasn’t using privacy, it could in some cases compromise the security of the other half that was.
Despite this, the cutting-edge technology employed by Zcash still makes it one of the most tried and trusted privacy coins around. Just remember to opt in to those privacy features before you use it.
Next up is another project that uses some of the same techniques as Monero to keep transactions private and untraceable. Haven (XHV) is a much lower-cap coin than either Monero or Zcash, which has nevertheless seen its value rocket over the course of 2021 and is currently sitting close to its all-time high.
Haven came about in 2018 as a fork of Monero. As a result, it ‘inherited’ Monero’s privacy functions to which it then added further functionality. The two anonymous developers who launched it then abandoned the project, apparently after realising they were unable to deliver on its stated aims. Haven was then taken over by its community, forked again and became open-source.
Haven aimed to function as ‘an offshore bank in your pocket’ that would enable users to create their own coins the mirrored other assets like precious metals or stablecoins. It employed a technique known as Colored Coins, which had originally been designed for use with Bitcoin. Colored Coins allows a Haven user to assign a different attribute to their XHV coins, thus enabling them to represent that asset.
Haven uses a synthetic stablecoin – xUSD – as its core asset, which allows users to hold value even when the price of XHV is fluctuating. A process called minting and burning allows for these transfers of value between xUSD and other assets like XHV, all the while holding its original dollar value.
The scope and particulars of Haven are pretty complicated, so check out our deep dive on the project if you want to learn more about the project.
4. Secret Network
Secret Network (SCRT) grew out of layer 2 scaling solution project for Ethereum known as Enigma. It changed to its new name in early 2020 and is now the first crypto project to offer privacy-preserving smart contract, which it calls ‘secret contracts.’
These secret contracts hide the details of all transactions made within them, meaning that even validator nodes on the Secret Network blockchain can’t see them. The secret contracts use what are known as ‘secret tokens’ which keep transactional data private in a similar way to Monero. Those holding secret tokens are granted a viewing key which acts as a proof of ownership of any assets they have stored in the secret contracts.
Secret Network was built using the Cosmos SDK and runs on a delegated proof of stake (DPoS) blockchain, which allows it to handle up to 14,000 transactions per second. It’s important to remember is that SCRT – the network’s native coin – is not in itself a privacy coin, being publicly visible on its blockchain. The privacy is all derived from the secret tokens used in the secret contracts.
As with Haven, the ins and outs of Secret Network are pretty complex, but if you want a more detailed overview then it just so happens that Guy himself covered the project recently on Coin Bureau’s YouTube channel.
Last on our list of privacy coins to consider is Beam (BEAM), which uses the Mimblewimble protocol and has been around since early 2019. It has been developed with some of the perceived failings of other privacy coin projects in mind, which it aims to improve upon.
Unlike with Zcash, Beam transactions are automatically private, meaning the risk of the sender’s or receiver’s data being compromised is not a factor. No addresses or any other traceable information is stored on its blockchain, which is designed with scalability and speed in mind. The project is run as a non-profit organisation and there was no premine or ICO when it launched.
Confidential transactions and confidential assets are two other new concepts that Beam has introduced for extra privacy. These will enable the creation of new digital asset types, such as debt instruments, real estate assets or new currencies, which can then in turn be exchanged on Beam’s platform.
As you’ll have gathered, privacy coins all involve some of the most advanced tech around to help keep their users free from prying eyes. Some of the biggest brains in crypto are involved with these projects, which is just as well considering the forces that are ranged up against them.
Tax authorities, regulators and governments would all dearly love to crack the code that Monero and other privacy coins use, though so far it looks as though the cryptos are winning. Some may argue that privacy coins present a golden opportunity for criminals and money launderers to stay one step ahead of the authorities, but, while some bad actors are almost certainly making use of privacy coins, that in itself should not blind us to the fact that governments and tech corporations aren’t always the most trustworthy of entities themselves.
Our privacy is a right that will be all-too-easily lost or taken away from us if we let it. Keeping hold of it means pushing back against the encroachments of governments and tech companies and recognising that our data is an asset that belongs first and foremost to us. For those like us involved with crypto, privacy coins like these ones are the best weapon we have against those who would see our industry dragged down to the same levels as traditional finance.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.