Cryptocurrency is a digital medium of exchange. As the name suggests, cryptocurrency uses cryptography for security. Unlike other electronic payments, it is not supervised by the government or the bank, which theoretically makes it immune to government interference or manipulation. Many cryptocurrencies have a limited amount that can be created. For example, the amount of Bitcoins in circulation cannot be more than 21 million. In the case of fiat money such as Euros and Dollars, this limit is not set and the government can print money as needed.
Cryptocurrencies and anonymity
Since the creation of hundreds of cryptocurrencies, many have attempted to provide users with greater privacy but have seen varying levels of success. The encryption protocol attempted to offer a high level of privacy by shielding user identities behind pseudonymous addresses, randomly generated strings of numbers and letters. However, this approach proved ineffective.
Bitcoin addresses and transactions are recorded on the block chain and are publicly accessible. Although an individual’s address is pseudonymous, it can be associated with many transactions over time, making it easier for friends, family and even government agencies to better understand the address owner’s shopping trends. While some believed that Bitcoin kept its transaction history completely private, organizations such as law enforcement agencies used block analysis to track Bitcoin transactions.
A few years after Bitcoin became popular, some cryptocurrencies were developed specifically to give users a better chance of remaining anonymous. For example, the Dash cryptocurrency uses the CoinJoin method, which combines funds from multiple users to reduce the likelihood of an individual user’s identity being discovered.
Another privacy-oriented cryptocurrency, Zcash uses zero-knowledge proof technology called zk-SNARKs, which allow users to exchange information and make payments without revealing their identity. In addition, the currency’s blocking function does not disclose the value of transactions. However, the privacy encryption system feature is optional and many users do not use it when making payments.
Unlike Zcash, Monero is a cryptocurrency that makes all transactions anonymous by default and has achieved widespread adoption. Monero uses an open-source encryption system that was launched in April 2014. Development participants introduced this innovative cryptocurrency, and the team relied on donations and the wider community for further development.
Monero uses secret addresses that hide the identity of senders and receivers. It is worth noting that while cryptocurrency mixing is available for many digital currencies, users have generally used mixed coins when trying to hide something. However, Monero mixes all the coins used in transactions, which helps eliminate the suspicion that coins are mixed to hide information that senders and receivers don’t want third parties to see.
While users of the Monero cryptocurrency have the ability to keep their transaction history private, they can also selectively share this information. Every Monero account has a view key that allows anyone who holds it to look at the account’s transactions.