To understand the future of privacy-focused cryptocurrencies, it is first important to understand the need for such coins. Although it claims to be anonymous, bitcoin is, in fact, a public currency. Bitcoin transactions are recorded on a public ledger. It may not be possible to trace bitcoin addresses back to their rightful owner, but it is definitely possible to know details of transactions, such as amounts and location of the cryptocurrency.
In addition, linking your real identity to a bitcoin address makes it possible for others to see details of your financial transactions without your permission. What’s more, bitcoin can also be stolen from an exchange that does not have adequate security measures. In sum, bitcoin is not as secure and private as its developers would like you to believe.
Privacy-focused coins improve on bitcoin’s flaws to make transactions and identities untraceable.
For example, Monero, which is the most well-known of all privacy coins, was developed using the CryptoNight Proof of Work protocol and uses “ring signatures” which “obfuscate” the public ledger, making it impossible to detect the source and endpoints of a transaction.
Among other things, in practical terms, this means that it is not possible to know the consolidated total of Monero coins held by a particular node. Not surprisingly, the WannaCry ransomware hackers chose to convert their stash into Monero to evade detection by authorities.
More evidence of Monero’s robust privacy measures became evident during the U.S. government’s seizure of AlphaBay, the dark net’s most popular marketplace. Even after they closed it down, authorities said they were unable to estimate the amount of Monero, which was the most popular cryptocurrency used for transactions there, floating around in the marketplace.
Another example of a cryptocurrency that incorporates privacy features is Dash, which is competing with the likes of Litecoin and bitcoin to become a cryptocurrency for daily use. Its privacy feature is called PrivateSend and uses the “CoinJoin” technique of mixing up transactions that makes it difficult to identify the owner and recipient of coins for certain transactions on its blockchain.