There are two main types of technologies in the crypto space that can help us to maintain our on-chain privacy. These are privacy coins and coin mixers. What are the similarities and differences?
Let’s approach the crypto privacy tools question from the starting point of Zooko Wilcox, co-founder of privacy coin Zcash: ‘Privacy isn’t a thing you can add [to applications]. It’s not a feature like a new button or dark mode. You can add features, but you can’t really add privacy.’
From this angle, mining coins makes renewed sense. To mine a coin means starting out in a ‘virgin’ state. Compare it to literally searching for gold, as some hobby ‘prospectors’ still do. You haven’t interacted with other coin holders. There is no trail, no weak link for others to pry in, as no one has transacted with you. Your coins are earned with your own toil, springing from the earth if you will. Privacy coins like Monero allow you to start with a blank slate in this way (fellow privacy coin Zcash is expected to switch to proof-of-stake).
But let’s be realistic, most of us won’t want to mine from home, having to deal with the hardware, and VPN’s and firewalls setups needed for privacy. Alternatively, unless you’re a no coiner without any prior history of crypto purchases, you’ve already left a trail, having supplied ID’s and address statements to 1 crypto exchange. What to do? As mentioned, there are two main types of tools you could use to create some level of privacy for yourself.
1. Privacy Coins
The first implementation of privacy on the blockchain came in the form of Bitcoin-derived chains with added privacy features. One of the first of which was Zcash. Zcash is based on the bitcoin protocol, with the important addition of privacy-preserving transaction data using zero-knowledge proofs. Zk-rollups are used to restrict third-party access to recipient and sender information.
The original and still most widely used privacy coin these days is Monero, introduced in 2014. By using Monero and Zcash, users can send and receive completely private payments.
But how to even use these coins, considering that many merchants don’t accept them? Well, through an atomic swap, you could convert some or your Bitcoin to a wallet with Monero or Zcash (so without relying on a third party and thus preserving privacy). In doing so, you could operate your online spending behavior in a totally private way, not traceable to your Bitcoin stash.
2. Privacy on the Application Level: Coin Mixers/Tumblers
If the crypto currency of your choice doesn’t have privacy ingrained in its design – like most don’t – you’ll have to take your coins to the laundromat, so to speak. It is the difference between on-chain privacy by default (blockchains like Monero) and privacy as a service: the coin mixer. Coin mixers are also known as tumblers.
In the early days of coin mixing services, users who wanted privacy for their BTC, might send their coins to a third-party platform, like Helix or Coin Ninja. The founder of these platforms was prosecuted, and it’s notable that this was the first case in which the U.S. Department of Justice explicitly called bitcoin mixing a crime. Being wary of companies anyway, it’s no surprise that peer-to-peer solutions sprang up to achieve privacy. CoinJoin was an early peer-to-peer privacy solution…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
