What are Privacy (Dark) Cryptocurrencies? Here’s What You Should Know

1. What Is A Privacy Coin?

A privacy coin is a cryptocurrency with added privacy layers that help shield the transactions and content of the wallet from everyone. Privacy coins are sometimes referred to as ‘dark’ coins.

• Your wallets content is invisible to others.
• The identity of the wallet holder is secret.
• Transactions into and out of the wallet are untraceable.

We would like to mention at this point that the average new person in crypto believes bitcoin is a privacy coin. It is not!

Bitcoin disguises a user’s identity, but its public ledger allows a bitcoins wallet and transactions to be transparent and traceable.

Read our ‘What is Bitcoin’ article to learn more about bitcoin.

2. How Many Privacy Coins Are There?

There are over 80 privacy coins and each year more are created. We will simply ignore most of them as they are illiquid and good luck trying to sell out of them with any real volume. Price slippage even if you can find a buyer would be ridiculous. The only time a small-cap privacy coin is worth potentially buying is as a “lottery” win, that one day it will have as large a market cap as say Zcash, dash, or monero.

4. Why Do Investors Like Privacy Coins?

When sending and receiving cryptocurrencies there is a widespread misconception that bitcoin is impossible to trace and track, as mentioned above it is not.

Once you know the public address (bank account number) of a bitcoin wallet anyone can see the contents on the bitcoin blockchain of the wallet and all activities of receiving and sending bitcoin.

This is why privacy coins became popular as they add an extra privacy function to a cryptocurrency.

Privacy coins are similar to spending and sending cash or paying with a prepaid debit card on the internet for a product or service. The difference is with privacy coins you can spend, send, and receive millions of euros/dollars worth of your chosen cryptocurrency in less than a minute at little cost (transaction fee).

Depending on the cryptocurrency, users can complete anonymous transactions and maintain private account balances. Simply put, privacy coins obscure the sender’s address, the receiver’s address, and the transaction amount when executing each transaction.

5. What Are The Top 11 Uses For Dark Cryptocurrencies?

• Individuals looking to simply keep their details private.
• Individuals looking to purchase items on the dark web.
• Porn purchases as there is no credit card monthly statements or paper trail.
• Price speculation.
• Businesses wanting to keep their financial transactions private.
• Tax avoidance.
• Hiding assets in a divorce.
• High net worth individuals that do not want others knowing where their wealth is.
• Portfolio diversification.
• Investors worried about bank bail-ins and wanting some money outside the banking system.
• Anonymous charity or political donations. Some individuals and businesses do not want their name associated publicly.

6. Are There Any Risks Involved?

Very few, as privacy coin investor’s know that their investment is off the radar. The main risk is that some governments are rather unhappy with privacy coins and have banned them from being listed for trading on exchanges.

7. What Are The Main Advantages Most Privacy Coins Have?

Stealth address. Stealth addresses add an additional layer of privacy. Stealth addresses randomly generate a new address each time for a transaction on behalf of the wallet owner.

Imagine being able to create a new bank account number anytime you wish to receive or send funds.

A one-time address is created for each transaction on behalf of the recipient.

The use of a stealth address helps conceal the actual destination address of a transaction and at the same time hides the identity of the receiving participant.

In plain English, you have the real wallet address you created (actual bank account) and this account holds all your cryptocurrency coins in it. You can create inside this account new individual one-time bank account numbers that you can send or receive coins into, but they are not linked to your original bank account number.

This means you can keep your main account (wallet) and use anonymous one-time accounts to send and receive money into your main account without anyone knowing this is your main account.

Ring signatures: A ring signature enables a sender to hide their identity from other people in a group. A ring signature is an anonymous digital signature from one member of the group.

Ring confidential transactions: This is used to hide the transaction amount.

Disclosure features: Some privacy coins allow a sender to switch between transparent or private transactions thereby limiting the amount of information a recipient receives (like an on/off privacy switch).

8. What Are Transaction Mixers?

Why do hackers always seem to ask for bitcoin in a ransom rather than ask for a privacy coin?

The simple answer is they use transaction mixers.

Bitcoin transactions can be traced. However, you can use a tool called a transaction mixer.

We would like to note that we do not condone this, but we believe you should at least know what it is as we are delving into privacy cryptocurrencies.

Transaction mixers are used to destroy, hide, and confuse transaction analysts.

A transaction tumbler swaps your bitcoin (or any cryptocurrency) with other owners and distributes them. Tumblers act like a VPN that hides the sending address from the receiving party.

For example:

You send bitcoin to a transaction tumbler where many other people also send their bitcoin. The bitcoins sent are then combined with other bitcoins, split up, and then joined with other transactions. The sender then receives their coins in the form of different transactions equal to the amount sent minus the mixer fee. The bitcoins are now washed, clean, and untraceable.

We felt it best not to list any of the transaction mixing services here. I hope you understand.

9. Where To Buy Privacy Coins?

After reading the above you may be slightly nervous about whether dark coins are legal. Yes, they are. It is up to the investor to report profits and losses.

You can buy privacy tokens from most crypto exchanges.

Visit our crypto exchanges section of this website to find the exchange best suited to you.

10. Summary

Privacy coins, obviously have their dark uses, but we must also remember that these coins also allow investors and users to retain their privacy when dealing with financial matters.

Just like cash, dark coins can be used for both good and bad reasons.