Why use privacy coins?
When it comes to privacy coins people will often assume that they are used solely by criminals and tax dodgers. Whilst these illicit use cases are sometimes a reality there are many other legitimate reasons for using privacy coins. Some of these will be addressed in this article, however the issue of privacy goes a lot deeper than one could ever dissect in a single piece of writing.
Imagine, if you will, that you live in a country ruled by a fascist dictator. At any time for any reason you can have your funds taken off you and there would be nothing you could do about it. Having your wealth stored in privacy coins would ensure that no one knows how much money you have, where it is located, or what you choose to do with it. That means that no one can track your financial activity or seize your funds.
For someone in an extremely corrupt country with thieving politicians and/or bankers, that could mean the difference between being able to feed your family, or not. Being able to transact freely could literally mean the difference between life and death.
Now although the example outlined above is an extreme one it is a very real one for some people.
We have other people who have had their pensions and savings taken from them because the country in which they live in has gone bankrupt. The government then thinks it has the right to dip into the people’s pockets and take their life savings. They do this to prop themselves up and fix their own irresponsible and arguably criminal mistakes.
It doesn’t take a rocket scientist to see that both of the above examples are downright atrocious. That being said a government can, of course, do whatever they want. But that doesn’t mean you have to make it easy for them.
Here’s where privacy coins really shine. Now that you have your funds stored safely and discreetly there is no way that they can be taken from you. That is unless you are tortured or otherwise coerced into giving them up.
You may say “Well isn’t that the case for Bitcoin and all other cryptocurrencies?” While this may be true on a basic level, Bitcoin and other projects that are not truly private can be tracked. A third party can piece together the nature of your wealth and financial activity through the Blockchain. The transparency and openness of Blockchain that makes the technology so beautiful and revolutionary can also on the flipside be used against you.
Any third party has to know that you have something before they can take it from you. With true privacy coins there is no way for anyone to know how much you have, where it is located, or what you choose to do with your money(unless you or a payee broadcasts these details publicly). This makes privacy coins invaluable not only for people in corrupt nations but for anyone living in a country that is at risk of going downhill.
With the recent economic disasters in Greece and Venezuela it is not far fetched to imagine these events happening in your own country. Many economists believe that the 2008 financial crisis was just a forewarning for an even bigger crisis yet to come.
If your country goes bankrupt do you think that you will be exempt from having your money taken from you?
With basic use cases out of the way let’s deal with some specific projects. As far as particular coins go there are a vast array of privacy centric projects out there. One of the most established and aptly dubbed “The king of privacy coins” is called Monero(XMR).
Without getting too technical Monero works anonymously by using transaction mixing and one time addresses. This technology is called CryptoNote and is the basis for many privacy coins. It ensures that all transactions are 100% unlinkable and untraceable making it ideal for transacting anonymously.
It is a PoW (Proof of work) coin like Bitcoin so it requires a lot of energy and hardware to keep the network running.
The next project that is worth taking note of is called CloakCoin(CLOAK). CloakCoin is another truly anonymous Cryptocurrency which uses onion routing by default to “Cloak” transactions. This hides the sender, recipient, and transaction amount from prying eyes.
The project has its own unique optional off-chain tumbling service called Enigma. It is a PoS (Proof of Stake) project unlike Monero so it is much less damaging to the environment as it doesn’t require any special hardware or increased electricity consumption.
The last project I would like to mention is Nerva(XNV). It is another truly anonymous project based on CryptoNote/PoW technology (Like Monero), but it has an interesting twist.
Nerva is designed from the ground up to be resistant to ASIC and GPU mining and more importantly: the centralising effects that these mining methods will inevitably bring to a crypto project. It does this by utilising a unique adaptive PoW algorithm that is both environmentally friendly and hardened against the threat of centralisation.
Centralisation is beginning to plague other PoW crypto projects but Nerva will be forever, and exclusively mineable on CPUs. This means that anyone with a normal computer or laptop can mine the cryptocurrency, bolster the integrity and security of the network, and begin earning coins for themselves.
This potential is achieved through the adaptive PoW algorithm mentioned above. The hashing algorithm changes persistently to ensure that ASIC miners cannot be produced to mine the coin in a centralised manner, keeping alive that initial decentralised vision of Bitcoin that drew so many early adopters to the space in the first place.
This means that not only can the average Joe mine Nerva on their old beat up computer, they can also rest assured knowing that no extra hardware has been manufactured in order to mine the currency. On top of that the power consumption is negligible compared to other PoW projects, making Nerva the first ever environmentally sustainable PoW project.
Out of the 3 projects Monero is the most widely known with the highest market cap. This means it is more established and more trusted but it also means that it has less space to grow in value. Nerva and CloakCoin have the lowest market caps and lowest impact on the environment making them promising future winners.
In the above race CloakCoin just about wins the environmental leg by a small stride. Nerva has the most room for growth however due to the massively lower market cap and low exposure to the market with it being a much newer project.
It should be noted that with CloakCoin’s staking program (PoS) you can earn 6% passive income on your coins per year for securing the network (But you have to lock these coins up). Whereas with Nerva almost anyone can mine the cryptocurrency for next to no startup cost, making it potentially a much more popular future choice among new investors.
(There are many other privacy-centric projects out there so you will have to choose one or more that suit your own personal requirements. It is very important that you choose your own specific coin(s) carefully, as like with any other category of Crypto project out there, many will be scams. None of this is financial advice, it is very important that you do your own due diligence and research before making any financial decision).
Written by Jon Tyndal