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Hi friends. Good to have you here once again, I hope we are all keeping well. Welcome to my blog.
I trust we enjoyed the last publication, well I would love to continue the topic.
We talked about Privacy coin and Anonimyty in crypto the last time. We explored different aspect of it but today, we want dig more deeper into the subject as we would be exploring the different technologies used by these coins to secure one's privacy, making them anonymous.
We mentioned quite a number of technology and that includes, ring signature, zero-knowledge , mixing protocol, stealth address etc. We would be taking the aforementioned one by one, exploring it functionality along the line of privacy and security and also touch on the benefit and downsides of these privacy coins.
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• **Ring Signatures**
I would start with the Ring Signature used by Monero. This technology is designed such that any transaction made on the network is made obscure and difficult to trace.
When a transaction is made i.e a payment made upon signature. The protocol has been designed in such a way that old random signatures are picked and added to the new transaction.
This do not prevent the node from validating the transaction since it's a valid transaction but then it makes the transaction details look overwhelming and confusing such that it becomes difficult to trace the transaction to the real initiator
This Ring signature technology also help prevent double spending on the network because there is always a **key image** for every transaction. A key image on the Monero network is a unique and distinct cryptographic key output.
So when a malicious player decides to attempt a double spending attack, the network would detect and reject it because of the unique key image of that very transaction.
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• **Zero-knowledge (ZK).**
Here is another technological based tools that help protect users privacy and guarantees maximum anonymity status. It's called zero knowledge and it functions just as the name implies.
This particular technology is peculiar to the Zcash network. Zk is designed in such a way that transactions can be validated on the network without recording transaction details on the public blockchain. This seems like the reverse of the norms.
Usually, a validated block should only be recorded in the public chain with full details but with zk technology, validation of transaction can still be done without transaction details reflecting on the public chain.
This is why it is called zero knowledge technology where parties to a transaction can prove the authenticity of a transaction without publishing it details for all to see...which thereby prevents it from scrutiny. This is made possible with the zk-SNARKS which means Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.
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• **Mixing Protocols**
This technology is also designed to meet the need of users demanding for privacy and anonymity. An example is coinjoin. The goal of this mixing protocols is to obfuscate transaction by combining multiple transactions ( i.e payments) from different users into a single blockchain transaction.
This then makes it difficult for someone to trace the real initiator of such transaction because the inputs and outputs of these transaction are disjointed and unconnected. It will take forever to figure out who sent what and who received whatever with this technology.
|**Risks of Using Privacy Coins**|
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We have been able to explore the benefit of using privacy coin in the course of our discussion so far, but then, we have not been able to touch on the risk. Yeah! There are risk associated with using these coin, this will also double as the downside for using privacy coin.
Privacy coin do not comply with many regulatory standards this lack of regulation would not make it easy to track if it is being used for money laundering or used to sponsor wicked acts such as terrorism.
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Privacy coin have also being discovered as a way out for criminals who are involved in shitty shady and illicit financial activities. This is one of the major reason why most centralized exchange would not list this class of coin on their exchange as they won't succumbed to some of their policies and rules.
Apart from the fact that these coin could be used as cover for criminal, it's also important to mention that it very difficult to recover lost or stolen privacy coin due to their nature. This makes it very risky for users to use for payment activities.
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|**Bottom Line**|
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I believe you now have an in-dept knowledge about privacy coin, including it benefit and the risk involved .I trust that you've gotten so much from this piece. As my usual custom is, I would always encourage that you DYOR to be sure of every financial step you would want to take as I won't be liable for any form of loss encountered by you.
Feel free to share with me your thoughts in the comment section. Thanks for your time once again. Gracias!
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**Disclaimer: This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your own research and consult a financial advisor.**
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Regards
@lhorgic♥️
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