A privacy coin or anonymity enhanced coin (AEC) is untraceable on the blockchain and protects users' privacy and anonymity.We often hear that Bitcoin and other cryptocurrencies are anonymous. But in fact, they are only pseudonymous. Since every transaction is public, anyone can trace what happens on blockchains.
This is the reason why privacy coins or anonymity enhanced coins (AECs) exist. It allows the user to transact anonymously as the origin and destination of the coins are obfuscated (by hiding information or mixing for example). This also makes the coins untraceable on the blockchain via blockchain analytics tools. Some well-known privacy coins are Dash (DASH), Monero (XMR), Zcash (ZEC), or Grin (GRIN).
Users should be cautious when transacting with privacy coins. Indeed, they represent a higher money laundering/terrorism financing risk than other cryptocurrencies. For example, the FATF considers that the use of privacy coins constitutes a key risk indicator.
Scorechain Blockchain Analytics platform supports the Dash blockchain. It enables users to track Dash transactions and assess the level of risk helping them be compliant with regulations worldwide.
Discover more about blockchain analytics, crypto and compliance with our Glossary.
About Scorechain
Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 40 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, and Tron with TRC10 and TRC20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.
FAQs
Privacy Coins Plagued by Concerns Over Misuse
Over the years, privacy coins have been hit by periodic delistings from centralized crypto exchanges – for example, Upbit in 2019, Bittrex and Coincheck in 2021, Huobi (or HTX) in 2022, as well as OKX and Binance's Europe operations in 2023.
What are privacy coins and are they legal? ›
These coins aim to make it challenging to trace and identify the parties involved in a transaction. This feature can be beneficial for individuals seeking to protect their financial activities from prying eyes. For example – in August 2022, the US Treasury Department banned users from using Tornado Cash.
What are potential risks associated with privacy coins? ›
The concern is that the anonymity provided by privacy coins could facilitate illegal activities, such as money laundering or financing terrorism.
Do privacy coins have a future? ›
While privacy coins offer a secure and private transaction experience, they also face significant challenges, including increased regulatory scrutiny, potential vulnerabilities to future technological advances such as quantum computing, and lower liquidity and adoption compared to more established cryptocurrencies like ...
Why do people use privacy coins? ›
The identity of users and the origins of their transactions are completely protected. These coins empower senders and receivers to remain anonymous with different levels of privacy, like hidden wallet addresses and transaction balances. With privacy coins, payments actually remain private.
Why is Monero banned? ›
Monero is a privacy crypto designed to confuse anyone investigating transactions. Its techniques break transactions into smaller amounts and mix them up, making them nearly impossible to trace. For this reason, it is illegal to use in some countries, while others allow it but monitor transactions carefully.
Which US coin is currently illegal to own? ›
Currently, with the exception of the one sold on July 30, 2002, 1933 double eagle coins cannot be the legal possession of any member of the public, as they were never issued and hence remain the property of the United States government.
What are examples of privacy coins? ›
What are the Best Privacy Coins?
- Zcash. Zcash, or ZEC, is one of the top privacy coins that offers the guarantee of enhanced anonymity and security for transactions. ...
- Oasis Network. The Oasis Network or ROSE is another top addition among privacy coins. ...
- Beldex. ...
- Horizen. ...
- Monero. ...
- Aleph Zero. ...
- MobileCoin. ...
- Decred.
Privacy coins explained
A normal cryptocurrency such as Bitcoin (BTC 0.72%) or Ethereum (ETH 2.16%) is easy to track as it moves from one digital wallet to another, and the amount of Bitcoin and Ethereum sitting in these wallets is public knowledge. Privacy coins use various tricks to hide that information.
Which coin is not traceable? ›
Unlike traditional cryptocurrencies, Monero uses ring signatures, stealth addresses, and confidential transactions to obfuscate the sender, recipient, and transaction amount. This means that transactions made with Monero are virtually untraceable, making it difficult for anyone to uncover your financial activities.
Firstly, the inherent transparency of blockchain raises privacy issues, particularly when transactions need to be linked with personal identities. This is a critical concern in applications requiring smart contracts and personal data. The public nature of blockchains can make sensitive information vulnerable.
Which blockchain platform is known for its focus on enhancing privacy? ›
Corda. Corda is an open-source blockchain platform designed for business transactions, especially within the financial sector. It emphasizes privacy and scalability, providing a secure and efficient environment for parties to transact directly.
Where are privacy coins illegal? ›
Privacy coins are legal in the United States, but other major world economies have imposed restrictions in an effort to curb money laundering and reduce organized crime. Japan banned privacy coins in 2018; South Korea and Australia followed suit, delisting Monero, Dash, Zcash, and other coins from exchanges.
What is the most secure cryptocurrency? ›
Which cryptocurrency is most secure? Ethereum is considered to be the most secure cryptocurrency as compared to other digital assets. This is largely because its platform uses the blockchain technology, which is one of the most robust technologies for digital transactions.
What was the first privacy coin? ›
In 2012, Bytecoin, often considered the first privacy coin, introduced CryptoNote technology. This offered enhanced privacy features like ring signatures (a technique for transaction mixing) and one-time addresses.
Is Dash still a privacy coin? ›
Dash (DASH): While not entirely a privacy coin, Dash offers a "PrivateSend" feature that mixes coins to obscure their origin. It's worth noting that Dash's privacy features are optional and less robust compared to Monero or Zcash.
How many privacy coins are there? ›
There are hundreds of privacy coins that employ a combination of privacy-enhancing design features, but their total market capitalisation and trading volume represents less than 1% of overall numbers.
What happened to XMR coin? ›
Crypto exchange OKX announced a delisting of XMR and other privacy-focused tokens including dash (DASH) and ZCash (ZCH) at the end of last year. Monero slumped to as low as $114.26, the least since June 2022, following the announcement, TradingView data show.
Is Aleph Zero a privacy coin? ›
Aleph Zero or AZERO also deserves a place among the top privacy coins for its unique features. It utilizes zero-knowledge proofs to ensure confidentiality of transaction details and user identities.
