What’s Better: Privacy Coins or Bitcoin Privacy Tools?
Today, it’s easy to send bitcoins. Just scan a QR code or type in the address of the person you want to send it to, then press “Send.”
But how secret is it to send bitcoins? And, more importantly, which is better: privacy tools that come with bitcoin, like CoinJoin, or privacy coins that don’t come with bitcoin, like Monero or Zcash?
Bitcoin and privacy coins: what the law says
Before getting into the specifics of privacy coins, there are some legal questions that need to be answered. Many cryptocurrency exchanges have decided not to support privacy coins.
If you go to an exchange or broker that only deals in bitcoin, you won’t even see any other coins.
This is because regulatory bodies tend to look at privacy coins with a closer eye. And exchanges and brokers with licences have to follow the rules that these regulators set.
Some countries, like South Korea and Japan, have made it illegal to own or trade privacy coins. As rules change in different parts of the world, others are likely to follow suit. Bitcoin can also be made illegal, as China has done.
Even though bitcoin privacy tools aren’t officially banned in most places as of the time this article was written, exchanges should keep an eye on their use and try to limit it.
Tools for looking at chains
For example, Binance was found to have limited a user’s account after it was found that the user had mixed coins after the user had withdrawn money.
Regulated exchanges must use tools for analysing blockchain data to meet regulators’ requirements for financial surveillance. They can link identities to bitcoin addresses by using chain analysis tools like CipherTrace or Chainalysis.
This lets the exchange keep an eye on profiles and clusters and look for patterns of “illegal behaviour,” which they must then report to the people in charge of regulating the market.
Because the bitcoin blockchain is open and public, it doesn’t offer as much privacy by default. Because of this, regulators have been nicer to bitcoin. The same tools don’t work as well on privacy coins, though. People who use Bitcoin and want to keep their identities secret must use a variety of tools to hide their identities.
How many types of privacy coins are there?
The way each privacy coin hides the details of transactions is different based on the type of cryptography it uses.
We don’t have to talk about how each algorithm and coin is built in great detail. Nothing, like a couple of coins and a simple explanation of how they work, will be enough to show how they are different.
It’s important to note that privacy coins can be used as privacy tools on their own. They could be used with bitcoin and improve any plan for keeping your money private.
For example, you could use a swapping service or a decentralised exchange to turn Bitcoin into Monero and cut off the surveillance system. But some experts say that this could actually make you less private.
There are pros and cons to using a privacy coin instead of privacy tools for bitcoin. Both ways help the user do business on the internet, but they give the user different levels of privacy.
There are many different privacy coins, and each one has its own way of making sure that privacy is built in. Bitcoin privacy tools work a little differently because users sometimes have to be extra careful not to make mistakes that could reveal their identity.
Which is better and easier to use for keeping your financial information private on the internet: bitcoin privacy tools or privacy coins? Is it easy to keep track of Bitcoin transactions? With this guide to bitcoin privacy, we’ll go into more detail about the subject and give you all the answers.
In this article, we look closely at all the important parts and each technology so that you can make a smart choice. Read on to learn and have fun. And if you found it helpful, don’t forget to tell your friends. We’re grateful.
Monero is one of the most used coins for privacy. It was also one of the first to come out, in 2014.
Fans and developers say that there are three main things that make Monero stand out. They are called Ring Signatures, RingCT, and Stealth Addresses. Ring signatures hide who is sending and who is receiving the message, and RingCT hides how much is being sent.
Lastly, stealth addresses make sure that every address is used only once.
This three-part combination of cryptography is what makes Monero a good way to protect privacy. With Bitcoin, you shouldn’t use the same address more than once, but the developers of Monero say that this isn’t a problem.
Every good feature has a downside, and experts have been asking questions about how Monero works for years. Time will tell if Monero will be able to scale or if Bitcoin’s upcoming privacy improvement will make Monero obsolete.
Grin is a worthless cryptocurrency that uses the Mimblewimble protocol. It is a new set of algorithms that were made in 2016 and came out in 2019.
Mimblewimble aims to be more lightweight and scalable than Monero, which has bigger transactions.
Because you don’t have to download every block from the beginning, the blockchain stays small. It uses a feature called FlyClient that lets new nodes download checkpoint blocks instead of the whole blockchain.
Lastly, transaction amounts and information about the sender and receiver are hidden from anyone who wants to see them. Mimblewimble has a set of tools that help protect privacy, but GRIN hasn’t caught on in the market for privacy coins.
Even though consumers don’t use it, it could still be used to protect privacy. The people who made GRIN are honest about it and say, “It’s very new and experimental. “At your own peril!”
zCash is a well-known coin for privacy. It started in 2016, and since then its number of users and developers has grown.
zCash uses “zero knowledge proofs,” or “zk-snarks,” to hide the details of transactions. Users can share certain keys that let them choose which account balances and transaction details to show or hide.
If a user wants someone to know about their transactions, they can tell that person. zCash is listed on many cryptocurrency exchanges around the world. This may be because its security and privacy system is a little bit more flexible.
Like all the other privacy coins, zCash might not be around forever, since there will be new ways to protect your privacy with bitcoin.
Tools to keep your bitcoins private
The fact that a privacy coin or other kind of money that can be used privately can be spent may be the most important thing about it. Bitcoin is by far the most popular digital currency in the world, which is why it would be nice to add tools that protect privacy on top of it. There are a lot of developers working on privacy-focused apps for Bitcoin, which is good news.
Bitcoin wallets for privacy
Privacy-focused bitcoin wallets like Wasabi Wallet, Electrum Wallet, and Samourai Wallet make it possible for bitcoin users to use privacy technology.
Most of the time, these wallets are made and kept up to date by some of the world’s best cryptography and privacy experts. There is a heated debate among the providers about which method is better for protecting people’s financial privacy.
Even though it’s great to have a competitive market and a lot of options to choose from, users must be very educated to make good decisions and not feel overwhelmed.
To give you a general idea, you could say that at the heart of all privacy wallets is the ability to connect through Tor, manage your UTXOs, and have access to CoinJoin or other mixing technologies. To manage your bitcoin privacy, you need Tor, UTXO management, and CoinJoin.
Any bitcoin privacy wallet should, of course, make it a rule that it doesn’t store any user data, doesn’t hold on to it, and has open source code so that independent researchers can look at it.
Bitcoin privacy wallets are a great way to improve your on-chain privacy and get back control of your financial information.
Join market and CoinJoin
If you know anything about bitcoin, you may have heard of CoinJoin. Let’s look at this technology that makes privacy better.
“CoinJoin is a trustless way to combine multiple Bitcoin payments from multiple spenders into a single transaction. This makes it harder for people outside of Bitcoin to figure out which spender paid which recipient or recipients.
Users are basically working together to achieve a common goal. Everyone puts their coins in a bag, shakes it up, and then takes out the same amount of bitcoin as they put in. A small fee is charged to the user, which goes to people who have joined markets with their bitcoin.
In theory, it sounds good, but how easy is it to use?
The Join market is a place where people can meet online and plan coinjoin swaps. But don’t think of it like eBay or Amazon; it’s more automated and anonymous.
More specifically, JoinMarket is an implementation of CoinJoin. It was made to make Bitcoin transactions more private and easy to track.
Some bitcoin wallets come with the ability to mix bitcoin in join markets that use CoinJoining to hide the inputs and outputs of bitcoin transactions.
The Wasabi wallet is an example of a wallet with integrated join markets that is coordinated by the wallet provider. Because of this, the wallet makes it easy and simple for people to do CoinJoin transactions with each other.
Private channels on the Lightning Network
With over 4,500 BTC locked in Lightning channels, the Lightning Network is Bitcoin’s most successful second layer. It is a decentralised payment protocol.
The Lightning Network lets users make free, instant, and private transactions. It also adds a layer of privacy to bitcoin, which brings it closer to its goal of being an anonymous payment medium.
Lightning channels work when people trade bitcoin transactions that haven’t been made public with each other. Since only the sender and receiver need copies of their transactions, the routing nodes that connect two peers don’t need to know any details. No information is shared outside of the group.
The Lightning Network is made up of many channels that work together. A private channel can only be set up between two people. Everything that goes on between these two people stays between them.
Lightning transactions are talked about and researched a lot, and developers are always coming up with new features and improvements. On-chain transactions are thought to be one step more private than lightning transactions, on the other hand, but it depends on how you use each tool.
One problem with Lightning is whether or not the bitcoin address used to start the lightning channel has been doxed. We use mining to do this.
mining and Virgin bitcoin
Mining for Bitcoin is also a way to keep your privacy safe. The Bitcoin that was just mined has never been in the hands of a person or an exchange.
So-called “virgin bitcoins” are thought to be the best when it comes to privacy. So, there is a bit of a premium on newly mined bitcoin because having them protects your identity from being linked to the identities of people who owned the same coins before you.
When mined coins make it to exchanges, they are no longer “virgins,” and privacy concerns about their UTXO sets must be taken into account just like with any other bitcoin transaction.
Starting a private Lightning channel with newly-mined bitcoin is a great way to keep your privacy while using bitcoin, but it requires technical knowledge.