At the beginning of the Bitcoin network, the cryptocurrency was considered completely anonymous. However, over time, technical experts have learned to track and de-anonymize its transactions. In this regard, the developers of some new cryptocurrencies decided to introduce the ability to send truly anonymous transactions.
Today, there are 3 popular anonymous cryptocurrencies: Dash, ZCash and Monero. Let's take a look at the different mechanisms they use to improve privacy.
Dash. CoinJoin method.
In Dash cryptocurrency, there are regular and confidential transactions using the "PrivateSend" feature. It is based on the CoinJoin method, which mixes multiple transactions to increase privacy. Bitcoin has similar services, but in Dash they are built into the protocol, while in Bitcoin they are private developments, some of which can be fraudulent. CoinJoin hides the flow of funds, but does not guarantee anonymity.
Zcash: Zero-Knowledge Protocol
Zcash is the first cryptocurrency to offer not only increased transaction privacy, but also complete anonymity. Zcash transactions are published on the blockchain, but the details of the sender, recipient and transaction amount can be hidden. Zcash uses the zk-SNARK protocol, based on the Zero-Knowledge principle, which does not record all information in the blockchain, making it virtually inaccessible for extraction.
There are two types of addresses in the Zcash cryptocurrency: z-addresses with zero-disclosure proof protection and t-addresses, which are public and similar to Bitcoin. Transactions between different types of addresses reduce anonymity by 69.1%. Tracking user behavior leads to information even about z-addresses.
Monero is a cryptocurrency that uses the CryptoNote protocol for maximum anonymity in sending transactions. This means that there is no way to know either the sender or the recipient, nor the amount of the transaction. Monero uses unique technologies: acolyte signatures and invisible addresses, as well as interchangeability of coins. Confirmation of funds sending is done with private keys. To date, there have been no cases of Monero transactions being hacked or decrypted, though some research groups have argued that the blending algorithm has flaws. Unlike Dash and Zcash, Monero has no public non-anonymous transactions.
Conclusions:
The Monero cryptocurrency is currently the best in terms of technological privacy because it does not have the ability to reduce anonymity. Other aspects such as regulators' attitudes towards these currencies are not taken into account.
We have only looked at three major anonymous cryptocurrencies, although there are many other currencies that aim to maintain privacy and protect personal data. Over time, the list of such currencies is likely to grow.