Privacy tokens are like every other kind of utility token. The only difference is that these tokens are used by networks to obscure their users’ transactions and promote anonymity.
These networks utilize privacy tokens as a means to keep their transaction history safe from outsiders, by hiding details of who sent assets, to whom these assets were sent, and how much was sent.
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There are however a few concerns about how these tokens can be used for illicit crypto transactions. Any decentralized payment system that is completely anonymous naturally poses a threat to government agencies trying to clamp down on crime.
How Do Privacy Tokens Work?
As mentioned earlier, privacy tokens are similar to other tokens like bitcoin and others. They run on blockchains and can be traded anonymously. The only difference is that these tokens have advanced privacy techniques that set them apart from the others.
The demand for privacy on the blockchain and therefore the tokens that make this possible are pushed primarily by large companies or individuals moving large amounts of crypto. Retail crypto investors performing smaller transactions, naturally care less about privacy.
Hundreds of thousands of transactions occur on any blockchain daily. The details of these transactions are completely public and can be viewed by literally anyone.
To understand the problems with this, imagine that you walk into a store one day, to buy a pack of cigarettes. You do this right after swearing publicly, that you’d quit. Using cryptocurrency as a method of payment would mean that anyone can check the distributed ledger and find out what you’d bought, and for how much.
Do you see the problem now?
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This is where privacy tokens come in. These coins hide your identity and the details of your transaction, allowing you to buy and enjoy your pack of cigarettes with relative anonymity.
Examples of Privacy Tokens
The largest privacy tokens by market cap are Z-Cash and Monero. The popular cryptocurrency, Dash, originally started as a privacy token called ‘dark coin’. in 2015, however, dash rebranded and became what we now know it to be.
Monero is a decentralized cryptocurrency, much like the others. It uses privacy-enhancing technologies that keep its transactions completely anonymous. This means that no one can observe or decipher details of the addresses trading Monero. Not transaction amounts, not account balances or even transaction history.
Monero’s blockchain was made especially for anonymity. It uses the concepts of ring signatures and stealth addresses. Ring signatures enable the token’s users to hide their identity from the other users of a group.
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To generate a ring signature, the platform combines the private keys of a sender, with public keys. This makes the details of the transaction completely indecipherable and completely untraceable.
Like Monero, Z cash is a decentralized utility token. It was created as a bitcoin fork but has a different hashing algorithm and security protocols. The token Z cash emerged in 2014 when a group of scientists (including Eli Ben-Sasson, Christina Garman, and Matthew Green, among others), decided that they needed a cryptocurrency that was similar to bitcoin but with additional features.
The cryptocurrency Zero coin was the first iteration of Z-Cash. It was later improved on by the Electric Coin company and was renamed Zcash.
ZCash uses the zk-SNARK protocol to ensure the complete anonymity of its users.
In Conclusion: How are These Privacy Tokens Doing Now?
As of the time of writing, Monero has a market price of about $117 and a market cap of about $1.97B. It has a daily trading volume of about $167.5K and a circulating supply of about 18,135,266 XMR. This supply comes out of a total supply of 18,135,267 XMR. Monero is doing very well by all standards.
Zcash as well, has a market price of about $64 and a market cap of about $945,304,331. It has a daily trading volume of $144,787,322 and a circulating supply of 14,615,556ZEC. This supply comes out of a total supply of 14,615,556. ZCash, like Monero, is doing good as well.