Are you a crypto enthusiast? You may love its degree of anonymity. Notably, you may want to keep details about your crypto transactions hidden from those that aren’t a part of them. After all, who doesn’t appreciate data protection and privacy? Unfortunately, some investors feel like some popular cryptocurrencies do not offer the desired level of privacy. This is where privacy coins come in, adding extra privacy. However, what are they? How do they work? Are they safe? What is their legality? Please read on to get the answers to these questions.
What are Privacy Coins?
Private coins are cryptocurrencies that hide information about transactions and users’ identities. They have been in the crypto space since 2014. Since they keep private any information that can trace an investor to his transactions, details about the amount of transaction and the current balances in a wallet are kept anonymous.
Notably, privacy coins allow only the parties involved in a transaction, the sender and the receiver, to know the amount transacted. Any other third party is left in the dark. They cannot link an individual to a transaction. Thus, the users can keep their transaction activity hidden from other parties. They offer a level of privacy to some extent.
Therefore, even as a business person dealing with huge sums of money, using privacy coins keeps your activities hidden from the public. This means that it protects you from investigations even by the government. Unfortunately, some investors end up misusing the privacy coins by engaging in illegal activities. They can deal in money laundering, buying illegal products or other illegal businesses without the government knowing. Moreover, some who handle huge amounts of money through these coins have evaded paying taxes. Therefore, it is not surprising that some countries have banned the use of privacy coins. The price of these coins declines in such scenarios, affecting the investors.
However, how do the privacy coins maintain the anonymity of parties involved in the transactions? Let’s dig in.
How Do Privacy Coins Work?
You may know how that space works if you are a crypto miner. Interestingly, private coins share some similarities with normal crypto. Such include the reliance on a decentralized public ledger (blockchain) and the ability to see that a transaction happened.
The major difference that sets them apart is that private keys hide the transaction information in the wallets, unlike cryptocurrencies. This makes it difficult for other parties, such as the government and other organizations, to track down what activities took place or even find out the flow of money.
The public cannot see your transactions if you send private coins. Their privacy restricts vital information about the transactions. These include the amount transacted and the wallet addresses of the two parties involved (sender and receiver).
Furthermore, there are different privacy coins in the crypto space which employ different methods to keep the transaction details anonymous from other parties. However, their level of anonymity varies.
There are privacy coins that deal with anonymity. They hide the identity of those involved in the transactions. On the other hand, some privacy coins emphasize making the transaction untraceable. This means that no one, not even a computer system, can follow the trail of a transaction.
Importantly, not all cryptocurrencies qualify to be private coins. This is because not all cryptos protect the identity of the parties involved in the transactions. For instance, Bitcoin, a popular crypto, has transparent transactions. The transactions in its blockchain are public. This increases the level of trust in their system. However, it does not encourage privacy. Someone or a computer program can use your Bitcoin wallet address to figure out the parties involved in the transaction (who sent what to whom) and how much crypto you hold. It is no wonder an increasing number of investors who sacrifice privacy over transparency prefer these privacy coins to some cryptocurrencies.
Safety of Privacy Coins
Should you be concerned about privacy coins? Users are increasingly about their privacy. Therefore, it is not a surprise that you are probably wondering how safe these coins are. After all, if you have invested in crypto, the space contains many of your financial details. Your concerns will multiply.
Thankfully, Privacy coins work as the name suggests. They offer privacy to your sensitive data and information. Not just anyone can access your transaction details. Therefore, only the parties involved (the sender and receiver) know what activities have occurred.
Thus, they guarantee your safety and the safety of your transactions. It shields such details from the public. Unfortunately, this has resulted in a lot of controversies.
The legality of Private Coins
Privacy coins have received criticism. The numerous scrutiny is linked to their ability to fuel black markets. As earlier noted, the possibility of investors misusing privacy coins to commit illicit activities has led to some countries banning them. Therefore, they consider its use a red flag and thus prohibit it in their cryptocurrency marketplace. For instance, using and owning private coins is illegal in South Korea. This is a move to reduce money laundering activities. Japan also does not allow the use of these coins.
On the other hand, privacy coins are allowed in countries such as the United States. However, it does not endorse its use. Regulatory agencies are working on how they can exploit hidden information. Notably, countries and financial authorities regulate private coins to curb illicit crypto trading activities.
Therefore, compliance regulations on trading privacy coins vary from country to country. While others allow their use and possession but with regulations, others have banned them. So, as a crypto miner, be sure you bear all the risks of trading private coins.
Any investor in the crypto space that values privacy over the transparency of transactions can embrace the use and ownership of privacy coins. This is because they hide the transaction details from the identity of those involved, the amount transacted to the remaining crypto held. However, privacy coins’ high anonymity and untraceability have led to their misuse. There is the potential to use them to commit crimes. It is, thus, not surprising that some countries have banned their use and possession.
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