Monero cryptocurrency best privacy coin

The US government is tentatively exploring ways to forensically analyze privacy coins like Monero and Zcash. 

That’s according to a document published by the Department of Homeland Security. Specifically, the document “seeks applications of blockchain forensic analytics for newer cryptocurrencies, such as Zcash and Monero.”

Unlike Bitcoin, transactions on the Monero network are completely private, utilizing “burn-after-reading” stealth addresses and decoy transactions to obscure the true sender’s information.

Zcash offers the choice between transparent and fully private transactions, using zero-knowledge-proof cryptography to obscure the data.

The Department of Homeland Security document wants to analyze Monero and Zcash for criminal activity. The document reads: “There is similarly a compelling interest in tracing and understanding transactions and actions on the blockchain of an illegal nature.”

How exactly they will achieve it is not yet outlined in detail and the report stresses that it is not an explicit request for proposals. However, the report tentatively suggests: “[Designing] a blockchain analysis ecosystem or modify an existing one, that enables forensic analysis for homeland security.” Further, it invites interested parties to comment on the topic.

Further reading: Best Privacy Coins: Monero vs Zcash (Ranked Against 5 Privacy Criteria)

Monero cryptocurrency best privacy coin

Privacy is a topic that doesn’t come up as often as it should in the cryptocurrency world, which is funny, considering their cryptographic background. 

Cryptocurrencies like bitcoin have a reputation for anonymity, but they are not as private as you think. Most don’t offer any explicit or built-in privacy features. 

Take Bitcoin, for example. Every transaction is recorded in an open and public place – the blockchain. Due to this, a malicious actor can see every transaction ever made with a simple search. They can see every public address and potentially link it to a person’s true identity.

Your transactions can be traced in much the same way a bank can trace your transactions as they move through its system.

What Features Should a Privacy Cryptocurrency Have?

Now that we know why privacy is a good idea, let’s put together a wishlist of what we’d want in the perfect privacy cryptocurrency.

a. Opaque Transactions

Opaque transactions are those that do not show the sender’s address, the receiver’s address or the amount transferred. 

The rationale behind wanting opaque transactions is very simple, why should everyone be able to know who you are transacting with?

If a malicious actor knows who you are transacting with, they may be able to use that information to pressure you. Or, a malicious actor can figure out which addresses are worth attacking by looking at the amount being transferred in and out.

b. Provable Transactions

Opaque transactions are wonderful but sometimes you need to be able to prove to someone that the transaction was sent. For example, to prove that a donation took place, prove that you actually paid a vendor for goods or to prove a transfer to an escrow took place.

c. Default On Privacy

Having private transactions is great, but the next problem is getting people to use them. 

Only one privacy coin is automatically private right now. All others offer an option between a standard transfer and a private transfer.

If your privacy system requires extra steps to use, most users will end up taking the easier, less-private approach. 

Having some transactions be private and others not private simply draws attention to the ones made private. All transactions being the same makes the attacker’s job a lot harder, as there’s nothing drawing attention to itself.

default on privacy

d. Trustless

“Trustless” means not having a third-party store data or make the transaction. The current banking system, for example, is not trustless, because you must trust the bank to verify your funds and make the transaction on your behalf.

It’s a pretty standard request for any cryptocurrency, but more so for privacy cryptocurrencies due to the fact that any hole in the armor makes the entire cryptocurrency weakened at best. 

Any privacy cryptocurrency that requires a trusted setup should be considered very carefully.

e. Obfuscated IPs

One issue that doesn’t come up as often as it should, even some of the most private cryptocurrencies, is that your IP address is exposed to the network when you broadcast transactions. 

This means that someone listening very carefully can figure out where in the world a transaction came from, and potentially which transactions belong to you. From there they may or may not be able to find out further information about the addresses involved, and how much was transferred. In general, it’s a good idea to look as uninteresting as possible.

Keeping your IP to yourself, or using some sort of anonymization layer (like Tor, or I2P) is a good idea. For a privacy coin, having first-party support for such anonymization layers is definitely a plus.

Monero vs Zcash: Best Privacy-Oriented Cryptocurrencies

Now that we have some grounding in what it means for a cryptocurrency to be private and why privacy is a good thing. Let’s take a look at the two best-known privacy cryptocurrencies, Monero and Zcash, to see how they stack up against our wishlist.

Monero

Monero tends to be the flagship privacy cryptocurrency. It offers various features and covers our wishlist well.

Monero infographic

a. Does Monero Use Opaque Transactions? ✔

Monero’s transactions are opaque. They make use of a technology called Ring Signatures (and, more recently, Bullet Proofs) to hide the sender and amount transferred in a transaction. It does this by mixing various transactions together, creating “decoys” that are difficult, if not impossible, to trace back to a specific person

A one-time-use stealth address is also used for receivers so you can’t be linked to multiple transactions.

monero-ring-signature
Credit: BitcoinKeskus

b. Does Monero Offer Provable Transactions?  ✔

You can prove a transaction occurred on the Monero network by use of a view key, which can be created for both a single transaction and an address.

c. Is Monero Private by Default? ✔

Monero’s privacy model does not allow for non-private transactions to occur on the blockchain. No matter what, your transaction will be private, though you can share a key with others to allow them to look at your transactions in the same way your wallet does.

d. Is Monero Trustless? ✔

Monero’s entire network requires no external trust to use, assuming you are running your own node, anyway. Like with most cryptocurrencies using an external node for your transactions carries some risks around logging. Though even if your transactions are logged, they will remain private.

e. Does Monero Obfuscate IPs? ✘

Monero does not currently have any sort of built-in IP obfuscation. Meaning that your IP can be logged by other nodes when broadcasting transactions. 

Though there are some plans for this in Monero’s future, namely, a technology called Kovri which will route and encrypt transactions through I2P Invisible Internet Project nodes. 

For the moment, if it is required, IP obfuscation can be achieved via third-party anonymization tools like Tor and I2P.

Zcash

Zcash offers both private and transparent transactions. A few of the boxes in our wishlist are checked by Zcash, but unfortunately, some of the more major ones are not.

zcash transaction types

a. Does Zcash Use Opaque Transactions? ✔

ZCASH offers a completely private transaction, known as a “shielded” transaction. With a shielded transaction, neither the addresses or amounts involved are visible on the blockchain. To achieve this, Zcash uses a cryptographic technique called “zero-knowledge proofs.”

Monero also uses a version of zero-knowledge proofs, but Zcash’s system is different in that it requires a small level of trust in its setup. We discuss this in the fourth section below.

b. Does Zcash Offer Provable Transactions? ✔

When the private transaction type is used, those on the secure side can disclose information via an experimental system. It allows you to prove a transaction was made without revealing information about the sender. However, it’s not a simple process.

c. Is Zcash Private By Default? ✘

ZCASH’s privacy scheme is not on by default, meaning that some effort is required for its users to send private transactions. There are four different possible ways for a transaction to occur. Only one of which is completely private for both parties. The other three are sender private, receiver private, and completely public.

A private transaction takes longer and costs more in fees. However, a recent Zcash upgrade aims to reduce the friction and move Zcash to a privacy-by-default system.

d. Is Zcash Trustless? ✘

ZCASH’s zero-knowledge proofs, known as zk-SNARKs, do require trust of third parties. Specifically, some parameters need to be generated and the source material destroyed. The issue with this is that if the source material for the parameters is not destroyed, those that have it can use it to create verified transactions.

The risk is mitigated somewhat by making the source material distributed. That way any one person that helped generate the data can destroy their source material and render the rest useless. Though that does not make the fact that a trusted setup is required, which, in the world of cryptocurrency, is a bad idea.

e. Does Zcash Obfuscate IPs? ✘

Much like Monero, ZCASH does not currently support any built-in IP anonymization technologies. Though running a ZCASH node over Tor does work. So if you do need the additional privacy you have the option of using Tor.

Monero vs Zcash: Which is Better?

While Monero and Zcash have their merits, Monero takes the crown for privacy, checking all but one of the items off our list. But Zcash has more control over how your transactions are done, at the cost of always-on privacy. Zcash’s trusted setup is also questionable, but unlikely to cause an issue in all but the most extreme case.

Bottom line, It’s up to you as the user to decide what cryptocurrency to use. And to weigh pros and cons against your use case. If you want absolute privacy, Monero is your go to, there is nothing quite like it currently. Otherwise, if you want to be able to send both private and transparent transactions, consider Zcash.

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zcash-sapling upgrade

On Sunday October 28th, Zcash, a cryptocurrency network designed to enable private transactions, will deploy a system-wide upgrade called Sapling.

The upgrade will drastically improve the performance of its private, or “shielded,” transactions (reducing transaction construction time by as much as 90%).

Zcash currently allows users to choose between a lightweight “transparent” transaction or a heavier “shielded” transaction. The Sapling upgrade will make shielded transfers more efficient, moving Zcash further towards private transfers by default.

As one of the leading Zcash block explorers, we are fully prepared for the upgrade. Users needn’t worry – the block explorer will function just as it would normally.

To find out more, Block Explorer editor Ben Brown spoke to Brad Miller, head of ecosystem development at Zcash.

zcash sapling

Ben Brown: Can you briefly describe Zcash, its key features, and mission?

Brad Miller: Zcash is a privacy-protecting, digital currency built on strong science that is open source, censorship-resistant, and permissionless. 

We are creating a currency that empowers people from anywhere in the world to transact freely with whomever they choose giving them power over their money and their privacy. 

We implemented cutting-edge research in a field of cryptography known as zero-knowledge proofs performed by researchers at some of the most prestigious universities in the world to achieve these strong privacy features.

BB: From a user perspective, what will the Sapling upgrade achieve?

BM: The Sapling upgrade is our largest upgrade ever with significantly improved performance: a time reduction of 90% for constructing transactions, and a memory reduction of over 97%. 

Over time, as companies start implementing the massive efficiency improvements that Sapling enables, users will start to see shielded transactions become ubiquitous. 

The speed improvements that Sapling enables will even allow mobile phones to generate these shielded transactions, which up until this point required quite a bit of computational power only available to a laptop or desktop. 

We think this upgrade is the tipping point to move the Zcash ecosystem toward shielded transactions by default. 

zcash explained

BB: And from a technical perspective, what are you changing?

BM: This upgrade is a complete overhaul of our protocol to introduce these massive performance improvements. Instead of going into technical details I would really recommend those that are interested read our numerous blog posts on the innovations that we’ve introduced in Sapling.

BB: Do Zcash users need to do anything (e.g. migrate funds, upgrade software, change wallets etc.)?

BM: Most cryptocurrency users don’t run their own full node. My recommendations would be to confirm with your service providers for exchange services, wallets, and block explorers that they are ready for the upgrade. 

We have been working hard to make sure all service providers are prepared for the upgrade but I’m sure they would also like to hear the demand from their customers. 

If you do run a Zcash full node, upgrade your node to the latest release, v2.0.1. Users do not need to move their funds as they’re totally safe through this upgrade process.

BB: Will the upgrade result in a fork?

BM: This is a consensus change in the code so old versions of the software won’t be able to join the upgraded network. These upgrades are good for everyone in the ecosystem and there is no contention about the Sapling upgrade in general so we don’t anticipate a fork based on the older consensus rules to persist.

Further reading: What is Hard Fork in Cryptocurrency?

BB: You talk about Sapling moving you towards a “shielded ecosystem.” Can you explain what that means and why it’s so important?

BM: Zcash has two kinds of transactions. The first we call “transparent” transactions and they use an address that begins with a “t”. 

These transactions are almost identical to bitcoin in that they’re fast and efficient but they are totally public and don’t offer any privacy-preserving features. 

The second type of transaction, a “shielded” transaction, uses addresses that begin with a “z”. These shielded transactions provide strong privacy features. 

In order for the ecosystem to move away from using the transparent transactions, we had to upgrade Zcash with the kind of performance improvements that Sapling introduces. 

Now that shielded transactions will become more widespread, more individuals will have access to these private transactions therefore growing the overall private ecosystem. 

Our goal, in the long run, is for all transactions on the Zcash blockchain to be private.

BB: What is the Sapling turnstile and how does it help prevent counterfeiting?

BM: Part of the Sapling upgrade requires users to move any “shielded” funds they have from legacy Sprout addresses (the old system) to the new Sapling addresses if they wish to experience the performance improvements introduced in Sapling. 

We saw a great opportunity to audit the monetary supply of Zcash so we’ve implemented what we’re calling a turnstile in this process which prevents users from sending funds from an old Sprout address directly to a new Sapling address. 

Instead, they’ll have to move funds from a Sprout address to a transparent address, and then to a Sapling address. This process allows anyone to perform an audit of the blockchain which will make it easy to spot if any counterfeiting has been going on in the older Sprout shielded pool of funds. 

We obviously have some recommendations on how to do this to preserve privacy. Users should read more on our documentation website.

BB: Zcash was designed with scheduled breaking changes, is that correct? What type of updates did you have in mind when this was decided, and how does this compare to the upgrades made so far?

BM: We schedule older versions of our software to automatically shut down 16 weeks after release to motivate the node operators on the network to upgrade to the latest software version. 

This helps keep the node versions active on the network within a tight range and makes sure that the user experience across the network is consistent. 

Apart from that we also like to release new features regularly, we believe cryptocurrencies are still in their infancy and there are so many innovations yet to be introduced. 

We try to target a major release once every six months. This year, for instance, we released our Overwinter upgrade which made future upgrades much safer for the network and now Sapling is activating which represents the largest upgrade in our history. 

Moving technology forward and introducing improvements and features is extremely important for the growth of cryptocurrencies at this stage and we want to make sure we stay true to our core principles of quality and safety while also keeping pace with the latest cutting-edge research.

Sapling Upgrade is Fully Compatible With Block Explorer

The Sapling upgrade is due to go live on Sunday 29th October at block 419200.

Block Explorer is fully ready for the upgrade and you can continue to use the Zcash block explorer just as you would normally.

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coin renders

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Image courtesy of Carty Sewill, http://cartyisme.com/.

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Use our news to inform cryptocurrency trading decisions, stay up-to-date on happenings in the industry, and more!

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Australia To Ban Cash For All Purchases Over $10,000
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Image courtesy of Carty Sewill, http://cartyisme.com/