We live in an era described as the Age of Surveillance Capitalism. We have become so aware of the way that companies and governments monitor our activity. The growth of cryptocurrencies has been spurred by the desire of so many people to enjoy the benefits of anonymity. I get asked a lot of questions: “What is the most anonymous cryptocurrency and why?”
What is an Anonymous Cryptocurrency?
A cryptocurrency is a digital currency in which transaction and ownership information is stored in a digital ledger with distributed ledger technology such as blockchain. Bitcoin is the world’s oldest modern cryptocurrency and was first released in 2009 and is built on blockchain. Some cryptocurrencies are built by a single issuer or minted before issuance; they are centralized rather than distributed. Meta’s failed Libra project is an example of a centralized cryptocurrency. Most cryptocurrencies are distributed cryptocurrencies because this provides a higher level of anonymity for their users. According to the Schwab Center for Financial Research, there are around 9,000 cryptocurrencies worldwide, with 70 having a market cap of more than $1 billion. Despite this plethora of options, few cryptocurrencies are truly anonymous.
Bitcoin is a pseudonymous cryptocurrency, not an anonymous one, with the Bitcoin in your wallet tied, not to your name, but a key or set of keys or “addresses”. So you can’t immediately tell who owns Bitcoin, but all transactions are publicly identifiable on the blockchain. Nevertheless, regulations compel cryptocurrency exchanges to collect their users’ personal information.
However, cryptocurrencies such as Monero, Zerocoin, Zerocash, and CryptoNote have additional privacy measures such as zero-knowledge proofs. We can think of these four as the most anonymous cryptocurrencies in the world. Of these four, monero is the most anonymous cryptocurrency in the world.
Monero
Monero (XMR) is a decentralized cryptocurrency that uses a public distributed ledger and privacy-enhancing technologies that achieve anonymity and fungibility by obfuscating transactions. Observers can’t decipher addresses and transaction information.
Nicolas van Saberhagen wrote the white paper for monero in 2013, describing an open-source protocol based on CryptoNote. Launched in 2014 by the cryptocurrency community, monero uses ring signatures, “stealth addresses”, zero-knowledge proofs, and IP address-obscuring methods to obfuscate transaction data. Monero’s protocol explicitly calls for these things, but users can share view keys, for example, for audit purposes.
A miner network that uses the proof-of-work algorithm, RandomX, validates transactions. New coins are issued to miners by an ASIC mining-resistant algorithm.
Although monero doesn’t have the fame of bitcoin or Ethereum, it has the third-largest developer community of all the cryptocurrencies. Monero’s anonymity is so great that it has been a hit with cyberpunks and other users who yearn for anonymity. In fact, the success of monero in creating an anonymous cryptocurrency is that it has taken off with drug dealers, money launderers, and in darknet markets, cryptojacking, and ransomware. Wired magazine referred to it as the “drug dealer’s cryptocurrency of choice” because of its incredible degree of anonymity. The Internal Revenue Service (IRS) has offered bounties of up to $625,000 for tools to track monero and Bitcoin Lightning Network transactions. The IRS has said that,
“There are limited investigative resources for tracing transactions involving privacy cryptocurrency coins such as Monero, Layer 2 network protocol transactions such as Lightning Labs, or other off-chain transactions that provide privacy to illicit actors”.
There can’t be a better recommendation than the fact that the IRS believes that monero is the world’s most anonymous cryptocurrency and it cannot track transactions there.
Monero’s structure makes it uniquely powerful in terms of achieving anonymity. The narrative around Bitcoin and many cryptocurrencies is that they are helping users to gain anonymity in this age of surveillance capitalism. Yet, it is not that difficult to trace bitcoin transactions. If, for example, your bitcoin address is tied to your real identity, that will be visible on the ledger. Bitcoin is not as anonymous as people think, and that applies to many cryptocurrencies.
Not only is monero anonymous, it has features that its peers outside of cryptocurrencies, such as Zerocoin, Zerocash, and CryptoNote, cannot compete with. Using stealth addresses, users get an encrypted address that can’t be linked to the coin’s holder. The use of ring signatures corralls moneros traded into rings of a hundred other transactions, mixing up addresses between you and strangers, making it impossible to link the address to the owner. Ring confidential transactions hide how much is exchanged in each trade.
As the IRS’ struggles show, even if an actor gets all the metadata, that metadata is essentially useless. This has made breaking the anonymity wall that monero has, so challenging for enemies of anonymity.
Monero’s success has made it a hit in the market, with its price up nearly 119% since October 2017. Investing in monero has been a smartplay for investors.
Source: Google Finance
Its value has shot up thanks to its anonymity features. It is true that there is a subsection of users who use it for malign intentions, such as ransomware, but this should not detract from the fact that many users have legitimate privacy concerns and monero has been able to help them achieve that anonymity. For example, when you make routine purchases, you don’t necessarily want to out yourself and have your private information all over the place. For people living in tyrannical regimes, it’s beneficial to have a tool that allows you to protect your identity. Furthermore, Monero has a market capitalization of just about $2.8 billion, which really isn’t a lot. So there won’t be that much illegal activity that can go on there because it would not be possible to mix up coins well enough to achieve anonymity. Monero should really be seen as a tool for people who are looking for powerfully anonymous cryptocurrencies they can use to protect their identity during this age of surveillance capitalism.
