Bitcoin was the first digital currency that was able to scale and get a lot of interest from the general public. While many people still believe that Bitcoin offers a lot of privacy, this is simply not true. The currency is completely transparent. It records all the transactions that occur on the bitcoin network in its blockchain. Knowing an address, it is easy to see all the transactions that involved this address. This means that if an organization or a person uses an address on a website to collect donations, it is possible to check how many donations came to this address using https://blockchain.info/ at any time. For this reason, many of the coins that entered the market after Bitcoin focused on adding privacy features to their networks. The list of such coins includes Monero, Dash and ZCash. All of these coins use technologies that help their users remain anonymous.
How various coins solve the issue of privacy
Dash does it with a feature called PrivateSend. Dash network uses CoinJoin method that mixes inputs and outputs of several transactions into one. This way, it is impossible to tell who sent what amount to whom. While Dash doesn’t apply PrivateSend to all the transactions on the network, this privacy option does help all the users because while it is possible to see transactions that have occurred on the network, it is not possible to tell whether the transaction occurred using PrivateSend or not. This means that it is not possible to tell whether the numbers for the transaction are actual numbers or not.
Monero is another currency that helps its users to remain anonymous. It does so using ring signatures. Most of the currencies in the crypto world, including Monero, use unique public and private keys. A public key is similar to an IP address and allows a third party to identify a user on a network. To receive funds, a user needs to give a public address to a sender. While most blockchain networks allow users to generate an unlimited number of public addresses for free and instruct users to use one public address per transaction, not everybody does so all the time, which means that it is possible for third parties to identify holders of addresses and track their transactions.
This is also where the issue of fungibility arises. In economics, fungibility means that units of the same asset are interchangeable and have the same price. Applied to cryptocurrencies, it means that all coins on a blockchain network are worth the same. When transactions on a network lack privacy, some users may decide that they do not want to accept funds from certain other users based on where and how these certain users have obtained their coins. For example, a user on a network may choose not to deal with someone who engages in transactions that violate certain beliefs or ethical stance of the user. When a network does offer privacy to its users, it solves the issue of fungibility because when users don’t know the history of the coins on the network, all coins are equal.
ZCash solves the issue by allowing users to engage in transactions without exchanging addresses. The network can also hide essential information about transactions when posting them on its blockchain, making transactions untraceable. This is very different from how Bitcoin records transactions on its blockchain because with Bitcoin it is possible the amount and the address behind a transaction.
ZCash in detail
Zooko Wilcox-O’Hearn founded ZCash in 2016. The founding team of the network included Matt Green, a crypto scientist from John Hopkins University. Roger Ver was one of the first investors in the company. ZCash takes privacy of its users to a new level by applying zk-SNARK.
While ZCash, just like other blockchain networks, publishes the transactions that occur on the network on its blockchain, users have an option to conceal all the important data about transactions using a method called zk-SNARK. The method can hide information about the sender, the recipient of the funds and the amount of the funds that was sent. This method allows parties to prove ownership of information without actually sharing the information with anyone and without having to interact with the party that wants to verify the information. zk-SNARK on ZCash network works very quickly and doesn’t use require vast amounts of information.