It's important to realize from the outset that, despite the decentralized ecosystem being composed of cryptocurrencies that operate within a blockchain, they are distinguished from each other, some use private protocols, while others use a more open protocol.
Here, we can highlight Bitcoin Core (BTC), the most popular, oldest, and valuable cryptocurrency on the market because, following its example, many others came into the ecosystem. Bitcoin Core is a decentralized asset that leaves much to be desired in terms of privacy.
Bitcoin Core conducts transactions on a public blockchain where anyone who understands it can access the details of each operation. It is possible to observe in BTC transactions who sent, who received, and the amount that was transacted.
Another interesting thing about Bitcoin Core addresses is that, despite being a pseudonymous address, it can be linked to the owner's real-world identity through a series of instruments used by companies that require KYC/AML from customers and users to use the services provided by them.
Therefore, in terms of Bitcoin Core's privacy, we can note that it is possible to make the connection between an address holder and an identity in the real world for those who go through the Know Your Customer (KYC) policy. However, for clients who prefer to use decentralized exchanges or even peer-to-peer services that do not require KYC, it becomes difficult for people, companies or government to know who is behind an address.
However, we have coins that already come with privacy installed by default, such as Zcash and Monero, but there are also differences between them. Next, I will clarify some doubts about these two privacy-focused cryptocurrencies, starting with Zcash - How does Zcash's privacy features work, and what are its potential use cases in the future?
Zcash is a privacy and anonymity-focused cryptocurrency launched in 2016 with a total supply of 21 million coins that can be mined. The protocol uses a set of encryption techniques to obscure the identity of who is behind a Zcash wallet address.
was built using the same codebase as Bitcoin but includes a series of features that make it much more resilient and guarantees anonymity for those who use the ZEC blockchain. Zcash uses zK-SNARKs, which stands for zero-knowledge proof, which ensures that transactions remain private and anonymous on the network.
How does zero-knowledge proof zK-(SNARKs) work?
When a user initiates a transaction on the Zcash network, the transaction is encrypted using zk-SNARKs. The transaction is then validated by the network's nodes, and if it is found to be valid, it is added to the blockchain. However, the transaction details, such as the sender, receiver, and amount, are completely hidden.
zk-SNARKs protocol used by Zcash ensures that the transaction is valid without revealing any of the transaction details. This means that even the nodes validating the transaction do not have access to the sender, receiver, or amount involved. Only the sender and receiver can access this information, making it virtually impossible for anyone else to trace the transaction.
Potential use cases for Zcash in the future
The potential use cases for Zcash's privacy features are numerous can be used for secure and anonymous transactions between individuals, businesses, and institutions. It can also be used in situations where privacy is of the utmost importance, such as in financial transactions involving sensitive information.
Another potential use case is in decentralized finance (DeFi), where privacy is essential for users to protect their assets and transactions. Zcash's privacy features could be used to ensure that DeFi transactions remain completely private and secure, which would be a significant advantage for the platform.
Comparing Zcash and Monero
The first thing to note is that both Zcash and Monero are privacy-focused cryptocurrencies, but they use different techniques to achieve the desired level of privacy.
As mentioned earlier, uses zk-SNARKs to ensure that transactions are completely private on the blockchain. Transactions on the Zcash network are encrypted, and only the sender and receiver have access to the details. Even the nodes that validate transactions on the network do not have access to the details of who sent or received the transaction or how much it was.
On the other hand, takes a different approach using a technology called ring signatures, stealth addresses, and confidential transactions to ensure that transactions are private.
How it works
Ring signatures combine the signatures of several users to ensure that the sender's signature is indistinguishable from the signatures of other users in the ring. Stealth addresses are one-time addresses that are used for each transaction, making it difficult to trace the sender or receiver. Confidential transactions ensure that the transaction amount is hidden from view on the blockchain.
Overall, both Zcash and Monero provide robust transaction privacy, but they use different methods to achieve it. Zcash's privacy features are more sophisticated than Monero's as they offer complete transaction anonymity. One potential downside of Monero is that it has a larger transaction size than Zcash, which can result in higher transaction fees.
Bottom line
In conclusion, while Bitcoin provides a degree of privacy with pseudonymous addresses, Zcash offers a more robust and comprehensive privacy solution due to its advanced cryptography techniques.
Zcash's privacy features are achieved through the use of advanced cryptography techniques such as zk-SNARKs. These features offer a high level of anonymity, making it a potentially valuable tool for secure transactions in a variety of settings.
Both Zcash and Monero provide strong privacy features, but they use different approaches to achieve them. Zcash's privacy features are more sophisticated, while Monero's privacy features offer a greater degree of obfuscation. The choice between the two will depend on the specific needs and preferences of the user.
zK-SNARKs
An Introduction to zk-SNARKs with Examples: https://blog.trailofbits.com/2018/08/09/a-peek-under-the-hood-of-zk-snarks/
zk-SNARKs Explained: https://medium.com/@VitalikButerin/exploring-elliptic-curve-pairings-c73c1864e627
Understanding Zcash's use of zk-SNARKs: https://z.cash/technology/zksnarks.html
Monero's Official Website: https://www.getmonero.org/
Monero Explainer Video: https://www.youtube.com/watch?v=6WG7D47tGb0
Mastering Monero (book): https://masteringmonero.com/
Bitcoin Core
Bitcoin Core's Official Website: https://bitcoincore.org/
Bitcoin Privacy Features: https://bitcoin.org/en/protect-your-privacy
Mastering Bitcoin (book): https://github.com/bitcoinbook/bitcoinbook
