The majority of crypto users consider anonymity and privacy to be a default feature of blockchain technology. However, this is hardly the case, as we will discover in this article.
Privacy coins are an essential addition to the industry that provide users with much-needed anonymity for their holdings and transactions. However, they come with some benefits and drawbacks, and one should consider these carefully before using an XMR to BTC calculator.
To this end, we provide you with both the pros and cons of these assets, so that you can make your informed decision when investing in them.
All About Privacy Coins
As we previously mentioned, privacy isn’t a given in blockchain technology. Most blockchains are pseudonymous and do not require any personal data. However, when using the Bitcoin network, for example, all your transactions are visible to everyone.
The amount, sender, and receiver of the funds can be consulted by anyone, thanks to the public ledger technology. That said, this also means that malicious actors can use this information to their advantage.
In case of a security breach (email, centralized exchanges, etc.), your blockchain data can be linked to your identity, exposing your holdings to the world. The answer? Privacy coins, which obfuscate all transaction data on the network.
Recently, even Litecoin added a privacy layer to the network, making it much more private when comparing LTC vs BTC.
Pros of Privacy Coins
Privacy coins provide a wide range of benefits in multiple aspects of the industry.
Privacy
As their name suggests, the first major advantage of these assets is privacy. Blockchain users have the benefit of using a decentralized and transparent technology for transacting value. While this is advantageous in many ways, it also has its drawbacks.
Not everyone is ready to have their financial data exposed to the world. For instance, if you are a frequent crypto user, your address can become a liability. The users that you interact with on the blockchain can easily track down your previous transactions.
Moreover, companies that use crypto don’t want their financial data exposed to the public. Competitors could take advantage of this information by analyzing the blockchain data and front-run investments or partnerships.
Thanks to different technologies, privacy coins hide any relevant information, like the amount of assets held on an account and its transaction history.
Fungibility
Since privacy coins cannot be linked to a direct address; they remain fungible at all times. In some blockchain environments, certain assets can be tainted and blacklisted from transactions. This is impossible in privacy networks, as the transaction history is obfuscated, allowing users to always be able to exchange their coins for others.
Security
Finally, transacting with privacy coins adds another layer of security to your holdings. In blockchain, one of the main benefits is self-custody. However, this can be dangerous if criminals are able to link your holdings to your identity. In other words, you are susceptible to the “$5 wrench attack.”
Since addresses cannot be linked to an individual, this prevents malicious actors from endangering the safety of the holders.
Cons of Privacy Coins
That said, there are some drawbacks when it comes to privacy coins.
Exchange Restrictions
Due to regulative measures in some countries, centralized exchanges can decide to delist these assets. In some cases, government agencies see privacy coins as a gateway to criminal activities. In turn, this can sometimes result in restricted trading.
Technical Issues
Due to their nature, privacy coins require a much deeper understanding of blockchain technology to be used effectively. Moreover, wallets supporting privacy coins are usually more complicated to use and are not aimed at the mainstream public.
Volatility
Finally, there’s the issue of high volatility as privacy coins can be riskier to hold onto in the longer term. This is especially true in the case of government crackdowns, where the price of the assets could drop significantly for a period of time.
Consider Purchasing Privacy Coins
With all that in mind, every serious crypto user should consider having a portion of their portfolio in privacy coins. These can be optimal for certain transactions where privacy is a key factor. Moreover, with regulators trying to make identification in crypto obligatory, privacy coins could be the only way to conserve the little bit of anonymity we have in this world.
This story originally appeared on Upscalelivingmag
