In the world of cryptocurrencies, there is growing evidence that digital assets are not as private as they were in the first decade of their development. Some experts are declaring the inevitable death of crypto-punk ideas for protecting privacy in the blockchain, while others are looking for ways to revive this original core value of decentralized ecosystems. 

Our article focuses on the extent to which cryptocurrencies are able to provide anonymity and privacy in today’s realities, as well as the trends that await the crypto industry in this context. We will also look at how private cryptocurrencies work and how the privacy-focused projects recognized by the market feel today (we will compare Monero, Zcash and Dash). 

Is this the end of cryptocurrency anonymity?

At the end of September 2024, Jesse Walden, managing partner of the American crypto fund Variant, articulated in his article a thought that has been floating in the community lately. It consists in the fact that the ideas of cryptocurrency, which gave birth to the first cryptocurrency platforms, will gradually fade over the next 10 years. That is, the crypto industry will no longer carry the absence of censorship, complete anonymity and privacy as its core philosophy.

Speaking about this, the crypto expert recognized that such a trend is natural in an era that focuses on productivity, profitability and regulability. Institutional adoption, the use of stablecoins, and the development of tokenization of real-world assets require decentralized systems to optimize protocols to meet the movement of progress and emerging regulatory requirements. Cryptocurrencies are on their way to commercialization, so the loosening of strict decentralization is inevitable. 

At the same time, Vitalik Buterin continues to promote the ideas of the crypto-punk revolution that was the foundation of Ethereum. In December 2023, he talked about how in 2017, with the turn to financialization, many of the ideas were left hanging, and he would like to see them in the future of Ethereum. In fact, ZK rollup technologies and other privacy tools that are being actively implemented on the network are exactly what support the values of greater freedom, democracy and privacy. In his opinion, if such solutions are not implemented, the uniqueness of the cryptosystem may be lost: it will simply turn into a clone of the Web2 ecosystem, less convenient and more complex. 

In his turn, the infamous Edward Snowden, during the Bitcoin 2024 conference, reminded the participants of the possible privacy problems of bitcoin and urged to be more critical of governments that want to have information not only about the assets of certain individuals, but also about their beliefs and values: “They are not your identity. Don’t give yourself to them, even if you have to vote for them”.

As we can see, experts are gradually coming to believe that the decentralized landscape is no longer as autonomous as it was 10 years ago. The cryptocurrency world is moving towards more regulation, identification of service providers and users. Privacy in blockchain technology is diminishing due to the development of transaction tracking tools, which are created to develop better trading strategies and detect criminal activity. For example, pro-government analytics companies Chainalysis and TRM Labs specialize in tracking cryptocurrencies to combat money laundering and identify untrustworthy market participants. Studying the path of asset movement allows them to analyze prospects and collect databases. Generalized information allows you to determine the affiliation of addresses to individual services and even specific individuals through wallet movements.

This creates a cryptocurrency label that, with varying degrees of accuracy, links addresses to terrorist groups, underground casinos, darknets, and malware. If the regulator receives information that a particular address is associated with illegal activity, it can block it. 

To prevent the use of cryptocurrencies for criminal purposes, government regulators are also implementing policies for mandatory customer and source of funds identification procedures, such as KYC and AML. 

Of course, these measures violate users’ right to anonymity, and they must balance the protection of privacy with the security of society. And when personal interests or beliefs prevail — people prefer to use cryptocurrencies with increased anonymity. 

An overview of cryptocurrencies with a focus on privacy

Private cryptocurrencies are digital assets that use additional tools to ensure anonymity. They allow not only to hide the addresses of transaction participants, but also to make their movements untraceable. This is somewhat at odds with the inherently transparent nature of the blockchain and raises questions about the legality of private cryptocurrencies, but some of them have been doing just fine for nearly a decade now, continuing to introduce new privacy solutions and causing headaches for regulators. 

Monero (Monero, XRM): Features and Benefits

This coin grew out of one of the forks of bitcoin, which solved the first cryptocurrency’s problems with lack of anonymity. The developers wanted to hide transactions, the traceability of which was provided by default on the bitcoin blockchain. The private cryptocurrency with the ticker XMR appeared in 2014 as a result of the joint work of Ricardo Spagna and six other developers. To hide information about transactions, engineers built several cryptographic technologies into the protocol: ring digital signatures (Ring Signatures and RingCT), hidden addresses (Stealth Addresses), and variants of Zero-Knowledge Proofs (ZKP, Bulletproofs). Over time, these technologies have become more complex and sophisticated, creating a Monero architecture where it is nearly impossible to trace the sender, recipient, and amount.

Why is Monero considered to be the most anonymous cryptocurrency?

1. The project is one of the oldest.
2. XMR is the most capitalized anonymous coin: at the time of writing, the market capitalization of Monero according to CoinGecko is $3.6 billion (while the total for all cryptocurrencies in the Privacy Coins category is $6.8 billion). This means that XMR accounts for more than 50% of all privacy coins.
3. Law enforcement agencies are offering impressive sums to prosecute Monero. A widely known precedent is when the U.S. Internal Revenue Service offered $625,000 to counterparties for such a service.
4. Monero has one of the most developed communities: over 800 developers have contributed to the development of the coin during its existence, and their activity rate is estimated to be consistently high.

Zcash (ZEC)

Zcash (ZEC) also started as a bitcoin fork in October 2016. It is the second most capitalized private coin after Monero. It actively uses and develops ZKP (Zero-Knowledge-Proof, zk-SNARK) technologies that allow transactions to be verified without revealing their details. The main difference between this coin and XRM is that the user can choose the level of privacy of the transaction and make it in either open or secure mode. This allows the ZEC to raise funds from public companies and trade on the CEX despite regulatory restrictions. Notably, last year Grayscale resumed investing in the coin after a three-year hiatus. 

Dash (DASH)

The anonymous cryptocurrency DASH saw the light of day in March 2015. Its main difference from the above two is the use of CoinJoin bitcoin anonymization technology, which mixes multiple transactions so that addresses are untraceable. DASH is positioned as a means of payment, and its features inсlude high applicability, low-cost transactions, and improved user experience. The developers of Dash also offer two modes of use: normal and privacy enhanced. This cryptocurrency also works on the PoW algorithm and is mined using mining. DASH has a limited issuance of 18.92 million, with 12.1 million coins already mined at the time of writing.

Beldex (BDX)

This private coin has managed to break into the top three in terms of capitalization among anonymous cryptocurrencies, displacing Dash. Due to the pace of BDX’s development, experts are including it in the list of the best private cryptocurrencies to invest in for 2025. Some clickbaiters have already managed to dub Beldex “the killer of anonymous oldies”.

Originally a fork of Monero, the developers later integrated Dash’s PrivateSend protocol, Zcash’s ViewKey and enhanced privacy settings with their own tools. In other words, it takes the best of what already exists and adds new advanced solutions for enhanced privacy.

How to buy private cryptocurrencies anonymously

General recommendations on how to ensure anonymity when using cryptocurrencies apply here:

• Use multiple cryptocurrency wallets and transfer between them. The best wallets for private cryptocurrencies are wallets with the same name as the coins you want to use (hot wallets), as well as cold wallets like Ledger and Trezor.
• Use secure connection methods. Using Tor and VPNs for cryptocurrency transactions allows you to avoid having your device’s traffic tracked by outside individuals and organizations.
• Conduct transactions through anonymous P2P platforms and exchanges, ideally with cash transaction functionality. In these cases, you are more likely to avoid requests for personal information.

Anonymity is not a crime

The role of private cryptocurrencies in the darknet and their use in criminal schemes significantly damages the reputation of this class of coins. Private cryptocurrencies are a target for law enforcement in the fight against money laundering, terrorism and drug trafficking.

Undoubtedly, private cryptocurrencies and regulation are in a certain natural confrontation. However, the ability to use the Internet anonymously is a fundamental right of all people, enshrined by the UN Human Rights Council in 2015. 

Take, for example, the major case of the cryptocurrency exchange Tornado Cash, which lasted more than two years and resulted in harsh sanctions against the service and those associated with it. Despite the money laundering charges brought against the developers, the cryptomixer itself was found to be legitimate as an anonymity tool, and the use of sanctions against it was seen by the court as violating civil rights and stifling innovation. This decision was handed down on November 26, 2024, and as a precedent plays a huge role in understanding financial privacy and the future regulation of private cryptocurrencies.

We understand that the future of private cryptocurrencies directly depends on how hard lawmakers are willing to infringe on individuals’ privacy rights in the fight against organized crime. 

Thank you for your consideration. Evaluate the risks and benefits of private cryptocurrencies for yourself and invest safely and profitably!

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