A bit of the theory
One of the most important features of any money is its mutual substitution (fungibility), that means equal value of money units that are of equal NV (nominal value), regardless off individual history of each of them.
It’s commonly known, that unprecedented transparency of classical cryptocurrencies allows to trace the turnover history of each of the money units from the moment of its creation. It may undermine mutual substitution (fungibility) of the money units. For example, if the recipient conducts detailed investigation and sees that your bitcoins were the property of the person who was previously compromised (involved in illegal activity), or were used during payments in suspicious deals, it is unlikely that somebody would like to get these particular bitcoins with spoiled reputation.
Certainly, wallets’ addresses do not include any information about their holder. But in some cases, the personality of one of the previous cryptocurrency owners will be disclosed against his will (let us remind you the Silk Road case). You can get cryptocurrency in absolutely decent way - let’s say, you can buy it on cryptocurrency exchange. But some organisations (for example, financial institutions)even don’t want to get in touch with you, if it is known, that the part of your cryptocurrency was the property of “toxic” owner. That is the stark illustration of the way how the fungibility could be lost.
Other disadvantages of classical cryptocurrencies
While using “ordinary” cryptocurrencies the users have to face the fact that some information could be disclosed and anybody can see sender’s wallet address, recipient’s wallet address, the sum of each transaction and wallet balance.
The interaction with contractors who are ruled in their work by KYC demands (know your customer) means the loss of anonymity of all transactions, performed using certain wallet.
Not everybody want that information about their financial status would be disclosed in public. Until recently, the only method to maintain anonymity was “one time” wallets usage, that were created anew, or for each payment (that is preferably for total anonymity supporters), or specially for those cases that imply information disclosure about wallet owner (that is typical for less fastidious users).
There are a lot of cryptocurrency total anonymity supporters in the world. Here are some examples:
- the companies which want to protect information about their providers from the competitors;
- the persons who don’t want to disclose the information that they have hired people of “delicate” professions (for example, the divorce attorney, the alcohol and drug abuse therapist or the psychologist);
- the rich men who want to hide their wellness from the criminals;
- the intermediaries companies which are afraid to be kicked out of the business, if the providers and the buyers figure out each other and start working along.
What do new cryptocurrencies offer?
Two cryptocurrencies at a time are trying to solve the problems, described above: Monero and Zcash. You can review more detailed information about them below.
1. Monero (XMR)
- is one of the first cryptocurrencies, that has offered the solutions of the aforementioned problems. This cryptocurrency was created on the basis of “ring” signature algorithm, that automatically uses several public keys of different owners for the verification of each transaction. The owners of these keys are absolutely unknown to each other. They don’t have to know that they are the participants of the “ring” signature. Each participant has a pair of keys: the private and the public one. The ring signature consists of sender, recipient and certain amount of random users’ signatures (the bigger number of the participants - more transaction memory volume is needed), while the public keys of random users are being mixed with the keys of real transaction participants. That means that neutral observer has extremely low chances to figure out the sender or the recipient. The transaction is performed by one of the participants of the group, within which all transaction signatories couldn’t be identified. From third person’s point of view, currency transactions to one and the same recipient would look like the ones that were sent to different addresses that don’t have anything in common.
Monero is based on CryptoNote protocol that was introduced in 2012. Monero itself was created in April 2014. More than 240 developers took part in the process of its creation, though there were only seven persons at the beginning. Two of them do not hide their personalities: David Latapie and Riccardo Spagni. All the rest preferred not to disclose their names.
There are no doubts, that capitalisation and market trend are crucially important factors that one should keep in mind when trying to describe any cryptocurrency. Monero capitalization on 24 July 2017 is estimated by 640 967 858 USD (according to www.worldcoinindex.com).
2. Zcash (ZEC)
- at the first glance, is technically more advanced cryptocurrency, but its program code has not stood the test of time yet, and certain vulnerabilities could be still found in it. Its blockchain ability to function on Zero-knowledge proof principle (that is hard to understand even for professional mathematicians, by the way) stands it out from the rest of bitcoin forks. After each transaction Zcash encrypts information about recipient and sender’s wallets and also about the sum of the transaction. The data is totally hidden from the third parties.
However, the users can create two types of wallets: the ordinary (which function as simple bitcoin wallets) and the hidden ones (which use Zero-knowledge proof).
Specially generated public data, so called “paramgen” is transferred for transaction validation into network. The “paramgen” couldn’t be used by third persons for intentional monitoring of someone’s transactions, it is intended to authenticate the transactions for computers that are in the network (that is Zero-knowledge proof). Therefore, information about currency transfer is known only for those persons who have the relevant access key. Usually only these people absolutely control this key, but they can voluntarily provide it to others. This is Zcash cryptocurrency specific feature. Zcash gains the big importance in the era of new special services for users’ real data disclosure and tracing of their transactions.
Zcash cryptocurrency founder is Zooko Wilcox. It’s worth mentioning, that team of scientists from Zerocoin Electric Coin Company took part in the process of its creation. Zcash was introduced in October 2016.br>
Zcash capitalisation on 24 July 2017 is estimated by 325 654 720 USD (according to www.worldcoinindex.com).
What to choose?
As a result of our analysis, it’s getting obviously that Zcash cryptocurrency is technically more advanced, but its program code has not standed the test of time yet. Monero cryptocurrency is defeated a little bit by Zcash technical characteristics, but at the same time, it has longer history of existence. But the united feature of these two cryptocurrencies is the guarantee of total anonymity and confidentiality of your data in the network.
Additional materials that may help you:
TOP-5 facts about Ethereum
What are the pros and cons of investing into cryptocurrency
Why do miners choose exchanges to exchange cryptocurrency for fiat funds
Thank you for staying with us!
Yours respectfully, EXMO team
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