Some cryptocurrencies are designed with privacy protection in mind. The digital transaction ledgers are still published on the open internet and available to anyone, but a privacy coin can shield the identity and balance of each wallet on the blockchain.
What are privacy coins?
Sometimes a cryptocurrency user wants qualities you’d usually find in a standard currency like the U.S. dollar. For example, cash transactions are hard to track even if you have the serial number of each bill that was used. In situations where this anonymity is desirable or even required, you could achieve a similar effect by using a privacy coin.
3. Polkadot with Phala
The Polkadot (DOT -4.71%) cross-chain connection network isn’t a privacy coin on its own. However, the Phala Network parachain project adds confidentiality features to Polkadot’s data transfers.
Its backers see privacy protection as a crucial feature of the Web3 vision, where Polkadot serves as the digital glue binding many different blockchains together. This makes sense when considering the system’s focus on individual users making connections and transactions without the involvement of middlemen and third parties.
There are other privacy coins on the market today, but all of them are far smaller projects than Monero, Zcash, and Polkadot/Phala. The controversial possibility of using privacy coins in criminal activities has also changed the focus of former leaders in this group. For instance, the Decred (DCR -8.58%) coin now markets itself as a community-driven platform with deeper security layers. Dash (DASH -6.76%) still offers additional privacy features, but its marketing message is all about a faster and more flexible alternative to Bitcoin payments.
With or without high-end privacy guards, cryptocurrencies are a volatile asset class, and you shouldn’t park your life savings in a Monero or Zcash wallet. Any investments you make in the crypto sector will be subject to extreme volatility as the market finds its footing, and privacy coins will also have to overcome their perceived and actual links to illegal activities.
A beginning investor in cryptocurrencies should probably stay away from this ultra-risky corner of the crypto market. You might want to get started with some high-quality stocks around the edges of the crypto sector instead. That way, you can learn the ins and outs of investing while watching the risks of cryptocurrencies from a safe distance.
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