Even though cryptocurrency transactions aren't tied to anyone's identity, they're normally traceable because they're publicly recorded on a blockchain. If you want to avoid this, you'll need a specific type of cryptocurrency called a privacy coin. One of the methods privacy coins use to keep transactions anonymous is with a technology called zk-SNARKs.
How zk-SNARKs are applied
zk-SNARKs are applied by turning the information that needs to be proven into a mathematical equation. The sender of the transaction constructs a proof that demonstrates:
- The transfer's input and output values match.
- The sender has the private spending keys for the input.
- Those private keys are cryptographically linked to a digital signature for the transaction, ensuring that it can't be modified by anyone who doesn't have the private keys.
The exact way this works depends on the cryptocurrency. For example, Zcash tracks unspent transaction outputs using what it calls "commitments" and requires revealing a "nullifier" to spend these commitments. To keep commitments and nullifiers private, they're stored as hashes.
zk-SNARKs are a useful technology, and cryptocurrencies that incorporate them have become popular investments. While privacy coins have a clear use case, keep in mind that they're volatile, and the level of privacy they offer could lead to regulatory issues in the future. If you decide to invest in a privacy coin, take a conservative approach and avoid putting in more money than you could afford to lose.
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