Welcome to Part Two of this three-part series on privacy coins. Part One  gave us the background for why privacy coins exist and how they work to  introduce fungibility to the payment network through various privacy  protocols. Part Two deals with how to evaluate the strengths and  weaknesses of a privacy coin, relative to others and according to your  values and preferences. The altcoin space is highly speculative, and it  is impossible to find unbiased information that has been succinctly  compiled. This guide gives you a way to gather information while  understanding what exactly that information means when it comes to  analyzing a coin. When it comes to evaluating privacy coins, I'm going  to be referencing a document called the Privacy Coin Matrix.[41] It is self-described as a "cross-team collaboration to create a  comprehensive comparison matrix that can be referenced by everyone"[42].  The Privacy Coin Matrix referenced here is an open source project  hosted in Google docs. It takes a minute of orientation, but if you are  looking for useful way to compare privacy coins, the spreadsheet  provides them in a comprehensive but not too technical fashion. It is the opposite of exhaustive but it is neutral. It already has close to sinless information on Monero, Particl, Dash,  PIVX, Zcoin, Verge, Zcash, Zencash, Groestlecoin, Bitcoin Private,  Nav-Coin, ZClassic, Bulwark, DeepOnion, Phore, Zoin, ColossusCoinXT,  Spectrecoin, and Sumokoin.

The spreadsheet provides a  starting point for research, allowing you to find your "single-issue" or  "deal breaker". It does not cover the sequence of development, drama of  the projects, or issues of the past. It boasts some broad primary  categories that are important when evaluating a coin, some of which I  will go over. These categories include a basic description of the coin,  its resources and history, coin specifications such as block time and  security mechanism, blockchain information such as total size and  genesis block date, development, trading statistics (in the works),  supply and distribution, economics, privacy features, how well it  scales, what wallets exist, a description of its networks and  masternodes, and community information. Specific metrics are then listed  under each category. With so much information provided, a comparison  has to be made based on your own personal rubric, based on the coin's  technical specifications and how they align with attributes and values  you consider important. To aid in that process, I will highlight some  major trends and discuss the implications of some of the categories,  which I will refer to as sections, as they relate to key characteristics  of a privacy coin.


Transaction  privacy is the basic promise of a privacy coin and there is a clear distinction of which coins actually provide this. Under the Privacy  section of the spreadsheet, you can compare privacy algorithms and see  if sender, user and transaction amounts are hidden. You might also  recognize the privacy protocols that provide these features, from Part  One of this guide. If the popular rankings of privacy coins were truly  related to the privacy of the coins themselves, then the market  penetration of coins such as Dash and Verge, that objectively have fewer  privacy features than others, would be quite concerning. It is also  clear that the two cryptocurrency moguls, Ethereum and Bitcoin, are  sorely lacking in privacy features when seeing a direct comparison to  the features of the privacy coins that came about as a result. Apart  from the privacy algorithm used, this section also lists other features  such as if privacy is optional and whether  the coin supply can be audited. The other sections deal with common  features of any cryptocurrency that may indirectly affect privacy, or be  important when thinking about the payment network itself, in  conjunction with privacy features. These can be important for security  or existential threats to a privacy coin, such as how likely it is for  double-spending to occur, how centralized the blockchain is, how  resistant it will be to quantum computing. But if your main reason for  using a privacy coin is privacy, then the privacy section would be the  most fundamental to your decision making.


As  listed under Supply and Distribution, you might find it surprising that  about 30% of the listed coins have the top 100 addresses owning over  50% of the total coin supply. As pointed out in a post by Michael  Spencer, "Dash and Bitcoin are the only two coins where the top 100  addresses own less than 20% of the total supply".[43] This must be compared to the total amount of addresses however, and decentralization can be defined and measured differently depending on who defines it. You may dislike the history of a coin. For example, zero-knowledge proof coins currently require a trusted set-up, and the  initial distribution of a coin sometimes puts the majority of its wealth  in a few hand either due to malice or just due to the number of  individuals aware and interested. Reward systems can also be viewed as  an issue to some but might be seen as a plus to others since it aids  development. You might not like Dash's masternode governance system or that Zcash has a private company that gets a founder's reward. The  distribution of a coins supply might leave you with a general feeling of  'unfairness'. But because many of these coins are first to market, with  a few interested collectors at their early stages, the subsequent  distribution may be unavoidable and likely to even out to some degree  over time. Extreme centralization can result in bad actors being able to  exploit the consensus mechanism, through 51% or double-spend attacks.  The Network and Masternodes section of the matrix provides some information on this. Centralization is also affected by the consensus  algorithm with disagreement over whether proof-of-work or proof-of-stake  results in more wealth centralization or more disincentive to be a bad  actor. Centralization does not necessarily affect privacy but it might  be important to you.

Economics and Scaling

Both  the Economics and Scaling sections cover the usability and long-term  growth possibility of a coin. If you are interested in investing in a  coin to make profit, you might want to look at the inflation rate, find  out whether you can stake it, learn how miners make their rewards, or  learn what the funding model is. Low transaction fees and high  scalability are important for mass adoption and make it likely for coins  to move from the stage of limited awareness, where only  crypto-enthusiasts know about them, to the stage of practicality where  individuals and businesses use them to address their unique financial  needs. Navcoin and PIVX are noteworthy in that they lead the pack in  transaction speed. Bitcoin, on the other hand, is slower and highly  unscalable with 7.73 transactions per second, compared to Navcoin's 309  transactions per second. One can also remember the climbing of Bitcoin's  fees to extraordinary heights in late 2017, where transactions could  take hours or even until the next day for them to be fully confirmed.  This is something I often bring up because it is important to remember  what happened when adoption began to occur. Development is likely to  resolve these issues in the long-run but they directly impact whether a  coin will only ever be more than a theoretical promise.


When  it comes to privacy, security is key. There is no explicit category in  the Privacy Coin Matrix that covers this but different variables affect  it. Security is not only affected by code implementation alone, but also  by a malicious party's ability to control the network through hash  power or coin weight, for example. Cryptography and code development can  be tricky to implement with new technologies. Some projects run code  audits which help, testing the networks ability to withstand various  technical attacks. Privacy coins such as Monero, Zcoin, Zcash, Grin,  Beam, Peercoin, Particl, and many others, are pioneering in that they  are the first to implement certain coin features. They have active research being done or implement cryptographic concepts in a new way.  Others coins have cryptographers rebrand existing code, and focus more  on marketing than development. You may or may not think it is better to  use a coin whose team can respond quickly and efficiently to any issues  that arise because they did the background development, research, and  implementation themselves. All the categories in the Matrix give some  information on the overall security of a project, one specific section  being Development. But to expect that bugs are never found and/or  exploited may be holding coins to an impossible standard, when the technologies are so new and in ongoing development. They must also be  framed against the existing technology that we use. There are a plethora  of data breaches that occur with large financial companies that process  and share their consumers' financial data.


This  section is particularly important for coins that use privacy features  that combine transaction information from other users to obscure  information, such as CoinJoin and Ring-CT. The size of a community  affects the volume of information that can be used to provide privacy on  the network, even the available transactions for mixing are cumulative.  The social community is correlated with, but necessarily the same as,  the actual volume of trading or transactions on the network. Something  that is not included in the Privacy Coin Matrix that is related to  community is marketing. Even though the point of the Privacy Coin Matrix  is to cut through that kind of noise, this is an important metric when  considering that brand awareness and loyalty can impact privacy features  and long-term prospects of a project.

Comparing Coins

Considering  these features altogether allows you to compare in a more greyscale or  precise manner how coins compare against each other. Maybe you are  looking to transact using a coin with the fastest transaction speeds,  the highest privacy levels, privacy on by default, or with the community  you like the most. You might like a coin for a very specific purpose,  depending on what matters to you. For example, I like that Particl is  focused on building a privacy ecosystem on the Bitcoin codebase instead  of only a currency, but for instant practical purposes it doesn't have  the volume like Monero. I also like that Monero was the pioneer of RINGCT in its original form, that Zcoin implemented the zerocoin  protocol, and that Zcash implemented zk-snarks. I am generally a fan of  any teams that come up with original technology or implementation,  rather than simply copy and paste code then market. This excludes most  privacy coins, which I won't name in this section, that simply rebrand  existing code from firstcomers. This can come into play when bugs are  found, so that coins do not simply wait for code to be rewritten but can  respond immediately. But in the end, if something works it works, and new technology tends to build on older technology. As another example of  how subjective comparison is, you might prefer proof of work over proof  of stake. You could be interested in scaling solutions, or you might  prefer a specific kind of privacy protocol. There are many competing  factors and my own analysis, which comes in Part 3, will be based on  what I consider important. Your own personal rubric will be what  matters.

As history tells us, bloody family feuds can arise under  the same roof. It's a big world and users have different needs and  preferences. It is entirely possible for most of the competing privacy  coins today to be successful when general crypto adoption occurs, with  proper product differentiation done by savvy teams. Before moving on to  my opinions, I would like to highlight the crux of this lengthy collection of information on privacy coins: the truth is that it is up  to YOU to decide which privacy coin is the 'best'. The best privacy coin  is dependent on your needs and preferences, your loyalties, your values  and your desires. See you in Part 3!

Watch the video version here.

Originally published at www.cryptoramble.com.

Share this post