Key findings
- Privacy coins offer complete anonymity compared to pseudonymous coins such as Bitcoin.
- Some popular privacy coins include Monero (XMR), Zcash (ZEC), and Dash (DASH).
- Our opinion: Privacy coins are a dying market due to regulatory pressure and delistings. Smart investors should avoid them.
Privacy coins are like the curtains you draw to hide your home life from prying eyes. While traditional cryptocurrencies like Bitcoin and Ethereum are like curtains wide open so anyone can peek in and see your transactions, privacy coins try to protect users from surveillance and unwanted monitoring. Just as curtains create a barrier to protect your privacy at home, privacy coins protect your financial activities, ensuring that they remain private and out of reach of unwanted observers.
Are they worth investing in?
In this guide, we analyze the current state of the privacy coin market and its long-term sustainability by looking at fundamental metrics such as revenue, daily active users, and market cap.
What are privacy coins?
Privacy coins are cryptocurrencies that use advanced cryptographic mechanisms to hide transaction data from the public, keeping their users completely anonymous.
Unlike Bitcoin, Ethereum, and other digital currencies, privacy coins do not reveal the sender and recipient addresses, the amount transferred, or even the wallet balance.
Popular examples of privacy coins include Monero (XMR), Zcash (ZEC), Dash (DASH), Horizen (ZEN), Verge (XVG), Beam (BEAM), and Grin (GRIN).
Pros and Cons of Privacy Coins
One of the key features promoted by Bitcoin proponents was privacy and anonymity, but in reality, the cryptocurrency has become relatively easy to track thanks to blockchain intelligence tools that can link public keys to their owners. This has become even easier since regulators introduced KYC policies on crypto exchanges.
Katie Hawn, a former prosecutor turned cryptocurrency venture capitalist, acknowledged that blockchain has made it easier to track criminal activity, saying: “Without the technology behind Bitcoin, we would never have been able to catch these people.”
Potential misuse aside, privacy coins aim to provide a higher degree of financial independence and control for ordinary users.
Benefits of a Privacy Coin | Coin privacy issues |
Privacy – they make it difficult for third parties to track transactions. | Regulatory concerns: Regulators may try to limit the adoption of privacy coins due to their potential use for illegal purposes. |
Security – Privacy coins provide enhanced security. | Complexity – Regular crypto investors may not fully understand how they work. |
Censorship Resistance – Privacy coins can prevent censorship. | Performance – Privacy coins are not keeping up with the crypto market. |
The main advantages of privacy coins are financial privacy, security, and censorship resistance.
Investors can avoid having their transactions tracked and monitored. While this is useful for criminals, it is also useful for citizens in countries with authoritarian or repressive governments. In China, for example, those who spend money on unnecessary things can be punished: privacy coins can make such transactions covertly.
Privacy coins can also prevent data breaches, which have become more common in recent years.
The Dangers of Privacy Coins
Financial regulators are tightening their grip on privacy coins due to potential illegal use.
For example, they are completely banned in Japan and cannot be traded on cryptocurrency exchanges in South Korea.
While privacy coins are still legal in the US and the European Union (EU), regulators are keeping a close eye on them and may impose restrictions citing anti-money laundering (AML) risks. In 2023, leaked documents showed that the EU planned to ban banks and crypto services that deal with privacy coins.
Some major crypto exchanges want to avoid additional scrutiny and have decided to delist privacy coins, which affects their liquidity. For example, Binance delisted Monero in early 2024.
All this makes privacy coins a risky investment for the savvy investor.
Best Privacy Coins
Here are the most popular and marketable privacy coins:
Monero (XMR)
Monero is one of the oldest privacy coins and the largest by market capitalization, with a value of over $3.1 billion as of mid-June 2024. It uses ring signatures and stealth addresses to hide senders and recipients.
Ring signatures group users into a “ring,” making it difficult to determine which user created a given signature.
Stealth addresses allow a new address to be generated for each transaction received by the user.
XMR is going through a tough time in 2024, as it was delisted by Binance and Kraken is blocking it in Ireland and Belgium. As a result, the coin’s price has failed to benefit from the crypto bull run, which we think is a sign of things to come.
The chart above shows that Monero has largely decoupled from Bitcoin since 2021. Instead of following the ups and downs of the world’s largest cryptocurrency (as many coins do), Monero has been stuck on a flat line — like a dying patient.
Zcash (ZEK)
Zcash was launched in 2016 by Electronic Coin Company (ECC). It is the first project to use so-called zk-SNARK technology, which verifies the validity of transactions without revealing their details.
ZEC prices and tariffs have been falling over the past few years amid pressure from regulators.
Token Terminal data shows that weekly fees have dropped from a few thousand in 2018 to just over $200 today. The token price has fallen from $884 in 2018 to the current level of $20, with a market cap of $336 million.
Source: Token Terminal
While Zcash is not dead, its usage, fees, and revenue are a ghost of its former self.
Dash (DASH)
Dash is less anonymous than Monero or Zcash, but its PrivateSend feature mixes transactions for increased privacy.
The price of Dash fell from over $1,100 in 2018 to $23 in June 2024. Dash has lost 45%, while Bitcoin has risen about 5,000% since 2017.
Like Monero, Dash no longer follows Bitcoin’s movements and has fallen to such an extent that it can barely be seen on the chart above.
Verge (XVG)
The Verge coin was launched under the name DogeCoinDark in 2014 and renamed to Verge in 2016.
Over the past four years, XVG has fallen by almost 90%, while Bitcoin has risen by more than 74%. Today, VRG’s market cap is just $68 million.
While Verge’s price is extremely low compared to its heyday, the coin clearly has some followers, as evidenced by the rallies seen in July 2023 and April 2024.
Green (GREEN)
Grin launched in early 2019. It is the first network to use a privacy-focused protocol known as mimblewimble.
In 2020, the coin experienced a 51% attack when one of the miners took control of the network.
Since 2019, the coin has lost 99.7% of its value and currently has a market cap of $3.1 million.
There is nothing to be happy about for GRIN token holders, as its price has remained virtually unchanged since 2022.
Current Uses of Privacy Coins
Privacy coins have lost investor attention due to regulatory issues. Today, only Monero has managed to maintain its position as the top cryptocurrency, despite failing to take advantage of the crypto bull run.
Monero can be used to prevent corporate espionage and preserve the privacy of wealthy individuals.
However, privacy coins can also be used for illegal activities, which is what keeps them in the spotlight of regulators.
Can privacy coins survive?
Privacy coins are in a very difficult position due to regulatory pressure in many important jurisdictions. For long-term investors, this makes them an unattractive option, even if you philosophically agree with the human right to privacy.
However, they will still be operational in the coming years due to the resilience of their underlying technology. Governments cannot shut them down completely, but they can cut off their sources of liquidity.
Conclusions for investors
While privacy coins offer benefits such as financial privacy, security, and censorship resistance, they face significant regulatory challenges that make them unattractive from an investor perspective.
The privacy coin market as a whole is facing delisting and legal pressure, and this is reflected in the price dynamics of major privacy coins.
While the use of these technologies for legitimate privacy purposes is permissible, their association with illegal activity and regulatory oversight raises concerns about their future viability.
Investors are advised to weigh these factors and monitor regulatory developments regarding privacy coins. If you have a legitimate need for financial privacy (for example, you live under an authoritarian government), these coins may be useful. However, as a way to grow your portfolio, it is best to stay out of the dark.