In 2021, governments of developed countries began actively cracking down on anonymous blockchain transactions due to the rising demand for cryptocurrencies.
The Trustee team explains what anonymous cryptocurrencies are and which coins help users maintain privacy.
What Are Anonymous Cryptocurrencies?
One of the key features of blockchain technology is transparency. All transactions are recorded in the blockchain and stored in an immutable format. Any user can open a blockchain explorer and view which addresses funds were sent from and to.
In reality, transactions on blockchains such as Bitcoin, Ethereum, Dogecoin, or Litecoin are not truly anonymous. Theoretically, they can be traced even if they are not tied to verified accounts. If a user transfers funds from a personal wallet to a cryptocurrency exchange that requires identity verification, it becomes quite easy to identify them.
What Are Privacy Coins?
Anonymous cryptocurrencies hide not only the identity of wallet owners but also their addresses. This means there is no way to trace the sender or recipient of a cryptocurrency transaction. In other words, privacy coins eliminate the ability to link transactions to individuals and obscure the digital trail.
Do not rely entirely on the anonymity of cryptocurrencies, and especially avoid engaging in illegal activities. Even the most advanced encryption methods cannot guarantee 100% privacy.
This is particularly important given that privacy coins are under close scrutiny by regulators combating money laundering (AML) and financial crime.
The Emergence of Privacy Coins
At a certain point, it became clear that the ability to trace transactions on the blockchain could not ensure complete user anonymity. In 2012, the first anonymous cryptocurrency called Bytecoin was introduced, utilizing the CryptoNote hashing algorithm.
Bytecoin implemented the ring signature method, developed by American mathematician Daniel Bernstein. This algorithm provides passive transaction mixing, allowing for unlinkable transactions.
Pseudonymous Cryptocurrencies: What’s the Difference?
By nature, all cryptocurrencies other than anonymous ones are considered pseudonymous. Pseudonymous coins like Bitcoin, Ethereum, and many others lack the privacy features that can guarantee user anonymity.
Unlike pseudonymous cryptocurrencies, privacy coins are specifically designed to prevent third parties from tracing transaction history.
Some crypto wallets offer transaction mixing features such as CoinJoin, which are commonly used with privacy coins. The idea is to mix several transactions into one and then split them to unrelated addresses, effectively confusing the trail. The downside is that this function is implemented off-chain and requires trust in the developers, who theoretically could redirect the coins to themselves.
How Do Anonymous Cryptocurrencies Work?
Privacy coins use algorithms and techniques embedded in their protocol that preserve anonymity and prevent transaction tracking. The most popular privacy protection methods used in anonymous cryptocurrencies include stealth addresses, CoinJoin or transaction mixing, ring signatures, and Zk-SNARKs.
Pros and Cons
Privacy coins offer many advantages to users who want to conceal their identity during transactions. However, they are not without drawbacks. Below is a summary of the main advantages and disadvantages of anonymous cryptocurrencies:
| Pros | Cons |
|---|---|
| Nearly impossible to identify users and trace transactions | Provide significant leeway for criminal activity |
| Prevent leakage of confidential data | Regulatory pressure limits mass adoption |
| Allow for discreet transactions | Due to regulatory requirements, privacy coins are often delisted from major exchanges |
| Largely immune to regulator control | Unregulated cash flows can harm the economy, aid tax evasion, and support the shadow economy |
| Minimal risk of wallet theft, since balances may be untraceable | – |
Top 7 Best Anonymous Cryptocurrencies
CoinMarketCap lists 86 privacy-focused cryptocurrencies, most of which are relatively unknown. Here are the most well-known and widely used privacy coins.
Monero – The Most Anonymous Cryptocurrency
For over five years, Monero has remained the most popular and highest-capitalized privacy coin, valued at over $4.5 billion at the time of writing.
Monero uses ring signatures and stealth addresses based on the Dual-Key Stealth Address Protocol (DKSAP), which prevent linking an address to either the sender or recipient. It also conceals coin values and transaction amounts.
The co-founder of Europe’s largest local Monero community (thefuzzstone) highlights the following advantages of the project:
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No trusted setup (unlike Zcash)
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No premine or instamine (unlike Dash)
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No developer fees (unlike Dash and Zcash)
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No legal entities or offices tied to development
Monero's key strength is its community—people who actively contribute to the project’s development. Anyone can attend Monero developer meetings, offer criticism, suggest ideas, and improve the project. Ironically, while Monero is anonymous by default, all development is entirely open. Developer and contributor meetings take place in IRC channels: #monero and #monero-dev.
Technologies that protect Monero users include:
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Ring signatures – protect the sender
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RingCT (Ring Confidential Transactions) – hide transaction amounts, protecting both sender and recipient
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Stealth addresses – protect the recipient
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Dandelion++ – alters transaction propagation to obscure sender IP addresses
The Triptych protocol is currently in development, set to enhance Monero's privacy even further.
Thefuzzstone notes that users don’t need to do anything special to send an anonymous transaction in Monero—privacy is always enabled by default.
ZCash (ZEC)
ZCash uses the zero-knowledge proof algorithm Zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge), which allows validation of transactions without revealing the identities of the involved parties or wallet balances.
One feature of ZCash is that when a transaction is made, the coins are "burned" and new ones are created—making tracing nearly impossible.
Another downside is the 20% developer tax (DevFee). Miners must allocate 20% of their rewards as follows: 7% to Electric Coin Company, 5% to the Zcash Foundation, and 8% to developer grants.
Dash (DASH)
Dash is another popular privacy coin. In early 2018, it ranked among the top 20 cryptocurrencies by market cap. Dash uses the PrivateSend protocol to mix coins, combining them into one transaction and then distributing to multiple addresses. This is similar to CoinJoin but implemented at the blockchain level.
Even DashPay CEO Ryan Taylor has stated that Dash is not an enhanced anonymity cryptocurrency (AEC).
Horizen (ZEN)
Horizen is a privacy-focused cryptocurrency initially launched as a fork of ZCash. The platform uses smart contracts to develop secure, privacy-preserving decentralized applications (DApps).
Verge (XVG)
Verge is an open-source blockchain protocol that, according to its developers, supports fully anonymous transactions. Verge is designed to obfuscate users' locations and IP addresses during transactions.
Beam (BEAM)
Beam is based on its own implementation of the MimbleWimble protocol. It uses unidentifiable addresses and obfuscates network traffic using Dandelion. Multiple small transactions are recorded in the block as a single transaction.
Grin (GRIN)
Launched in 2019, Grin also uses the MimbleWimble protocol. It’s considered one of the best anonymous cryptocurrencies due to its privacy, scalability, and censorship resistance.
How and Where to Buy Anonymous Cryptocurrencies
The most popular anonymous coins mentioned in this article are traded on major exchanges. On CoinMarketCap, there's a dedicated category for privacy coins. On a coin's individual page, the "Markets" tab lists all exchanges where it’s available for trading.
How to Buy Cryptocurrency Anonymously
Most exchanges comply with KYC/AML policies and require identity verification if you wish to purchase crypto with fiat. However, for crypto-to-crypto trading, verification is usually not required. Still, exchanges can collect metadata like IP addresses, geolocation, OS details, cookies, and more.
Anonymous Cryptocurrency Wallets
To store cryptocurrencies anonymously, use non-custodial wallets like Trustee Wallet. They don’t store personal data, and private keys remain solely in users’ possession.
The Trustee mobile wallet not only allows for secure storage but also supports purchasing crypto directly in-app. It supports storing Monero and other anonymous cryptocurrencies.
The Future of Anonymous Cryptocurrencies
Due to the inability of regulators to trace anonymous cryptocurrency transactions, there are growing calls for outright bans. For instance, in June 2018, Japan banned the trading of privacy coins, leading local exchanges to delist Monero, Dash, Aurgur, and Zcash.
Regulators—particularly FATF—are likely to introduce further restrictions. According to the co-founder of XMR.RU, outright bans won’t work. Instead, regulators will likely continue to tighten fiat on/off-ramps using KYC/AML/POF/KYT and other familiar tools. We’ve already seen this trend over the past couple of years.
This may affect the price of XMR in the short term. However, the Monero community is currently developing a truly decentralized exchange—Haveno DEX. It’s a fork of the Bitcoin community’s Bisq platform, but with full Monero wallet integration and improved UX/UI.
Monero has repeatedly introduced innovative solutions to the crypto world. Becoming the first and only p2p-only cryptocurrency after total delisting would be another bold move. Monero remains a powerful tool for digital financial freedom in our increasingly dystopian world. It’s essential to protect not just financial data, but all personal information—using free and open-source software.
