Digital currencies have gained immense popularity in the past decade. With Bitcoin solidifying its presence as the original cryptocurrency, altcoins like Ethereum, Shiba Inu, and Dogecoin are showcasing their potential in terms of global market capitalization.
Anonymity and privacy are the primary factors that have contributed to the widespread acceptance of virtual currencies across the globe. Users have the option of concealing their identity along with their transactions; however, there are mounting concerns about the authenticity of crypto transactions, especially Bitcoin.
This brings us to the question- what is private cryptocurrency? Is it a different category of coins altogether that are different from Bitcoin? What are some of the advantages and disadvantages of owning a private cryptocurrency? If you are new to the crypto market or have been studying it for some time, you are at the right place.
The impact and influence of private cryptocurrencies are nothing short of the best. In fact, private cryptocurrencies like Monero were among the top 30 largest cryptocurrencies based on market value in 2021.
Key Takeaways
- Private cryptocurrencies are digital currencies that hide all the transaction information, concealing the identity of the user
- Currencies like Bitcoin, Shiba Inu, and Ethereum are considered public cryptocurrencies as their transactions are absolutely transparent
- Public cryptocurrency transactions can be seen by anyone who has access to the blockchain
- Users get access to different levels of permission with private cryptocurrencies
What Are Private Cryptocurrencies? How Are They Different from Bitcoin and Others?
Let’s try and give you an easy answer to the question of what are private cryptocurrencies? We’re all aware that blockchain is the technology that sits at the foundation of all transactions in the crypto world. Blockchain helps maintain a protected and decentralized record of all digital transactions.
While Bitcoin and other ‘public cryptocurrencies’ are supported by a public blockchain, private cryptocurrencies make use of a private one. What this is means is that despite being on a public open ledger, private cryptocurrencies offer users different levels of permission. One can easily allow or restrict anyone from accessing the transaction information to maintain authenticity and confidentiality.
Here is a quick look at some of the private cryptocurrencies available in the market today:
- Monero: Gaining immense popularity, Monero’s XMR can anonymize investors, making the transactions hard to trace. This is achieved with the help of stealth addresses and ring signatures that helps in hiding the real identities of the sender and the receiver.
- Dash: With its inception in 2014, Dash allows users to choose whether or not they want their transactions to be anonymous with the help of a feature known as Private Send. This is a great option for users to comply with the regulations that are imposed in the state.
- Verge: This private cryptocurrency makes use of The Invisible Internet Project (I2P) and The Onion Router (TOR) to secure the user’s identity. The communications are bounced off a distributed network of relays spread across the world to hide the IP addresses of all participants involved in a transaction.
The Advantages and Disadvantages of Private Cryptocurrencies
Now that we know what is private cryptocurrency let’s understand a few of its benefits as well as limitations in the digital landscape.
| Advantages | Disadvantages |
| Private cryptocurrency transactions are secure and keep the identity of the participants a secret. | Private cryptocurrency transactions are very difficult to trace in situations of a hack. |
| Private cryptocurrencies are not monitored or controlled by any government agency | Private cryptocurrencies can be used for a variety of illegal transactions. The anonymity and secured nature of transactions can allow people to indulge in several illegal activities like buying drugs from the dark web |
| One of the major advantages of private cryptocurrencies is that the transaction fees incurred are close to nil | A loss of data can lead to a significant loss for private crypto users. Since all the coins are stored in a wallet, a loss of the key can deem all the coins useless. |
| Private cryptocurrencies can be purchased with the help of any currency like the US Dollar, Indian Rupee, Japanese Yen, or British Pound | In case of any transaction disputes, a private cryptocurrency cannot be retrieved. There is no scope for a refund or any form of a cancellation policy |
The Cryptocurrency Bill: The Future of Private Cryptocurrency
What is private currency’s biggest strength can also be considered its biggest concern for most government organizations. The decentralized nature of virtual currencies makes tracing an almost impossible task. This poses serious problems for authorities as cryptocurrency can be easily used for illegal transactions.
The use of wallets instead of bank vaults to store the currency and the use of pseudonyms can make it hard for authorities to track the origin of a particular transaction. Such concerns have been the major cause of friction between cryptocurrencies becoming legal tender in most nations.
Another problem with virtual currencies is that since they are not supported by any commodity or the government, they can lose their value in situations where the promoter halts trading activity.
The cryptocurrency bill has been proposed to bring the various government agencies on the same page and curb the chances of misuse through effective regulation. The bill seeks to ban all private cryptocurrencies, including the associated mining and trading activities.
On the other hand, the cryptocurrency bill will put forth the official digital currency that will be regulated by the Reserve Bank of India. So, is the ban on all other virtual currencies and the emergence of a single regulated coin a good move? Well, all we can see is the bright side. A regulated form is always better than a complete ban, especially considering the potential of the market.
Did You Know?
Unlike Bitcoin, which caps at a total of 21 million, the supply of the private cryptocurrency Monero is unlimited due to its in-built inflation.
Conclusion
Despite privacy being a wanted feature in virtual currencies, the volume of criminal activities that it entails is concerning. Operators in the world of cryptocurrency have to deal with hacker attacks that are executed by malicious participants on a regular basis. Moreover, law enforcement agencies and the government need to monitor very large transactions to avoid any possibility of drug smuggling or transactions in the ammunition market.
A private cryptocurrency is everything that digital currencies stand for; however, the advent of the concept of central bank digital currency or CBDC is proposing strong regulatory steps to make it a win-win situation for both the government as well as the investors.
Word to Remember
Central Bank Digital Currency (CBDC)
These are digital tokens that are similar in functionality when compared to cryptocurrencies but are issued by a central bank. CBDCs are pegged to the value of the nation’s fiat currency and do not anonymize digital transactions as most cryptocurrencies do.
FAQs
Public cryptocurrencies are based on a public blockchain wherein anyone can participate and view transactions. Private cryptocurrencies are supported by a private blockchain and restrict users from viewing transactions without specific permission.
Ethereum is classified as a public cryptocurrency. All transactions are traceable and linkable by design.
Similar to Ethereum, Bitcoin is considered the original digital currency and is, in all its sense a public cryptocurrency. All Bitcoin transactions are secure; however, they can be traced and is accessible through the public ledger.
A deep understanding of what is private cryptocurrency helps us understand that they are untraceable. Private virtual currencies like Monero and Dash maintain the complete anonymity of the users involved in the transactions.
The easiest way to identify a private cryptocurrency is to take a look at its blockchain. Public cryptocurrencies are based on a public blockchain, whereas private digital currencies are usually controlled privately by either the government or a specific community.
While blockchain is the fundamental technology behind every cryptocurrency, IOTA makes use of a tangle, which is based on a mathematical concept known as an acyclic graph.
Why are cryptocurrencies gaining traction in fraud?
The decentralized and uncontrolled nature of crypto transactions has made it an attractive proposition for fraudulent users. The advent of private cryptocurrencies like Monero has made tracing an almost impossible activity as the transactions make use of stealth IP addresses and ring signatures.
Which cryptocurrency is best for 2022?
Lucky block, Shiba Inu, Yearn Finance, Terra, and PancakeSwap are among the best cryptocurrencies to invest in 2022.
Read more about Best Cryptocurrency to Invest In.
