Cryptocurrency Incentives In most early cryptocurrencies like Bitcoin, miners secure the network by verifying transactions and adding new blocks to the blockchain. The miners are rewarded with newly created bitcoins, which provides them the incentive to ensure they keep working. It was an elegant solution to the problem of securing a decentralized network. But directing all financial incentives to the miners leaves nothing to incentivize the community, the group that is most needed to grow adoption of the cryptocurrency.
Introduction There are a lot of cryptocurrencies that focus on improving privacy for their users, and it can be difficult to keep track of the pros and cons of each. Privacy coins are usually forced to make a tradeoff between strict privacy and usability. Some are faster or cost less to use. Here are the top cryptocurrencies that focus on privacy and how they compare to each other. You can click on each image below to get a more in-depth review.
Bitcoin wasn’t the first cryptocurrency, but it was the first to become a major success because it is decentralized, trustless, and anonymous - a trifecta solution that hadn’t been seen before. It works through the use of a public blockchain, which records every transaction on the network - who sent what to whom. So while it is anonymous, it isn’t private, because everyone can trace bitcoins from sender to receiver, all the way back to the genesis block.
Mt. Gox was one of the earliest and largest Bitcoin exchanges, processing hundreds of millions of dollars worth of Bitcoin trades every day - right up until it closed back in 2014. Mt Gox announced that they had been hacked, and that 850,000 bitcoins had been stolen. But because all Bitcoin transactions are recorded in the public blockchain, researchers were able to track all of the coins as they moved around the network, and eventually even to figure out who was likely behind the hack.
PIVX (Private Instant Verified Transaction) was launched in February 2016 as a fork of DASH, primarily due to philosophical differences. While Dash is pushing for mass adoption of cryptocurrency as its primary goal, the PIVX team wanted to work further towards making transactions more private. The two coins are still very similar from a technical perspective. PIVX has a 60 second block time compared to Dash’s 2.5 minutes, but both also offer “instant” transactions for a nominal fee.
Everytime you send Bitcoin, information is recorded on the blockchain about your address, the address you sent to, and how much bitcoin was sent. And while no one knows who owns those addresses, anyone can see how every bitcoin flows through the network, stey-by-step. That’s why Bitcoin is anonymous (no one know who is moving money), but not private (because everyone can see the money moving). In October of 2016, Zcash was launched with the goal of making a making a cryptocurrency that was both anonymous and private.
Bitcoin’s greatest technological achievement was the blockchain - a distributed ledger that provided anonymity to anyone using it. The blockchain is “anonymous” because no one know who owns a Bitcoin address, but Bitcoin isn’t private. When you join the Bitcoin network you connect in a peer-to-peer fashion to many other Bitcoin nodes, and your IP address can be seen by those nodes you’re directly connected to. Seeing your IP address means that, though they don’t know who owns the Bitcoin address, someone can see that you connected.
Privacy wasn’t one of Satoshi Nakamoto’s main concerns when he created Bitcoin. It was only covered briefly in the original Bitcoin Whitepaper, where he wrote: … but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. In other words, every Bitcoin transaction is public - you can see which address sent Bitcoin to another address - but you don’t know who owns those addresses, unless that person announces it to the world.