Private Cryptocurrencies

Subject – Science and Tech

Context – The ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ seeks to prohibit all private cryptocurrencies in India

Concept –

When we say private cryptocurrency, we can either say it is one of the two methods.
- One is to say that anything that is not given out from the government or Reserve Bank of India will be a private cryptocurrency which means Bitcoins, Ether and everything else will become private currency.
- But on the other hand, if the cryptocurrency is managed or governed by a specific set of developers or community, then it can be termed as private.
Even as the definition of private cryptocurrencies has not been defined by the government, Bitcoin, Ethereum and many other crypto tokens are based on public blockchain networks, as the transactions made by the networks are said to be traceable while still providing a degree of anonymity to users.
- Bitcoin, Ether etc. are public crypto built on public blockchains and have their own specific use cases. They are needed to run smart contract and write to the distributed ledger that they’re built on top of. People cannot use INR or USDT to pay for fees on the Bitcoin or Ethereum Blockchain.
On the other hand, private cryptocurrencies could refer to Monero, Dash, Zcash and other such digital tokens are built on public blockchains, obfuscate the transaction information to offer privacy to users like not saving transaction history as they are routed through multiple networks.

Difference between private and public cryptocurrencies

The best-known cryptocurrencies like Bitcoin, Ether, Dogecoin, ShibaInu and others are public as their transactions are completely transparent. Although these cryptocurrencies offer some degree of anonymity to users as they allow them to operate under pseudonyms, all transactions on the blockchain can be viewed by any person who has access to the said blockchain.
By design, transactions of these cryptocurrencies are linkable and traceable. Therefore, organisations dealing with sensitive information—like commercial contracts or individuals’ personal information—prefer to join a private blockchain. Private blockchains include Monero, Particl, Dash, and ZCash. These platforms allow users to transact without making the data public.
While these “private” blockchains also have public open ledgers, they allow different levels of permissions for users. Thus, the access can be restricted and transaction information can be encrypted to protect confidentiality.