Introduction
Privacy is the new meta. There are lots of possible reasons why the digital asset space has suddenly embraced confidential cryptos once again, including the rise of CBDCs, growing financial surveillance, intrusive KYC, and late-stage bull market rotation into undervalued coins.
Whatever the causes, privacy coins launched a decade ago are surging in value. ZCash ($ZEC) has been the biggest winner to date, climbing over 1,000% in two months, but the recovery of this OG crypto has prompted interest in other privacy coins and technologies.
While there are many approaches to on-chain privacy, Ergo's Sigma Protocols – flexible, composable zero-knowledge proofs – offer privacy without sacrificing auditability.
That's exactly the kind of functionality that both institutions and individuals need in this brave new world of blockchain surveillance.
The Return Of Privacy Coins
Bitcoin arose from cypherpunk roots, and early crypto users were intrigued by its potential to protect their financial privacy. Satoshi recognized that Bitcoin lacked advanced privacy features, and that the transparency of the blockchain had its drawbacks. New projects sought to address this gap, and privacy coins like Monero and ZCash spearheaded private digital cash.
In the years since Bitcoin launched, and particularly over the last decade, we have seen a macro shift in the privacy landscape. The early cypherpunks were concerned that the rise of the internet and digital services would create new opportunities for mass surveillance, censorship, and control. We are now seeing that play out in real time.
- Large-scale data harvesting is the business model used by global tech corporations
- Data breaches and leaks are commonplace
- Phishing is a serious and growing problem
- Governments are tightening KYC rules – and creating honeypots of user data in the process
- CBDCs are being rolled out, threatening freedoms and financial autonomy
Against this backdrop, crypto users have realized that the solutions we need to address these issues already exist, thanks to those early pioneers.
Privacy coins do not all use the same technology, however, and have received different treatments by regulators. Coins like Monero have been delisted from exchanges, because their privacy model is robust but inflexible. In this age of both financial surveillance and regulation, users need choices. As the Cypherpunk's Manifesto states, "Privacy is the power to selectively reveal oneself to the world." Users who cannot do that risk being cut off from the mainstream financial system entirely.
This is where Ergo shines. Its Sigma Protocols represent the next evolution of privacy: mathematically grounded and powerful, but with the ability for users to prove ownership and disclose information where they want and need to.
How Traditional Privacy Coins Work
First-generation coins have so far been the main beneficiaries of this renewed interest in privacy, with ZCash ($ZEC) being the most noteworthy example.
ZCash (zkSNARKs)
ZCash uses zero-knowledge proofs (ZKPs) to maintain privacy. ZKPs allow a user to cryptographically prove a mathematical statement is true, without revealing anything about the underlying information itself. In the case of ZCash, it allows users to prove that a transaction is valid, without revealing the actual sender or recipient address, or the amount being transferred.
Monero (Ring Signatures)
Monero ($XMR) uses ring signatures, which mean that the same transaction could have been made by one of a number of different users. This approach is used to hide sender and receiver addresses, and shield the size of the transaction.
Dash (CoinJoin)
Dash ($DASH) uses a form of the CoinJoin protocol to increase privacy by mixing coins, though the privacy is less robust than some other cryptos provide.
All of these approaches have different strengths and weaknesses. zkSNARKs, the class of zero-knowledge used by ZCash, are computationally heavy and involve trusted setup, while ring signatures scale relatively poorly. (Monero's always-on privacy model has also made it a target for regulators.) As first-generation coins, they are only able to support simple transfers.
More complex transaction types are enabled by decentralized confidential computing (DeCC) solutions, based on methods including fully homomorphic encryption (FHE) and Trusted Execution Environments (TEEs). These offer EVM-compatible platforms that support the full range of DeFi transactions, but few are ready for production use. FHE is notoriously slow and computationally expensive, and TEEs rely on trusted hardware with single points of failure and supply chain risk.
Ergo's Approach – Privacy Built On Sigma Protocols
Ergo takes a different approach, using Sigma Protocols to offer a wide range of privacy functionality.
Sigma Protocols are a class of composable zero-knowledge proofs. Like ZCash, these allow users to prove a statement is true without revealing further data. However, unlike ZCash, Ergo's privacy model is far more flexible. Sigma Protocols can be used to implement more complex features, including:
Ring Signatures
(like Monero)
Threshold Multi-sig
(group spending conditions)
Zero-knowledge Spending
(conditions)
Privacy is not just optional, but programmable via smart contracts created with ErgoScript.
Ergo's Sigma Protocols are efficient and lightweight, reducing computational overhead, and they do not require a trusted setup. This allows Ergo to remain transparent by default, but to support privacy-on-demand and more complex DeFi applications. It's possible to build auditable systems, so that users can prove ownership and provenance of coins when they need to, but not reveal this information more widely.
This mixture of mathematical rigor and practical usability makes Ergo's privacy model both highly adaptable and future-proof in a world where compliance and confidentiality are both important.
Ergo Vs Monero, ZCash, And Dash
| Monero | ZCash | Dash | Ergo | |
|---|---|---|---|---|
| Privacy Type | Always-on | Optional | Optional | Programmable |
| Privacy Tech | Ring signatures | zkSNARKS | CoinJoin | Sigma Protocols |
| Trusted Setup | No | Yes | No | No |
| DeFi Support | No | No | No | Yes |
| Scalability | Moderate | Low | High | High |
Ergo therefore combines the strength of existing privacy models while avoiding their limitations and drawbacks – offering auditable, flexible privacy without centralization or trusted setup requirements.
The Philosophy Behind Ergo's Privacy Model
Like every feature on the Ergo network, privacy has been implemented only after rigorous research, drawing from academic cryptography to ensure a high degree of security as well as flexibility.
In keeping with Ergo's ethos, privacy is considered a right, but it is an optional feature – not a default setting that breaks auditability and compliance. Use of Sigma Protocols supports this aim, offering programmable privacy.
In the Ergo ecosystem, privacy isn't just for simple token transfers. It can be applied to any transaction type, making it the ideal solution for confidential DeFi, voting, and other dApps. Ergo integrates privacy into a broader ecosystem, ready for real-world applications.
Conclusion
Privacy coins are experiencing a new wave of interest, as the crypto community once again recognizes that financial privacy is vital for freedom. Government overreach, excessive KYC, cybercrime, and the rise of CBDCs all underscore the need for greater privacy to safeguard personal sovereignty.
At the same time, institutions are taking unprecedented interest in blockchain, but they require robust privacy before they will invest and move funds on-chain. They also have compliance obligations, just as regular users do if they want to avoid being shut off from the mainstream financial system.
Ergo represents the next stage in privacy coins. It pioneers a blockchain where confidentiality is composable and compliant. In a world where digital surveillance is the norm, Ergo's Sigma Protocols offer a viable foundation for building true freedom money.
Find out more about Ergo's Sigma Protocols, and start building!