Privacy-Enhancing Technologies in Cryptocurrencies: Mimblewimble, Zcash, and Monero


05 Jun 2023
Privacy-Enhancing Technologies in Cryptocurrencies: Mimblewimble, Zcash, and Monero

In the realm of cryptocurrencies, where public ledgers document transactions, privacy is a primary concern. Consequently, privacy-enhancing technologies have surfaced to grant users heightened confidentiality and anonymity. This article delves into three notable privacy-enhancing technologies: Mimblewimble, Zcash, and Monero. Utilizing groundbreaking methods, these technologies defend user privacy and amplify the security of cryptocurrency transactions. Comprehending these technologies allows individuals and businesses to make educated choices regarding their cryptocurrency utilization while protecting their sensitive data.

What are Privacy-Enhancing Technologies?

Privacy and Cryptocurrencies

In the context of cryptocurrencies, privacy is of paramount importance. The essence of cryptocurrencies like Bitcoin lies in their decentralized nature and the anonymity they can potentially offer. However, many popular cryptocurrencies aren't as private as one might think. For instance, Bitcoin transactions are publicly recorded on the blockchain, and while they are associated with pseudonymous addresses, various techniques can potentially link these addresses to the identities of individuals.

A key concern for many users is the potential for their transaction history to become publicly accessible, an issue that can lead to a variety of problems, such as exposure to targeted advertising, identity theft, or even more serious personal security threats. Therefore, enhancing privacy is a critical issue in the cryptocurrency world.

Understanding Privacy-Enhancing Technologies

Privacy-enhancing technologies (PETs) in the context of cryptocurrencies are tools, protocols, and technologies designed to protect users' personal information and ensure the privacy of their transactions. They aim to reduce or eliminate the risk of unauthorized access to data, ensuring that transactions remain confidential and that users' identities are protected.

PETs can be applied at different levels and in various ways within a cryptocurrency system. They can protect the content of transactions, obscure the identity of the parties involved, or even hide the fact that a transaction took place at all.

Different cryptocurrencies implement different types of PETs, each with its own benefits and trade-offs. For instance, some may offer stronger privacy guarantees but at the cost of increased computational resources, while others may offer a balance between privacy and efficiency. The key is to choose the right tool for the job, and that's where understanding the nuances of these technologies becomes essential.

In the following sections, we will explore three distinct privacy-enhancing technologies used in Mimblewimble, Zcash, and Monero, each offering unique mechanisms to ensure transaction privacy.

Mimblewimble: Privacy Through Transaction Aggregation

What is Mimblewimble?

Mimblewimble is a privacy and fungibility-focused blockchain protocol that was introduced to the cryptocurrency community in 2016. Named after a spell from the Harry Potter series, Mimblewimble enables the creation of cryptocurrencies that enhance privacy by using a different approach to transaction structure than most other blockchains.

Rather than recording individual transactions with distinct inputs and outputs, Mimblewimble aggregates transactions, effectively 'mixing' them together. This novel approach is achieved without compromising the integrity or security of transactions, making it a fascinating case study in privacy-enhancing technologies.

How Mimblewimble Enhances Privacy

Mimblewimble achieves its privacy enhancements through a few key mechanisms. These include:

  • Transaction aggregation: In a Mimblewimble-based blockchain, transactions are aggregated together before being added to a block. The aggregation process removes the separation between individual transactions, making it impossible to trace a particular transaction within a block.
  • No addresses: Mimblewimble doesn't use traditional cryptocurrency addresses. Instead, two parties communicate directly with each other to construct a transaction, which is then broadcast to the network. This approach prevents the linkage of transactions to particular addresses, enhancing privacy.
  • Confidential Transactions: Mimblewimble uses a cryptographic technique known as Confidential Transactions. This technique hides the amount of value being transferred in each transaction, further obfuscating the transaction details from outside observers.

Despite its privacy benefits, Mimblewimble also has its trade-offs. For instance, the absence of addresses means that Mimblewimble cannot support scripts or smart contracts in their traditional form. However, for users and applications seeking strong transaction privacy, Mimblewimble offers a compelling solution.

Zcash: Privacy Through zk-SNARKs

What is Zcash?

Zcash is a privacy-focused cryptocurrency that was launched in 2016. Built on a codebase similar to Bitcoin's, Zcash distinguishes itself by its innovative use of privacy-enhancing technologies, particularly a cryptographic concept known as zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge).

Zcash provides an option for users to choose between "transparent" transactions, which work similarly to Bitcoin, and "shielded" transactions, which offer enhanced privacy. This flexibility allows users to balance their needs for transparency and privacy as required.

How Zcash Enhances Privacy

Zcash's key privacy feature is its use of zk-SNARKs. These are proofs that allow one party to prove to another that a statement is true, without revealing any additional information beyond the truth of the statement itself. Here's how zk-SNARKs are used to enhance privacy in Zcash:

  • Shielded Transactions: In a shielded transaction, the sender, receiver, and transaction amount are all encrypted. Despite this encryption, the network can verify that the transaction is valid using zk-SNARKs, without gaining any information about the transaction's details.
  • Selective Disclosure: Zcash also allows for selective disclosure. This means that a user can choose to reveal some details about a transaction, such as the amount or the parties involved, to certain individuals or entities. This feature can be useful for auditing purposes or to comply with regulatory requirements.

Zcash, through its innovative use of zk-SNARKs, offers robust privacy options for users. However, it's worth noting that the privacy features of Zcash are optional and must be actively chosen by users. Additionally, creating shielded transactions requires more computational resources than transparent transactions, which can be a consideration for users. Nonetheless, for those requiring strong privacy protections, Zcash's use of zk-SNARKs provides a powerful tool.

Read our Ultimate Guide to Zero-Knowledge Proofs: zk-SNARKs vs zk-STARKs

Monero: Privacy Through Ring Signatures and Stealth Addresses

What is Monero?

Monero, launched in 2014, is a cryptocurrency that places a strong focus on privacy, decentralization, and fungibility. Unlike some cryptocurrencies where privacy is an optional feature, Monero is designed to provide privacy by default. Monero's blockchain is constructed in such a way that no observer can tell the source, amount, or destination of transactions.

Monero achieves this high level of privacy through the use of several innovative technologies. Those include ring signatures, ring confidential transactions, and stealth addresses.

How Monero Enhances Privacy

Monero's privacy enhancements can be attributed to a combination of unique features and technologies:

Ring Signatures: This technology is used to protect the sender's identity. A ring signature is a type of digital signature where a transaction is signed and verified by a group of potential signers, forming a "ring". This approach obscures the identity of the actual signer, making it virtually impossible to determine who the actual sender of a given transaction is.

Ring Confidential Transactions (RingCT): RingCT is an extension of the concept of ring signatures. In addition to hiding the sender's identity, RingCT also conceals the transaction amount, adding another layer of privacy to Monero transactions.

Stealth Addresses: Monero uses stealth addresses to protect the receiver's identity. When a transaction is made, a one-time address is created for the recipient. This address is not linked to the actual address of the recipient, thereby protecting their privacy.

Despite its strong privacy features, Monero also comes with its own set of trade-offs. For instance, due to its privacy mechanisms, the Monero blockchain is significantly larger than that of other cryptocurrencies, which can lead to issues related to storage and synchronization. Nevertheless, for those who value privacy above all else in their transactions, Monero offers one of the most comprehensive solutions in the cryptocurrency space.


To sum up, addressing privacy concerns related to cryptocurrencies is made possible through privacy-enhancing technologies like Mimblewimble, Zcash, and Monero. These technologies implement unique approaches to preserve user privacy and bolster transaction security. By focusing on transaction aggregation in Mimblewimble, employing zk-SNARKs for shielded transactions in Zcash, and utilizing ring signatures alongside stealth addresses in Monero, individuals and businesses can comprehend these technologies and make educated decisions to safeguard their sensitive data while interacting with cryptocurrencies.

Most viewed

Never miss a story

Stay updated about Nextrope news as it happens.

You are subscribed

Applying Game Theory in Token Design

Kajetan Olas

16 Apr 2024
Applying Game Theory in Token Design

Blockchain technology allows for aligning incentives among network participants by rewarding desired behaviors with tokens.
But there is more to it than simply fostering cooperation. Game theory allows for designing incentive-machines that can't be turned-off and resemble artificial life.

Emergent Optimization

Game theory provides a robust framework for analyzing strategic interactions with mathematical models, which is particularly useful in blockchain environments where multiple stakeholders interact within a set of predefined rules. By applying this framework to token systems, developers can design systems that influence the emergent behaviors of network participants. This ensures the stability and effectiveness of the ecosystem.

Bonding Curves

Bonding curves are tool used in token design to manage the relationship between price and token supply predictably. Essentially, a bonding curve is a mathematical curve that defines the price of a token based on its supply. The more tokens that are bought, the higher the price climbs, and vice versa. This model incentivizes early adoption and can help stabilize a token’s economy over time.

For example, a bonding curve could be designed to slow down price increases after certain milestones are reached, thus preventing speculative bubbles and encouraging steadier, more organic growth.

The Case of Bitcoin

Bitcoin’s design incorporates game theory, most notably through its consensus mechanism of proof-of-work (PoW). Its reward function optimizes for security (hashrate) by optimizing for maximum electricity usage. Therefore, optimizing for its legitimate goal of being secure also inadvertently optimizes for corrupting natural environment. Another emergent outcome of PoW is the creation of mining pools, that increase centralization.

The Paperclip Maximizer and the dangers of blockchain economy

What’s the connection between AI from the story and decentralized economies? Blockchain-based incentive systems also can’t be turned off. This means that if we design an incentive system that optimizes towards a wrong objective, we might be unable to change it. Bitcoin critics argue that the PoW consensus mechanism optimizes toward destroying planet Earth.

Layer 2 Solutions

Layer 2 solutions are built on the understanding that the security provided by this core kernel of certainty can be used as an anchor. This anchor then supports additional economic mechanisms that operate off the blockchain, extending the utility of public blockchains like Ethereum. These mechanisms include state channels, sidechains, or plasma, each offering a way to conduct transactions off-chain while still being able to refer back to the anchored security of the main chain if necessary.

Conceptual Example of State Channels

State channels allow participants to perform numerous transactions off-chain, with the blockchain serving as a backstop in case of disputes or malfeasance.

Consider two players, Alice and Bob, who want to play a game of tic-tac-toe with stakes in Ethereum. The naive approach would be to interact directly with a smart contract for every move, which would be slow and costly. Instead, they can use a state channel for their game.

  1. Opening the Channel: They start by deploying a "Judge" smart contract on Ethereum, which holds the 1 ETH wager. The contract knows the rules of the game and the identities of the players.
  2. Playing the Game: Alice and Bob play the game off-chain by signing each move as transactions, which are exchanged directly between them but not broadcast to the blockchain. Each transaction includes a nonce to ensure moves are kept in order.
  3. Closing the Channel: When the game ends, the final state (i.e., the sequence of moves) is sent to the Judge contract, which pays out the wager to the winner after confirming both parties agree on the outcome.

A threat stronger than the execution

If Bob tries to cheat by submitting an old state where he was winning, Alice can challenge this during a dispute period by submitting a newer signed state. The Judge contract can verify the authenticity and order of these states due to the nonces, ensuring the integrity of the game. Thus, the mere threat of execution (submitting the state to the blockchain and having the fraud exposed) secures the off-chain interactions.

Game Theory in Practice

Understanding the application of game theory within blockchain and token ecosystems requires a structured approach to analyzing how stakeholders interact, defining possible actions they can take, and understanding the causal relationships within the system. This structured analysis helps in creating effective strategies that ensure the system operates as intended.

Stakeholder Analysis

Identifying Stakeholders

The first step in applying game theory effectively is identifying all relevant stakeholders within the ecosystem. This includes direct participants such as users, miners, and developers but also external entities like regulators, potential attackers, and partner organizations. Understanding who the stakeholders are and what their interests and capabilities are is crucial for predicting how they might interact within the system.

Stakeholders in blockchain development for systems engineering

Assessing Incentives and Capabilities

Each stakeholder has different motivations and resources at their disposal. For instance, miners are motivated by block rewards and transaction fees, while users seek fast, secure, and cheap transactions. Clearly defining these incentives helps in predicting how changes to the system’s rules and parameters might influence their behaviors.

Defining Action Space

Possible Actions

The action space encompasses all possible decisions or strategies stakeholders can employ in response to the ecosystem's dynamics. For example, a miner might choose to increase computational power, a user might decide to hold or sell tokens, and a developer might propose changes to the protocol.

Artonomus, Github

Constraints and Opportunities

Understanding the constraints (such as economic costs, technological limitations, and regulatory frameworks) and opportunities (such as new technological advancements or changes in market demand) within which these actions take place is vital. This helps in modeling potential strategies stakeholders might adopt.

Artonomus, Github

Causal Relationships Diagram

Mapping Interactions

Creating a diagram that represents the causal relationships between different actions and outcomes within the ecosystem can illuminate how complex interactions unfold. This diagram helps in identifying which variables influence others and how they do so, making it easier to predict the outcomes of certain actions.

Artonomus, Github

Analyzing Impact

By examining the causal relationships, developers and system designers can identify critical leverage points where small changes could have significant impacts. This analysis is crucial for enhancing system stability and ensuring its efficiency.

Feedback Loops

Understanding feedback loops within a blockchain ecosystem is critical as they can significantly amplify or mitigate the effects of changes within the system. These loops can reinforce or counteract trends, leading to rapid growth or decline.

Reinforcing Loops

Reinforcing loops are feedback mechanisms that amplify the effects of a trend or action. For example, increased adoption of a blockchain platform can lead to more developers creating applications on it, which in turn leads to further adoption. This positive feedback loop can drive rapid growth and success.

Death Spiral

Conversely, a death spiral is a type of reinforcing loop that leads to negative outcomes. An example might be the increasing cost of transaction fees leading to decreased usage of the blockchain, which reduces the incentive for miners to secure the network, further decreasing system performance and user adoption. Identifying potential death spirals early is crucial for maintaining the ecosystem's health.

The Death Spiral: How Terra's Algorithmic Stablecoin Came Crashing Down
the-death-spiral-how-terras-algorithmic-stablecoin-came-crashing-down/, Forbes


The fundamental advantage of token-based systems is being able to reward desired behavior. To capitalize on that possibility, token engineers put careful attention into optimization and designing incentives for long-term growth.


  1. What does game theory contribute to blockchain token design?
    • Game theory optimizes blockchain ecosystems by structuring incentives that reward desired behavior.
  2. How do bonding curves apply game theory to improve token economics?
    • Bonding curves set token pricing that adjusts with supply changes, strategically incentivizing early purchases and penalizing speculation.
  3. What benefits do Layer 2 solutions provide in the context of game theory?
    • Layer 2 solutions leverage game theory, by creating systems where the threat of reporting fraudulent behavior ensures honest participation.

Token Engineering Process

Kajetan Olas

13 Apr 2024
Token Engineering Process

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that. 

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.


Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase. 

Token Engineering Artonomous Design Diagram
Artonomous design diagram, source: Artonomous GitHub

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling 

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

  • Systems Engineering
  • Machine Learning
  • Market Research
  • Capital Markets
  • Current trends in Web3
  • Blockchain Engineering
  • Statistics


The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.


What does token engineering process look like?

  • Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

  • We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

  • It depends on the project and may range from 2 weeks to 5 months.