Why Privacy Matters: Surveillance in Blockchain Finance

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We live in a world uncertainty, violence, and madness. It makes sense to take precautions. The advent of cryptocurrency affords us the ability to live very private financial lives.

When traveling, for example, it’s unwise to announce to everyone you met exactly how much money you were carrying. You never know when a pickpocket is nearby.

It’s not something you would do. However, that’s pretty much what the most popular blockchain models do to you, isn’t it? In effect, a standard Bitcoin transaction affords you far less privacy than, for example, fiat cash or a standard debit card transaction.

What People Don’t Know Won’t Hurt … You!

It is perhaps the only drawback to the original Satoshi design, at least in terms of its own world. Bitcoin, of course, defines important parts of the wider crypto community.

By design, Bitcoin lets people see how much you hold.

Worse, companies like Chainalysis have found ways to trace money transacted on the Bitcoin blockchain with a high degree of accuracy. They’ve created a suite of services and tools they offer to the likes of Uncle Sam, thereby making Bitcoin easier to monitor than cash.

With such transparency as the Bitcoin blockchain offers, it’s not a surprise that services would find it not only feasible, but profitable, to offer tracing services to organizations like the federal government.

Later innovations, like Monero, make such a task much more difficult. Monero makes it possible to know certain things about the blockchain without ever being able to compromise someone’s privacy.

The Ultimate Value of Privacy Coins

Advertising any form of Bitcoin wealth can be a problematic experience. If people know you have something, they can try and make you give it to them. This can, of course, include the government. Beyond that, though, there is the criminal element.

It’s much easier to not worry when you know it’s impossible for random passers-by to know anything at all about your finances. This is the ultimate power that privacy coins hold.

A number of good options exist in privacy coins, but perhaps the most dedicated team is Monero. Nevertheless, Monero and many privacy coins have had their own share of problems as a result of their designs — several, including Bytecoin, have had inflation bugs that resulted because of the chain’s opacity.

At present, it seems, you can’t have your crypto cake and eat it too. If you have opacity, you’re going to have a greater opportunity for fraud.

Perhaps it’s not a “danger.” The word implies that you have less choice in the matter than you do. As we’ve discussed, there are ways to mask your cryptocurrency. Various privacy coins, and privacy options within Bitcoin itself, can help make it harder for random criminals to know much about your holdings.

Some wallets like Samourai are aimed at making Bitcoin more private, and they use various means to achieve that.

There’s good reason to believe that the budding Lightning Network will also feature more private transactions.

Nevertheless, and perhaps all the same, privacy coins will always serve a purpose so long as regular chains such as Bitcoin fail to offer the opacity that some people will feel better using.

Crosshairs Swing Onto Privacy Coins

In recent weeks, at least two Korean exchanges have delisted a number of “privacy” coins in response to changes in Korean regulations.

Taking a blunt instrument to the liquidity of privacy coin markets is one method governments might use to bring the nascent industry under control. However, Bitcoin had little liquidity when the Silk Road was at its height, and it functioned just fine. This is to say that where there is a will, there is a way.

As always, it’s important to note that this is not financial advice. Invest in Bitcoin or other crypto assets at your own risk. It should also be mentioned, due to the nature of this article, that privacy coins are not strictly for criminal purposes, in the same way that Bitcoin or fiat dollars are not.