Bitcoin: Why Privacy Matters
By Wes Carlson on ALTCOIN MAGAZINE
Based on how quickly the public outcry about the role of Facebook in the 2016 U.S election interference issue died down, it is not far-fetched to conclude that the general public does not really prioritize privacy and online security. The recent UN data breach case that exposed private information also went away with even less ado. Similarly, with respect to bitcoin, privacy does not appear to be a pressing concern for most users. There seems to be more attention to the direction in which the price moves, the network speed and the ease of making transactions.
However, like the cypherpunks and those who share their ideologies believe, privacy which is “the power to selectively reveal oneself to the world”, is important if open societies are to thrive in the information age.
“Therefore, privacy in an open society requires anonymous transaction systems. Until now, cash has been the primary such system. An anonymous transaction system is not a secret transaction system. An anonymous system empowers individuals to reveal their identity when desired and only when desired; this is the essence of privacy. “ — Eric Hughes
In “A Cypherpunk Manifesto”, Eric Hughes further explained that cryptography was a necessary tool for protecting privacy. Decades later, after a number of attempts, Bitcoin, a truly decentralized and secure cryptocurrency is in existence and being used worldwide. However, Bitcoin is still without the privacy feature or anonymous transactions. The public addresses associated with bitcoin wallets do not bear the names of users but can be traced to identify a user.
Bitcoin’s censorship resistant and “unconfiscatable” nature are all selling points proponents like myself emphasize often. Having privacy on bitcoin will further strengthen such features since anonymous transactions would make bitcoin truly fungible and more difficult to censor or confiscate.
Fungibility
A commodity or asset is said to be fungible if its units can be mutually substituted. Unfortunately, the fungibility requirement of money is currently not satisfied by bitcoin.
The transparent nature of the bitcoin blockchain becomes a disadvantage when it comes to fungibility. This is because all coins and transactions can be tracked by anyone using a bitcoin block explorer. For instance, certain coins that are known to have been used in some form of illegal transaction can become undesirable whereas some unmoved coins in old wallets can become collectibles and hence more desirable. The problem here is that certain units of bitcoin may no longer be interchangeable if some are considered tainted and hence less desirable.
Coin mixing or tumbling services exist to obfuscate the origins of such coins. There is, however, the possibility of losing bitcoins sent to coin mixing services due to theft.
Having privacy on bitcoin increases the fungibility of bitcoin since untraceable transactions and anonymous addresses will make it near impossible to differentiate between coins.
Unconfiscatable Money
Bitcoin being “unconfiscatable” serves as a huge draw for most users because people tend to have reasons to hide some of their funds and keep them out of the reach of their governments for instance. Since only the person with access to private keys can use the bitcoins associated with the keys, bitcoin users cannot have their funds seized or frozen as though they were kept in bank accounts.
It is, however, possible to use force or the threat of violence to coerce a bitcoin owner to give up his funds. This is known as the five dollar wrench attack. On a much bigger scale, this possibility, coupled with the openness of the bitcoin blockchain, means governments, for instance, can force individuals to give up their bitcoins. Once it possible to confirm that an individual owns bitcoins, the individual can be made to give out his funds.
Here, privacy on bitcoin is a game changer because it will be extremely difficult to link transactions or addresses to users. Hence, it will be virtually impossible to confiscate a user’s bitcoins so far as they keep their ownership of bitcoin a private matter.
Censorship Resistance
Money has long been a means of control for governments. A quintessential example is the barring of transactions with Wikileaks by the U.S government. In the absence of Bitcoin, it would have been near impossible for the organization to receive donations with VISA and Mastercard suspending payments to them.
Once again, the ability to track transactions on the bitcoin blockchain means it is possible to detect who is sending funds to organizations under some form of financial blockade. However, with anonymity on bitcoin, users will be able to transact with any individual or organization of their choosing without having to constantly look over their shoulders out of fear of government agencies. Privacy on bitcoin will, therefore, make the cryptocurrency even more censorship resistant.
In conclusion, most bitcoin users understand that privacy is an important feature to have on bitcoin but few appreciate how important it is from the perspective of upholding the core properties or “moneyness” of bitcoin. Community members appear to be more keen on having governments warm up to the cryptocurrency and approve regulations that would lead to surges in the price. This serves as a reminder that the importance of fungibility and censorship resistance are crucial to bitcoin’s success because other forms of money can easily perform other use cases.
It is also important to note that bitcoin would only truly become fungible and censorship-resistant if more privacy-enhancing features are added.
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The purpose of ALTCOIN MAGAZINE is to educate the world on crypto and to bring it to the hands and the minds of the masses. This article was written and composed by Wes Carlson on ALTCOIN MAGAZINE.
