Revix Roundup
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Revix Roundup

Why Your Payment Privacy Matters

Cash is king, we’ve all heard it before, but how long will it hold its title, and what does the digital transition mean for us?

Privacy is a growing global concern and while some countries have opted to regulate data privacy in an effort to protect their citizens from the data that companies collect, others have gone the opposite way and have increased efforts to gather data.

Data privacy is one concern, what about financial privacy?

A cashless society is one that is fast approaching, and with the ever-blurring lines of what companies and governments are able to do with our information, we look to cryptocurrencies with privacy oriented protocols to ensure that even with the eventual removal of cash from monetary systems, people will still be able to perform anonymous transactions.

Monetary privacy is a fickle subject. On the one hand, you have the potential for criminals to make use of these blockchains to hide money earned from their illegal enterprises, and on the other, you have the general population, and their inherited right to transact anonymously if they so choose.

Right now we have the choice to transact anonymously, and it’s a choice we have had since the first gram of salt became tender. If we choose, we can go to the store and purchase anything that isn’t a restricted item (like pharmaceuticals, chemicals, etc.) without having to identify ourselves.

This gives us the ability to protect ourselves from persecution based on our spending behaviours, which can range from purchasing contraceptives to the organisations we support (WikiLeaks, the EFF, etc.) right to the types of recreational activities we do.

Blockchains like Bitcoin and Ethereum are pseudonymous and not anonymous, this means that with some effort, someone could figure out your identity based on your wallet(s) activity. While the current known uses of this type of technology and process are by government and law enforcement, it’s highly likely that companies that rely on large amounts of user data, like Facebook or Google might use similar tactics to gather user data to advertise to them — or worse.

Relative to the amount of data that banks or Visa has on user spending, the amount of data that can be collected from blockchains today is quite tiny, but this is changing. Daily transactions and transaction values are increasing and new addresses on pubic blockchains are being used daily.

Yes, there are tools like mixers and other ways to obfuscate your transactions, but as the Monero team rightly puts it, if transactions are not private by default, it is not private. This view simply means that if there is a chance that a user might accidentally not toggle privacy mode before making a transaction and risk identifying themselves, then users are not sufficiently protected.

Privacy coins aren’t intended for criminals, they are intended to protect everyone who uses them from being tracked. It’s a common misconception that cryptocurrencies and privacy coins, in particular, are used primarily for criminal activities, however, this is not the case. If we compare the amount of fiat laundered per year, the United Nations Office on Drugs and Crime estimates that 2–5% of global GDP is laundered which is $800 billion to $2 trillion dollars annually.

That means the minimum amount of fiat laundered at four times the total market cap of all cryptocurrencies, of which approximately 55% is Bitcoin, a completely transparent and trackable cryptocurrency. If we applied that same percentage ratio to the total crypto market, we have 2–5% of the total crypto market is $5,2 billion to $13 billion dollars, a considerably lower amount than that which is laundered using fiat.

Privacy coins have two major benefits:

  1. To ensure fungibility, and
  2. To protect us from anyone who wants to take advantage of our financial information.

1. Fungibility

Fungibility means that two units of a currency can be mutually substituted and the substituted currency is equal to another unit of the same size. So if I have a $5 bill, and so do you, we can swap them with each other and know that we are both walking away with $5.

The same can’t be said for Bitcoins. Bitcoins are less fungible than cash or privacy coins because Bitcoins are completely traceable. This means that governments and private organisations are able to blacklist certain coins. This has been out in practice for wallets belonging to suspected terrorists and hackers who stole from exchanges.

By blacklisting coins, we prevent the bad guys from spending money that they got from doing bad things, but what happens when a hacker spends a little Bitcoin at a mom and pop store, tainting their address and preventing them from withdrawing their money into fiat, or spending it at larger retailers?

This type of censorship doesn’t only affect bad guys, but good ones too, and this is where privacy coins shine. Since all transactions are anonymous, there is no way to discriminate against coins or wallets that have been blacklisted, because it’s not possible to blacklist coins or wallets in the first place.

This undoubtedly is beneficial to criminals who want to hide or launder money, but it also benefits us by allowing us to transact freely without having to worry about being monitored, tracked or having our data harvested. It allows us to purchase goods and services that we would prefer to not be linked to us.

2. Privacy Protection

Many will argue that only criminals need anonymity with transactions but that is simply not the case. We use cash transactions to anonymously purchase items all the time, whether it’s something seemingly small like buying contraceptives to using a prepaid card to subscribe to a website or service that you would prefer to keep private.

Privacy and anonymity are one of the things that we take for granted, but it is clear that maintaining our identity, privacy and the option to be anonymous in a digital world is becoming ever important and has been recognised globally as an issue to tackle.

One only needs to look to China for an example of how a government and private(ish) companies might work together to oppress in an environment where the use of cash is decreasing and the Social Credit System is increasing its power through local government and private business, restricting and punishing citizens for social “infringements” like “spending money on frivolous purchases” by restricting what they buy, and often the quality of the purchases they are able to make, like preventing people from buying domestic flight or train tickets instead making them take long, uncomfortable road travel or ferries.

This is a terrifying example of what can happen if governments have full access to not only your private data, but also your financial data, and why being able to transact anonymously is important.

Unfortunately, it doesn’t stop there. Many countries around the world have various forms of oppressive laws, and with the lure of digital money being far less expensive for governments to create and maintain, it is just a matter of time before a country punishes someone for spending money on something illegal even when outside of its jurisdiction.

Imagine for a second making a purchase at a coffee shop in Amsterdam and being turned away from entering another country because you participated in activities that are illegal there. This is already happening on a small scale through admissions or border agents examining the personal electronics of travellers and would increase drastically if we lost cash and replaced it with traceable digital currencies which would ultimately result in a reduction in freedom of choice.

The limits on private information are being stretched and privacy-focused blockchain solutions like Monero, Dash or Zcash are set to grow exponentially in response to invasive policies and restrictions. This makes an investment in these types of cryptocurrencies lucrative as governments and their branches as well as private companies race to gather as much information on us as possible in an effort to monetise the data be it through catching tax evaders, advertising or gathering data to prosecute individuals.

Ultimately it stands to reason that these cryptocurrencies will see increased demand as they which is apparent when looking at the growth of Monero, being the most popular and highest valued privacy coin.

Blockchains do not grow in size without blocks being filled with transactions, so as you can see the use of Monero has steadily grown since launch in 2014. The statistics on Dash and Zcash are also in agreement with this trend.

Digital currencies are inevitable, whether they are decentralised like Bitcoin, or centralised like Venezuela’s Petro, and in the absence of regulations that will protect everyone on a global scale as opposed to national laws, people will look for ways to transact confidentially and find them in privacy coins.

About Revix

At Revix, we’re driven to empower everyday people to become their own wealth managers. Cryptocurrencies have been our first investable category. We offer Bitcoin, a regulated gold tokenised-commodity called Paxos Gold, and 3 ready-made crypto Bundles. These Bundles are like the S&P500 for crypto, and offer passive diversified exposure to the crypto asset class. Investing is as easy as signing up, choosing an asset, and then watching your portfolio grow.

We have some exciting new products on their way. Soon you’ll be able to invest in emerging themes, sectors and asset classes in an effortless way. Sign-up to learn more.

Disclaimer

This article is intended for informational purposes only. The views expressed are not and should not be construed as investment advice or recommendations. This article is not an offer, nor the solicitation of an offer, to buy or sell any of the assets or securities mentioned herein. You should not invest more than you can afford to lose and before investing, please take into consideration your level of experience, investment objectives, and seek independent financial advice if necessary.

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Sean Andrew Sanders

Sean Andrew Sanders

CEO & Founder of Revix | CFA® | Finance nerd with a passion for fintech, a flair for detail, and a hint of OCD.