The media coverage of cryptocurrency is, much to the chagrin of maximalists, tied largely to fiat prices. It doesn’t matter if crypto transaction volumes and speeds are increasing, if unbanked people around the world are edging closer to an accessible financial system, or if new ways to use blockchain are uncovered on a daily basis. Most people just aren’t tuning in for those stories (yet).
If there’s anything we’ve learned at Uncrypt, it’s that slow crypto news days will be filled by the likes of CNBC, Bloomberg, and the Wall Street Journal reporting Bitcoin prices. The audiences that these media giants speak to are, anecdotally, less likely to take the time to establish a working understanding of SegWit than they are to laugh happily to themselves about cryptoids enduring a 20% coin portfolio freefall.
You know what else draws eyeballs? Shrieking about crypto being used for bad behavior. Never mind the dubious evidence supporting this claim — the Nocoiniverse loves to parrot Silk Road-driven fear-mongering. Wars of words are being waged and will only intensify over the need for strict regulation in the face of prospective use of crypto for buying drugs, funding terrorism and flouting sanctions. Despite the obvious deficiencies in this argument, it’s not entirely untrue. Regardless, it’s enough to set up a major confrontation.
One of Bitcoin’s many claims to fame, its public, unchangeable blockchain, is also a weakness in the eyes of some. This weakness has presented an opportunity for privacy coins. Public wallets and addresses are not exactly untraceable, which can be problematic for certain users. Enter privacy coins — Monero, DASH, Zcash, Verge and the like. It’s important to note that each has key, confusing differences from the others and I won’t lay them all out here. I don’t even come close to listing all of the privacy coins, but just so you get an idea of how they differentiate and how messy this can get very quickly — before I set out to write this, Vladislav Ginzburg cautioned that even the term “privacy coin” is fluid and slippery. Essentially:
Monero is private by default for both the currency sender and receiver using something called Ring Signatures. Each Monero transaction generates its own unique keys for each party to ensure privacy.
DASH, which originally forked from Bitcoin, allows users to tap into a feature called PrivateSend (what it sounds like) that is based on a coin mixing service to mask transactions.
Zcash approaches privacy by disassociating a coin that was spent from spender, while still being able to prove on its blockchain that the coin was spent. (That sentence was as confusing to write as it was to read, trust me.)
Verge, with its much-hyped Wraith Protocol, allows users to switch between public and private ledgers on its blockchain and obfuscate IP addresses. This lets users make themselves known when needed and hide when they want to.
With that out of the way, a more compelling topic from this perspective is how merchants and regulators will handle cryptocurrency transactions with buyers and sellers who can mask their identities.
If the title of this post didn’t spoil it for you, my guess is that they won’t take kindly. The crypto PR problem is pervasive even with popular coins like Bitcoin, Ethereum, Litecoin, and Ripple dominating the headlines. Wait until the general public wakes up North Korean favorite Monero. The flip side of this, of course, is that what if you can’t afford to have the government know that you own cryptocurrencies? If you live in a repressive or economically distressed country and you crawl through a privacy coin’s escape hatch, you not only embody the most idealistic cryptoid’s saving-the-unbanked fantasy, you jab a sharp stick directly into the eye of the institutions that spawned the need for crypto in the first place.
The lines get blurred in more developed, democratic nations. Should American, South Korean, Canadian, German, or Japanese people have the right to completely obscure their wealth and monetary transactions from their governments? Will Amazon, WalMart, Spotify, FedEx, or Pfizer ever accept payments from people or entities they cannot identify?
And perhaps most importantly, how will governments try to bring down the hammer on privacy coins and privacy coin holders? Do they even have the ability?
It could be argued that privacy coins are even more pure in their crypto values than something like Bitcoin or Ethereum could ever hope to be. By removing identity from the equation, you create a truly level playing field for all consumers, free from prying government eyes. No doubt that’s why crypto, and privacy coins by extension, seems to be fertile ground for many libertarian idealists — most famously the incarcerated Ross Ulbricht. I’ve brushed up against this in other posts, but the philosophy behind crypto is one of the most fascinating elements of the entire space. Privacy coins appear to tempt crypto users to see how far they’re willing to go for ideology.
The logical inverse is that they beckon those who want this all to go away to see how far they’re willing to go as well. Could a government ban the use of any privacy coin? What about banning mining of any privacy coin? What about increasing tax evasion penalties or money laundering related to crypto?
Looming over all of these questions is whether a government would actually be able to enforce these laws. Some might be easier than others — governments track irregular power usage patterns to catch drug cultivators and dealers, the same could theoretically be done for privacy coin miners. However, the funny thing about privacy coins is that they’re kinda untraceable! Good luck locking up people who no one can identify.
None of this should suggest that privacy coins are destined to emerge at the top of the crypto heap. Mainstream adoption and institutional acceptance are probably prerequisites for ensuring crypto’s longevity — those are hardly guaranteed even for Bitcoin, let alone coins that spook law enforcement. But undeniably, privacy coins have found hiding places with members of the crypto community, and they’ve got no reason to come out.
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