Transparency is one of the most noteworthy features of blockchain-based crypto assets. This attention to transparency goes all the way back to Satoshi Nakamoto, who described his creation as having a permanent and public ownership history. Such bold differences, when compared to traditional financial systems, makes owner privacy a major issue that needs to be discussed – especially so that new coin investors understand their options and what they’re getting themselves into.
No Expectation Of Privacy
When it comes to modern life, we have little to no expectation of privacy — not from governments, NGOs, or corporations. This means that we need to take privacy matters into our own hands by being proactive and seeking out solutions that preserve our privacy rights.This is exactly what Satoshi Nakamoto enabled through the creation of blockchain technologies, the same ones we continue to use and innovate with today.
Online privacy is especially difficult to achieve today, with online financial privacy even more unattainable. Nakamoto’s original blockchain design, one that leveraged cryptography to provide that privacy by routing data flows through the use of anonymous public keys, helped develop systems that protected the interests of organizations in the past. One of the most obvious examples of this is how the Wikileaks organization was able to continue fundraising even after governments took steps to prevent them from taking donations in fiat currencies.
At first, this engineered anonymity seemed to be an excellent way to preserve financial privacy for those who wanted to use blockchain-based currencies like bitcoin. Unfortunately, there’s also a fly in the ointment — yes, there’s anonymity, but there’s also transparency. Anyone with the technical knowledge to do so can easily access transaction information for every Bitcoin transfer that’s ever been made. This knowledge, when falling in the wrong hands, can be leveraged to your disadvantage.
Not As Anonymous As You Might Hope
Unfortunately, it’s not all that hard after all to link individuals to specific Bitcoin transactions. Blockchain data can be analyzed and interpreted to reveal personal information – the kind of information that could have disastrous results if leaked to the wrong people. In the modern world, where methods for exploiting bitcoin addresses can strip the anonymity away from users, it’s time to begin assuming that these addresses can be compromised at any moment.
There are, indeed, some very serious consequences thanks to this privacy flaw. Financial terrorism attacks such as robberies and even kidnappings have become increasingly common in Eastern Europe and Russia, with one notable instance being the robbery of 300 Bitcoin from the creator of the Prism cryptocurrency, who was beaten and drugged during the process.
It is, therefore, more than obvious for blockchain communities to develop more than one solution to privacy and anonymity in order to provide better protections to crypto users. Even acts as simple as using an IP address blocker like Tor or Dandelion can prevent a user’s wallet address being linked to their IP address. Still, more needs to be done to prioritize privacy for cryptocurrency users.
What About Privacy Coins?
Many have suggested the use of privacy coins to solve these problems. This raises even more issues, however, with privacy coins often leading to accusations of facilitating illegal activities. Let’s not forget the ubiquitous claims that cryptocurrencies are used in money laundering, not to mention how Silk Road and Bitcoin both became household names. It doesn’t matter how exaggerated or attenuated the connections between crypto and illegal activities were — it’s firmly lodged in the public consciousness at this point.
Privacy coins have even been targeted by some governments. The Financial Security Agency of Japan made it illegal to use any crypto assets that provided their users anonymity for example. While the decision was made to crack down on those using these privacy coins for nefarious purposes, the move will likely just drive these types of coins deep underground into places where there will be no possible oversight.
It’s true that governments can’t regulate digital currencies directly. However, they can still make it harder for citizens of their countries to use them. Anti-money laundering and know-your-customer laws, which require personal user information to be registered and regulated, strip the financial privacy from everyone, both bad actors and honest crypto users alike.
Your Right To Privacy Extends Into The Cryptosphere
We have a right to financial privacy. We’ve got an expectation of traditional financial institutions to preserve that privacy, and there’s nothing that says this right to privacy doesn’t extend into the cryptosphere. It’s a sad but necessary statement to make today but it has to be made: in many places around the world, even in places where they were previously rigorously protected, our civil rights have come under fire, and losing our right to privacy can have many negative implications — up to and including making it easier for discrimination to occur.
Imagine living in a world where blockchain transactions are analyzed regularly to discover your personal purchase history for sensitive things such as contraception or medication for chronic illnesses. Authoritarian regimes can easily use this information for their own goals; one need only look to the new “social credit” system being implemented in China, where individuals can be denied the ability to travel freely based on not meeting arbitrary social standards imposed by the government.
Governments And Financial Control
Your government can seize control of your financial assets without your consent. This extends past fiat currency – cryptocurrencies can and have been seized when they’ve been linked to illegal activities. And governments can – and have – done this in the past, regardless of whether they’re justified in doing so.
Governments exert financial control all the time. An example of this is how the government of Cyprus, in 2013, took up to a tenth of the funds in every private bank account in the country as a result of austerity measures. Banks in the United Kingdom were told to freeze specific accounts of those suspected of being in the country illegally in order to flush them out – or force them to leave. This level of power is, when you get right down to it, completely unchecked.
This is where financial privacy comes in, and why it’s so important. True financial privacy provides avenues for resistance to oppression of this nature. Enhancing privacy for cryptocurrency assets — and preventing its traceability — will go far in protecting our civil rights and prevent unfettered financial control by the government.