Privacy Coins: A Dilemma in Crypto-Winter!

The ideology behind Bitcoin and the subsequent rise of cryptocurrencies arises from the need for decentralizing current banking and financial system. The intention was to shift the power, control and virtual monopoly by the centralized authorities such as governments, banking, and financial institutions to the masses. Distributed Ledger Technology aimed at empowerment through financial inclusion of the society into the financial system in free, secure and transparent methods via the usage of complex cryptographic technology. Blockchain and its features of encryption ensure reasonably high degrees of security and more importantly privacy.

The common perception and the narrative spun around Bitcoin and other cryptocurrencies is the fact that enhanced privacy immediately points to criminals using this platform. However, embracing privacy and anonymity doesn’t lead to one becoming a criminal. It means that the user values data ownership and privacy more and that he/she prefers not sharing the information with a third party.

Comparing Privacy & Anonymous Cryptocurrencies

With a market cap exceeding $800 billion in its peak years, the market is made of a myriad of coins and tokens and their availability on the open market has become easier. Every torch bearer of privacy is judged upon three factors on the privacy coins :

Privacy: The number of coins owned, bought or sold by the trader is not traced by a third party making the transactions entirely anonymous.

Fungibility: Every coin in the ecosystem is fungible thereby enhancing the interchangeability between the users. The coins potential for blacklisting or debasement due to predicaments in transaction history reduces drastically.

Decentralization: All the blockchain nodes have identical power and control thereby reducing the chances of a node having more influence than others, i.e. masternodes. There is no central authority that controls the cryptocurrency and does not represent a single company or person.

The Case Against Privacy Coins

When you look from the regulators’ point of view, there are legitimate reasons for them to be terrified about the privacy coins. Privacy Coins are a perfect accessory for criminal activity, especially those hidden from governments for untraceable transactions.

The Deputy Assistant Director of the Secret Service’s Office of Investigation, Robert Novy, says “One of the greatest emerging threats to U.S. national security is [the] illicit use of virtual currencies or cryptocurrencies.”

USA is not the only country concerned about this. Countries like Japan, a proponent of virtual currencies, has banned any cryptocurrency which provides anonymity to the users. The regulators are worried and are starting to make strides to implement policies which will help in wider acceptance and development of the technology.

So what’s the solution?

The users and the regulators have a strong argument for their sides on privacy coins, however, it is unclear the way forward for the privacy coins stuck between the users need for privacy and regulators fear of criminal activity using these coins. Though regulators have a strong argument for banning the privacy coins, however, banning all privacy coins would not solve the issues.

In case of any innovative technologies, the winning formula lies somewhere in the middle which requires transparency of the public blockchain while maintaining the anonymity of today’s private/federate blockchains.

Wrapping Up

Blockchain App Factory is a leading cryptocurrency development company, helping facilitate the best of both worlds. By using technologies such as Quorum, Hyperledger, or our own customized blockchain, we help our clients get the best of both worlds through the use Permissioned Blockchains where the masternode helps governments track criminal activities, at the same time, helping users to have their privacy with transactional histories and other data being protected on the blockchain.