Privacy: A Complicated Aspect Of Crypto
Privacy is being mentioned as one of the fundamental aspects of the cryptocurrency. But how this particular element works in practice? Are crypto transactions truly private? And more importantly, should they be?
Bitcoin, the very first cryptocurrency, was intended to be a fully functional currency, providing its users with full privacy of their actions. The idea of Satoshi Nakamoto was idyllic and almost to perfect – but people have followed it anyway, sparking the trend which lasts for a decade.
However, despite the continually growing popularity of Bitcoin, some of the significant aspects of it don’t work as Nakamoto intended them to. It also applies to anonymity, which will be the main topic of today’s article. Is the privacy among cryptocurrencies real?
The desired treasure
Privacy is a vital matter in our society, especially in recent years. With the popularization of the Internet, our private data become more exposed to malicious actions since they become far more accessible. Of course, we have contributed to this state by sharing them freely and without any reflections. But now, it slowly becomes an obligatory rule to give access to our data if we want to use many online services.
This dilemma has also applied to the financial sector since online transactions became a dominant part of the money flow. The centralization of banks and the monetary system forces the transparency of users’ data. Bitcoin (and other cryptocurrencies as well) was meant to get around this problem by introducing an alternative financial system.
The solution was great, but it worked only partially. Apart from becoming a more speculative target than actual currency, crypto encountered one significant problem. The new system may be anonymous, but to be functional, it needs to adjust to some laws and rules. What leads us to the main struggling point for the privacy of cryptocurrencies.
The bone of contention
With the growing importance of the cryptocurrency, governments’ interest in this subject was inevitable. The idea of decentralized, private money needs to be fitted into existing policies. And authorities have some strong arguments for it since cryptocurrencies aren’t used only for noble goals.
The anonymous character of crypto works well with illegal activity. It is useful for money laundering practices because funds transferred into digital assets are unrecognizable, thanks to the privacy. Such anonymity also serves well for fundraising the terrorists and other crime organizations, since blockchain transactions are hard to be tracked.
Moreover, a lack of proper education about cryptocurrencies leaves a place for abuse. Scammers may easily manipulate unaware people to deceive them and steal their money through crypto-related projects. And because of proclaimed privacy, they can easily get away with this.
Give us your data – for your own good!
Said abuses make cryptocurrencies a target of regulations coming from the governments’ side. The scale of crypto-related crimes is considerable – what examples like Mt. Gox clearly show. Such problems give strong arguments for authorities to take action against crypto.
Law regulations of cryptocurrencies are always debatable. Usually, they come along with AML (Anti-Money Laundering) policy, which is considered as a violation of privacy by crypto followers. After all, revealing your data in the know-your-customer (KYC) process misses the point of anonymity postulated by Satoshi Nakamoto. And providing private information to a centralized system like exchanges may only help criminals by exposing it. Last Binance leak is a pretty good example here.
On the other hand, it’s hard to disagree that some actions are needed to be taken against the malicious use of cryptocurrencies. Unregulated blockchain technology is a powerful tool in the hands of terrorists, criminals, and scammers. But adjusting to the actions of such people may raise a question: where lays the problem?
Fighting with illegal usage of crypto might seem a classic example of treating the symptoms, not the real cause of the problem. After all, the blockchain technology isn’t meant to be a support for the bad guys. Why don’t authorities focus on fighting with said crimes, instead of impeding our lives?
But they do fight. And regulations are one of the instruments to achieve this goal. They are aimed at cryptocurrencies, not because of their nature, but the inappropriate use. The concept of digital money basing on a blockchain is noble itself, but its misusage is a side effect of implementing it into the real world. Without appropriate changes in society, there is always a chance for such abuses of cryptocurrencies.
So, is the fighting for the privacy of cryptocurrencies wrong in this context? Not at all! It is as same valuable as our safety. And since we can’t be sure about the goodwill of the entities gathering our data, it’s essential to protect it. Proposing new solutions in that matter may bring us closer to the golden mean between privacy and safety from any form of crypto crimes. The variety of privacy coins is a good sign for it. But this is a topic for another article.
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