The SEC has taken the first step in what will likely be a strategic effort by centralized agencies to assert control over the future of financial technology by issuing their statement declaring the DAO a regulated security. Bitcoin users increasingly realize that the currency can be effectively traced and that blockchain technology actually makes their transactions permanent and visible rather than concealed. Certain 'privacy coins,' however, have been programmed to obscure this information and enable truly anonymous transactions between individuals.

This technology threatens the ability of the SEC and other centralized agencies to regulate and tax the use of currencies around the world. Having realized that they can't audit the use of privacy coins, the obvious strategy will be to draw a line in the sand and scare people into staying on the “right” side by creating negative perceptions towards this technology.

Why Does Privacy Matter?

It's important to keep in mind that just because buying illegal drugs has been the most visible use of Bitcoin so far doesn't mean that Bitcoin doesn't have important, legitimate uses as well, or that the privacy to buy illegal drugs is anything new. In many ways, privacy coins can be considered no more dangerous than cash. Cash can be traceable to certain extents but it can also be washed or hidden in similar, if less sophisticated ways than privacy tokens, and it has certainly been used to buy drugs for centuries.

Privacy coins have legitimate uses and what makes talking about it so tricky has to do with the fact that many of them lie in legal “gray areas.” While I certainly can't condone lawbreaking, privacy coins can allow individuals access to money and financial services during situations in which they might not be available; political refugees or those in places where corrupt governments may have usurped the banking system. For all of the illicit drugs purchased on dark markets, a small portion actually serves the medical needs of individuals who can't access certain products where they live.

Again, I'm not saying that bad people won't use privacy coins for bad things but I am saying that privacy coins will not likely be stopped from proliferating and that exploring the appropriate uses and potential of the technology will go a lot further toward making the world a better place than scaremongering and fear tactics. As a society we should expect to see a decrease in tax payments once privacy coins proliferate and stabilize and we will have to figure out a way to deal with that when we come to it, but the forces of decentralization can't be stopped and perhaps the potential of decentralized autonomous organizations to revolutionize our approach to governance could play a larger role in the future than any of us could imagine.

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