Cryptocurrency and the Privacy Conundrum
Would mass adoption of cryptocurrencies improve financial privacy? And would it matter?
In many debates about cryptocurrencies you'll find one side or the other talking about which one is the best, which one has the greatest privacy features, whether or not encryption is necessary, or if the currency is actually based on a "real" blockchain. I was reminded of this once again while reading some of the comments in the latest Twitter poll for Bobby Lee's BTCC exchange.
This was the comment that got me thinking:
Please consider Monero. There is a big need for privacy, fungibility and untraceability.
I suppose the "big need" for two of these features - privacy and "untraceability" - depends on your perception of the current state of...well...the state.
If you strongly believe that individuals can only free themselves of their government's clutches by using a currency that can't be tracked back to you, then you might feel as though these features are absolutely necessary and any currency without them simply isn't worth using. The desire for privacy in this case would seemingly outweigh other factors, such as the ease of use, acceptability, fees or the lack thereof, and the speed of transactions.
But is this a reasonable view? Is privacy really that important? Can it actually reduce the power of the state? Is the privacy real?
The argument that transactions are private on any given blockchain is a little misleading. Yes, there are ways to conceal one's identity and you can certainly have a considerable amount of privacy if all of your transactions are contained within the network. The question is:
Is this practical or even possible?
In the case of the particular cryptocurrency in question - Monero - it certainly wouldn't be possible today. There simply aren't enough businesses that accept cryptocurrencies in general, let alone one of these currencies. Bitcoin is the current king of cryptocurrency and it still has a long way to go to reach mass adoption. So, there really isn't a possibility of using any of these currencies as a means to completely avoid government interference in our everyday lives.
Practically speaking, the prospect of absolute privacy or "untraceability" is much closer to a pipe dream.
First of all - every transaction on a blockchain is recorded on that blockchain. It may be difficult to determine who is who or even the specific amounts of currency being transferred, but it's not impossible. If you have the right information, any transaction can be traced back to an owner.
Secondly - if you are in business (at least here in the United States), then you are likely registered with various levels of government in order to maintain a "legal" business entity. There is no option for non-compliance with licenses and taxes. You either register your business entity and pay your taxes or you risk being shut down, financially penalized, and/or sent to prison. Regardless of what your views of the state are, the prospect of losing your wealth and sitting in a prison cell are large enough deterrents to skirting licensing and tax laws.
If you're running a legal business, then you're likely collecting all transaction information from your customers. If those customers are purchasing online and shipping the product is required, then those transactions - even if "private" via a cryptocurrency and its blockchain - will have, at the very least, a physical address attached to them in the company's invoices or transaction ledger. With an increase of online purchasing and deliveries, it wouldn't be hard for any state agency to track down cryptocurrency users, if they really wanted to do so.
So there's a dilemma for the business owner who wishes to keep their company and a dilemma for the cryptocurrency user who actually wants to purchase products with relative ease. The latter can certainly go out of their way and seek out individuals who offer certain goods or services as "illegal" businesses, but the options will always be limited and riskier in comparison and the market will be significantly smaller.
In the end, it essentially comes down to this:
Do enough people actually care?
This is the question that we always need to come back to when dealing with sentiment about any coercive state and its laws and policies...and cryptocurrency adoption. Are there enough businessmen and women who are willing to defy the state's laws and risk their livelihood? Are there enough consumers willing to go through the relatively considerable amount of effort to acquire cryptocurrencies, find those businesses that are willing to accept them and disregard compliance laws, and then personally meet with these other individuals to acquire the product so that their transactions can be more private. (And in this case, why not simply use cash?)
In a world where simplicity and speed are what consumers want and how online transaction/ordering/delivery systems are trending, there doesn't appear to be a great rush to return to face-to-face meetings for purchases.
So, are privacy and "untraceability" actually features that are needed or desired by the majority of any given society? Is this a conundrum for cryptocurrency adoption as transactional currencies? While mainstream adoption would theoretically be necessary to mitigate or even eliminate the vast power of the state, wouldn't such mass adoption simply provide a means for integration into the system that the state controls?
Can cryptocurrencies simultaneously operate beyond state influence and achieve mass/mainstream adoption?
No way to escape from government. Masses will adopt the most convenient, safe and easy to use Crypto token. Untraceability will slow down adoption from people and make government more aggressive toward Crypto. If your account get worth millions one day, you don't want to mess with authorities. At least not me.
I love how if you take risks and make money the government wants part of it but when you lose money the government doesn't share in the loss.
You're right, but that is the system we currently live in. Don't loose sleep over this.
Yeah. Even if they don't know I own crypto now, they would if I banked out to my fiat account. How would I explain that? I'm afraid of 25% tax in Croatia.
Why? If you made 500% gain or more your government deserve tax. Who liberated you and took out of ex Yu?
I agree that there is the need to leave some profit in the community. Nothing would work otherwise.
Yeah, I think that's true as well. And it's likely why we still don't see any mass adoption. They're not that easy to use...certainly not very easy to acquire and spend, relative to existing currencies.
Masses will adopt? I'm sorry but in what I'm witnessing around me - it's no longer a future modal that I could use on that phrase - It's progressive and on going - They are already adopting to it.
Related to the topic, I'm sometimes afraid people around me will find out how much I earn on Steemit and I feel guilty. Ever felt the same?
Yes. Every time my wife tells me that she's ready to quit her job! I keep telling her, "When the STEEM price reaches $5 and can stay there."
Yeah! My girlfriend keeps asking me when will I cash out. It is so hard to explain that... :D
No reason for guilt here. We took risk early on and even in the future.
True! Crypto bubble could burst at any moment. And then it will be run for your life :/
so can relate :D
I think it's cause we arent really used to having our wallet out in the open are we? never felt guilty though.
I often wonder much of the same. As I wrote about ways the govt could end the crypto-bubble, I think that they've already started the first few phases of their attempt to remove validity and trust behind the currencies, via the main stream media.
That said, I think that when living in a country like the USA, you'll end up being forced to play by their oppressive rules. Bitcoin and Alt-coins may always have a place in the gray market - in those side channels where people prefer payments in things like cash, silver and gold.
Have to say @ats-david
You have pointed out some Really Good hard questions.
I don't think it is possible since when it comes to technology there is always a loophole one can jump. In a way, you have to make sure that you are ahead of the game but can never rely on a permanent solution.
This is the beauty of technology in fact. Competition brings innovation.
What is mass? The black, unaccounted economy is 14% of GDP in the OESO countries, even here in the relatively well-behaved Netherlands it is 10% of GDP, or 60 billion €s for this tiny country alone. There's some mass there, and as far as I have been able to observe it, quite a bit of mainstream as well 8-).
Other than that, the state will always try to have a look at money flows, and they can always force one transaction as a starting point for digging: you pay taxes in the coin of the land, and that is enforcable. Also, cooperations couple addresses to payments, for transport purposes. Having an anonymous currency doesn't help much when cooperations open their books to government.
Things could go mainstream with the endorsement of banks and cooperations, but that won't happen without government having a look.
So no, I don't think so.
I think how safe your money is is also a factor. You don't want people knowing you have a lot of money if they can hack your account.
Great article! Honestly I think it's only a matter of time as more and more people start to see the benefits in Cryptocurrencies but that could create a new set of problems with large scale adoption.
I noticed that Monero comment/tweet on Bobby Lee's twitter. It made me ponder the whole "privacy" issue... followed by the tricky analysis of where simple and basic "privacy" ends... and systems to protect illicit and antisocial behavior begins.
In crypto circles we have a lot of self-proclaimed anarchists and Libertarians, among whome the broader public image is that privacy is to protect us from government interference. Fair enough, on the surface. But what exactly is it people want to hide?
For example, should we have privacy systems that "protects" someone's ability to kidnap children and anonymously collect payment to have sick and twisted individuals do unthinkable things to them, for "sport" or "entertainment?" Because (in a narrowly interpreted sense) that constitutes "freedom?"
But I digress... as you point out, completely "untraceable" is super hard to functionally implement; even if a business seller went through a "forwarding house" (i.e. the order comes to my business from a forwarder; that's where I ship things, I don't see the end user's name; the forwarder sends the goods and "shreds" all customer evidence at time of shipment or confirmed receipt) there will still be "trails" that could ultimately be dug up.
I keep coming back to the same place... often the most privacy isn't available through technology, but by going completely "analog." Although of dubious functionality on a large... things like my wife trading life coaching sessions for organic veggies; the "transaction" is completely private because it essentially doesn't "exist" outside the minds of her and her client.
So I end up back at your point of "Do enough people really care?" As a general person with no love for the government, I'm content with "pretty hard to trace." And my cynical nature keeps asking that is someone is obsessed with "total" privacy... what exactly are you trying to keep hidden?
Great post man! Agree with your points!
Cant speak for the masses but I would prefer portability, borderless features over 100% untraceability. If I can travel countries and use it anytime without the hassle like INR/USD then USD/something my life would be easier.