Where Did Anonymity Go From Crypto?



Cryptocurrencies have ascended as an alternative to centralization. They challenge the strengthening of power by removing the authority’s ability to dictate the course of one’s action. To a certain extent, blockchain adds a layer of anonymity as it bypasses third-party verification; however, Bitcoin or Ethereum do a mediocre job of impeeding identifiability. All transaction records are publically available on the public blockchain, as Vitalik Buterin’s action of transferring 320.000 ETH emphasizes.

Blockchain transactions are heavily scrutinized compared to paper money because they could be traced back in some instances. Long gone are the days when Silkroad users would use Bitcoin to “safely” transact and remain anonymous. Now more than ever, as cryptocurrencies inch closer towards mass adoption, their privacy is deemed unsuitable from a governmental and regulatory standard.

Mass Adoption In Exchange For Anonimity

The advent of anonymity in digital financial transactions causes tension between cryptocurrency advocates and regulatory bodies to intervene. The exponential rise of Bitcoin in 2021 has pushed for more AML and KYC requirements to be embedded by cryptocurrency exchanges. To that end, the string of characters used in wallets for identification proves to be useless. Eventually, using cryptocurrency exchanges weakens the “ephemeral” privacy of crypto.

Illicit activities using cryptocurrencies have pinpointed towards the need for more governmental control. The recent Colonial hack where hackers demanded payment in Bitcoin might push for further regulation. As data from Chainanalysis shows, the number of ransomware paid has in 2019 compared to 2020. However the same report indicates that criminal activity using crypto fell in 2020 to 0.34% compared to 2.19% in 2019. 

Privacy coins like Monero or zCash have gained notorierty due to what “value” they add. Namely extortion and ransomware. A Rand Corporation reserach commended by zCash’s owner Zooko Wilcox, indicates that despite their privacy coin’s reputation of being preferred for illicit acitons “there is little evidence to substantiate this claim” Still, the underlyning technology of privacy coins lead to their delisting in Japan, some countries such as South-Korea prohibitting them all-together.

The notion of anonimity is fearsome for governments, as they restrict their power of control. China’s endevour to adhere to digitization throguh blockchain pinpoints this issue precicely. While the Chinese government understands the need for anonymity, they will “keep the balance between the ‘controllable anonymity’ and anti-money laundering.” To that end, fully anonymity is hard to still be achieved in the cryptosphere. Even exchanges require user data to purchase privacy coins. 

Users entitlement to privacy or anonymity is evermore important as we become more dependent on technologies. Anonymity and privacy = basic human needs, however as Lone Fonss argues, our demand is exaclty what’s “hindering wider use of blockchain”. As mass adoption takes time to develop, it requires regulatory bodies to reach a consensus to the cryptocurrenices deamnd as innovation keep building. To that extent, the in the thug of war of anonimity, the balance resides in the middle of what can be offered and how can cryptocurrencies adapt. 

Bitcoin was never meant to be an asset for lawless interactions. Privacy coins according to zCash’s founder were “way too important not to do” as they added value to a certain type of users, in oppressed regimes. However, Bitcoin partly held some types of anonimity when purchasing and selling the toekn did not require third-parties. However as DeFi emerges and transactions can freely, there is still hope that anonimity with last.



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