One of the biggest misconceptions in the crypto world is that cryptocurrency is anonymous. Sure, there are ways to make most coins or tokens anonymous, but in general, everything is recorded clearly on a public ledger. And if using a centralized exchange, users and their transactions can be tracked. Because of this, there is a category of crypto called anonymous/privacy coins, built with specific anonymity features. But is it necessary?
Anonymous Coin Tech
Examples of anonymous coins include the likes of Monero, Dash, Zcash, and PIVX, all with the goal of providing anonymity to users. These coins have built in code/features that allow addresses, transactions, and amounts to be hidden from the public.
Why is anonymity important? Well, hacking risk for starters. If people can see how much of a certain coin is sent to any one address at any given time, as well as information regarding that address, then it may be subject to significant attention from nefarious parties.
Each different “anonymous” coin seems to have its own claim as to why it is the best for x or y amount of reasons. Zcoin for instance, with its Zerocoin protocol, states that it “allows a coin’s transaction history to be completely wiped and redeemed to completely new addresses which defeats transactional graph analysis and gives you significant plausible deniability with every single Zerocoin tx”.
Is It Necessary?
Regardless of the method of added anonymity, the true question remains – is it necessary, seeing as how Bitcoin transactions are simply strings of random letters and numbers, without association to identity anyway.
Blockchain Isn’t Really Private
What many people may not take into consideration is the impact of current Know Your Customer (KYC) regulations. KYC laws often require crypto exchanges to verify user identities before participation. This means an individual’s identity is now associated with said exchange. When a user buys Bitcoin (or other coins) and sends them to off-exchange addresses, the owner can still be tracked, due to the starting point of identity association. In this sense, one can easily see the application for coins with added anonymity features.
What About Over The Counter (OTC) Bitcoin?
One main argument against the need for anonymous coins is that they are not necessary if people were simply to use Bitcoin the way it was originally intended – person to person (OTC).
Notable Bitcoin maximalist Tone Vays explains that people “talk about how they need privacy with Monero – and how do they acquire Monero? They go to Coinbase, they provide all their personal information, they buy bitcoin from Coinbase, and then they go and covert it into Monero right? And if you care about privacy, go buy your Bitcoin on the street.”
Vays then goes on to talk about how these actions can lead right to people and their private information, such as their name, address, etc. He makes an additional point, stating that buying BTC through brokers or exchanges complying with KYC regulations is what makes BTC non-private.
Still A Place For Anon Coins?
Despite the compelling arguments made by Tone Vays, it still seems as though there is a place for coins with additional anonymity features. If transaction history can be truly be wiped, as mentioned above with Zcoin, then it should mean that anyone tracking transactions from Coinbase (or other individuals or institutions complying with KYC) should encounter a dead end at some point.
Additionally, it may prove more convenient at times, if necessary. Anonymity does not mean that the user plans to engage in criminal activity. Anonymity is important for anyone looking to protect their identity in any given circumstance. In a world where identity theft is common, protection of information is crucial.
Even the government itself may benefit from anonymous coins. In an interview with Peter McCormack (What Bitcoin Did podcast), Monero’s Riccardo Spagni chats about a few of his personal thoughts regarding government application for privacy coins, stating: “how does the CIA move money overseas? You know I mean I’m sure they’ve got it down to a fine art by now, and I could certainly think of many ways, including cash – but I mean surely stuff like Monero must be a tool that they look at and their like ‘hey this can be a thing we can use'”.
From the data currently available, it appears as though many anonymous coins may have a future and a purpose. However, it will be interesting to see what the future brings, and how different project theories will be proven or rejected regarding anonymity in coins.
Featured image from pxhere