Crypto’s Transparency Problem

Crypto’s Transparency Problem

Cryptocurrency was once thought to be the perfect resource for privacy. In fact, this is a common misconception shared by both new and seasoned investors alike.

This is ironic because Satoshi Nakamoto coded transparency directly into the blockchain, giving anyone the ability to see transactions and beyond, as we’ll soon explore.

Now, there is a growing number of blockchain surveillance tools. Software has been developed that uses artificial intelligence to run through the blockchain, gathering data about wallets and coin movements while producing intricate reports about transactions. What has been moved, where it was moved, and how much was moved are all just the tip of the iceberg. Once an individual is connected to a single wallet in the transaction history, all their associated crypto activity is known.

This type of software has been the source by which regulatory bodies can, and have traced funds from cryptocurrency hacks, exchanges, and investors’ wallets. But, like all tech, the blockchain’s value and potential for exploitation depend entirely on who is using it and for what purpose.

Transparency was originally thought to be a benefit when coded into the system by Nakamoto, and it was carried on by other developers who chose to inherit this feature when producing new decentralized projects and the altcoins to match.

But it has become increasingly apparent that cryptocurrency has a transparency problem. A problem that can lead to a very different decentralized future. Here’s what it means for investors, and why private finance or PriFi is the solution to this problem.

Technology uncertainty drives regulatory fear

When it comes to the topic of cryptocurrency, political attitudes throughout the world are in flux. On one end, we have China, India, and now potentially Russia, bearing down with potential bans, while on the other end we have direct adopters like El Salvador buying Bitcoin consistently.

The rest of the world predictably fits in the middle. Otherwise well-meaning crypto-agnostic or even crypto-curious governments are looking at how to handle the growing industry.

Unsure about how to do so, there is a movement to overregulate the space. Be it out of an abundance of caution, or simply from a lack of understanding about how cryptocurrency works, some regulatory bodies have been pushing for aggressive regulation, data collection, and more. This does not bode well for investors.

For example, in May of 2021, the United States Treasury Department released the Biden administration’s revenue proposals for the fiscal year 2022. This included a requirement that would apply reporting obligations, including on crypto, to all businesses and personal accounts from financial institutions.

Financial institutions would have to report money coming in and out of business or personal accounts of more than $600. And yes, this includes crypto. Essentially, the government would be able to see what you’re doing with your money over a certain dollar amount.

And while changes were made in late October of last year, to a threshold of +$10,000 in transfers per year, if your business uses blockchain technology for cash flows, the government would still want to know how much is being sent, to whom, and by what means any cryptocurrency is moving.

Unlike the traditional financial system, whereby financial records are hidden from regulatory agencies and beyond (unless legally requested), on the blockchain, with immutable records, and open on-chain data, this information could easily be collected. You would not have a choice.

In short, it is simply none of their business. This level of encroachment on privacy is a profound step backwards in personal freedoms and something akin to despots and dictators.

But transparency on the blockchain goes further than overzealous regulators who aim to extract information without your knowledge. Transparency on the blockchain can be used by anyone, for any purpose.

Transparency exposes you to anyone with an agenda

Governments and corporate entities aren’t the only ones peering into the blockchain, looking to use the information for their own purposes. In 2021 alone, over $7.7 billion was stolen in crypto scams according to a report from blockchain analytics firm Chainalysis. That’s an increase of 81% over the previous year.

And the trend is picking up steam.

Blockchain’s transparency provides another avenue for scammers, thieves, and con artists to exploit. And as they become more sophisticated and creative in their attacks, blockchain’s transparency problem will become increasingly apparent as it is exploited more frequently.

Corporations, like the big tech giants, also look to exploit this data to their own advantage. The common adage ‘data is the new oil’ helps explain why companies like Google, Facebook, or Amazon make billions via their algorithms.

Extending this insight into your private financial life becomes big-tech’s dream. It is especially appealing when the financial data is readily available for anyone to see.

This is blockchains transparency problem. And we haven’t even seen the tip of the iceberg when it comes to the detrimental effects.

The unfortunate impact

The unfortunate impact of all of this is that the vast majority of the dApps and protocols in the market have carried forward the blockchains transparency problem, exposing millions of users to current (or future) negative consequences.

It’s worth noting that just because nothing has happened yet does not mean that this information cannot be extrapolated in the future. It can. One of blockchains features is it’s immutability. Your records never disappear.

The impact of this is at best limited to the billions of dollars of hacks and scams. However, as dictators and democracies alike pursue their own interest of ‘controlling the populace’ we can be sure that the exploitation of blockchain financial data will be at the forefront of their agendas.

Combating this, and balancing out the technological flaw is where private finance or PriFi enters the picture.

PriFi, a prerequisite for freedom

Privacy is a human right. It is literally written into the human rights code, agreed upon by over 140 countries. Private finance or PriFi, is a precursor to many of the other essential human rights written in the code.

Why?

Because in a world where central bank digital currencies (CBDC) exists, a world where digital assets can be frozen, blocked, or seized, your financial information is the key to controlling your ability to transact. It’s the key to controlling your ability to buy, sell, or earn in a digital world.

And as the world moves towards Web 3.0, the metaverse, and CBDC’s (China is already exploring this, Canada and the United States have mentioned this as well), PriFi is the line of defence for your freedom.

Thankfully this technology is already here.

A handful of protocols have focused on leading the PriFi charge. Protocols like Haven, Monero, or Dero, have woven privacy directly into the blockchain itself, making data inaccessible to even their own core teams.

Additionally, given that part of Monero or Haven’s tech includes the ability to allow users to selectively choose who gets to view transactions, it would be possible to block bad actors, but still share data with law enforcement should you so choose. And herein lies the difference.

Instead of having transparency forced upon you via blockchains that haven’t given thought to the importance of privacy, you have the power to make a choice.

In Conclusion:

It’s important to remember that the erosion of privacy isn’t something we’ve done, or not done, but instead something that has been done to us.

Most of us were shocked to discover that Facebook was packaging and selling our information off to the highest bidder, or that the National Security Agency had been keeping track of our metadata for years.

But it’s what we choose to do about it that determines our future.

Privacy isn’t about hiding. It’s about agency, empowerment, and control over sharing your information with whom you’re comfortable. It’s an essential human right that drives other human rights we should all be entitled to.

As we fast-forward with blockchain technology, building dApps in Web 3.0 and worlds in the metaverse, do we want to repeat the mistakes of the past? Do we want to amplify them?

PriFi is a solution that exists right here, right now. The question is, will you explore options like Haven, Dero, or Monero to protect your privacy?

The choice, as we would like to ensure, is yours.

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This article is not a direct offer, recommendation, or endorsement of any products, services, or companies mentioned. Blockgeeks.com does not provide investment, tax, legal, or accounting advice. Crypto is risky, do your own research, invest safe.

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