Cryptocurrencies have greatly emphasized the connection between money and privacy, an aspect that has often been taken for granted. For a long time, cash transactions have helped us transact anonymously without even realizing that we were doing so in the first place. However, in this digital age where cashless transactions are becoming more common, privacy has started to matter.
Depreciating Financial Freedom
Ideally, what you do with your money is not anyone’s business. But in the real world, the government, through financial institutions, is particularly interested in every transaction you make, the amount of money you withdraw or deposit into your bank, and what your buying preferences are, according to outspoken bitcoin though leader Andreas Antonopoulos:
In other words, financial surveillance is real and it is taking away your financial freedom away each time you leave a ‘digital fingerprint’ after a transaction.
Moreover, financial surveillance is executed whenever you fill in your Know-Your-Customer (KYC) details when applying for a mobile money or bank account.
Although these details are required for monitoring financial crimes such as money laundering, they impede an individual’s financial freedom. Additionally, the same institutions that are keen on preventing money laundering and fraud have been accused of laundering money for governments. This shows the hypocritical nature of the modern financial systems where those in power are favored at the expense of ordinary citizens.
Financial surveillance has also led to the exclusion of a certain portion of the global population who lack the official documents needed to get bank accounts. According to a 2014 World Bank report, there are two billion people that are financially excluded from the world.
Anonymous Transactions as the Solution
In recent years, the anonymous nature of some cryptocurrencies has offered a solution to limited financial freedom and financial exclusion. Some of the world’s most anonymous cryptocurrencies are Dash, Monero, DeepOnion, ZCash, and Verge because they have made privacy their main focus. Bitcoin, on the other hand, is pseudonymous, meaning it is not fully anonymous.
According to the Chief Executive of Never Stop Marketing, Jeremy Epstein,
“Anonymity is indeed an important feature for many in the crypto world. People in this industry are acutely aware of the benefits and downsides of technology, so they have a deep appreciation of how nearly every activity leaves a ‘digital fingerprint’ of where you have been.”
Privacy coins use a public ledger for transactions but create the anonymous aspect of transactions through various technologies. This is done by obscuring the connection between a sender and receiver of a transaction.
Anonymous transactions can also be important for businesses. An article on Hackernoon gives the following example:
Businesses may prefer to transact with manufacturers and suppliers in a way that is not broadcast to the public ahead of a product launch.
Therefore, anonymous transactions could become more popular in the future as the need for privacy continues to hold more importance for individuals and businesses. However, possible barriers such as regulation are bound to arise and it will be interesting to see how governments go about it.