In this era of advancement, payment mechanisms have come a long way. Right from Bitcoin being used as an anonymous payment method for illegal activities to it developing multiple use cases in the past few years – the cryptospace has seen virtual currencies turn into utility assets in numerous fields. While the crypto community is growing tremendously, a side of this asset class is still lurking in the dark side of the chain.
While some may agree with my opinion of privacy coins being digitized versions of black money, some may not. And I’m writing this article to change your opinion.
For a lot of people, financial sovereignty is fulfilled when you get to manage your own wealth, but a lot of us forget that we live in a civilization that needs money to run. If you manage your wealth like people manage their black money [and not pay taxes], it makes you nothing more than a criminal running away from paying what you owe to the government.
The digital hazard
Monetary values that have enhanced privacy and anonymity are an immediate attraction for criminals. Which is why Bitcoin and cryptocurrencies, in general, became the primary narrative of illegal activities.
To begin with, Privacy coins have private blockchains unlike Bitcoin, Ethereum, etc which means that tracking payments on private blockchains are not even an option. This right away takes the very essence of transparency of blockchains from the decentralized technology that it’s supposed to be.
The top privacy coins in the market – Monero, Dash, Zcash, etc are virtual currencies backed by private centralized technologies which accelerate digitalized versions of black money instead of promoting clean wealth management. How? Let’s understand!
Monero’s whitepaper states Bitcoin’s decentralization as its drawbacks. It states that the system’s distributed nature is “inflexible” which prevents the “implementation of new features” because the system needs “all” the nodes on the network to update. Basically, Monero’s whitepaper in its second paragraph exclaims how they prefer otherwise, how they’d rather not have all nodes meet at a consensus.
Nodes on the Bitcoin network have equal rights, no node holds power over the other and no node authorizes more than the other. This is how the Bitcoin network manages its consensus mechanism and decentralization at the same time.
On the other hand, Dash has MasterNodes which are a few pseudo-random nodes that perform the task of validating, without having the whole network to do the same task. An immediate indication of how it opens doors for centralization.
Zcash states itself to be a “privacy-protecting, digital currency built on strong science”. It transacts efficiently and safely with “low fees” while ensuring digital transactions of cryptocurrencies “remain private”. The network selectively share address and transaction information for auditing and regulatory compliance. But according to their official blog, they charge a whopping 20% fees to miners. Additionally, Profitgenerator, a contributor at Steemit said:
“But the biggest redflag is the black box structure, so that it’s so private that you don’t even know the total coin supply. Man this sounds totally like a joke. Given that it has a trusted setup the devs could insert a hidden backdoor in the code, and nobody could verify it.”
Taking away the good side of cryptocurrencies
There is already a stigma surrounding cryptocurrency’s anonymity when it comes to making payments online, due to the fact that Bitcoin was majorly used on the Dark Web for making illegal purchases. Since then a lot of dark markets have been shut down by authorities bringing the anonymity of Bitcoin into question.
With the introduction of privacy coins, people have found confidence in a new and more secure form of conducting transactions. This comes with a major drawback since it provides an additional sense of security for people who want to indulge in illegal activities. When Monero completed an upgrade to Ring Confidential Transactions (RingCT), roughly 200,000 transactions occurred, most of which likely involved purchases of illegal narcotics.
The percentage of Bitcoin’s being used on the Dark Web are gradually coming down while privacy coins are only getting higher. This will create a dichotomy between people who believe in blockchains ability to create a decentralized network and people who will always be skeptical about its adoption.
Are private blockchains even necessary?
Private Blockchain is a permission blockchain. Permission networks place restrictions on who is allowed to participate in the network and in what transactions, unlike public blockchains (Bitcoin, Ethereum, etc) where anyone can join the blockchain.
On a private blockchain, transactions are processed by a selected set of nodes. Due to which transactions are processed faster compared to waiting for a large number of nodes on the network to come to a consensus. This is most important for enterprises because they ensure a higher level of security and privacy since they don’t want to share their client’s information with anyone other than those who are involved in that transaction.
Due to the centralized nature of private blockchains (HyperLedger, R3 Corda), they provide better scalability in terms of adding nodes and services on demand and also greatly increases transaction speed.
Private coins based on private blockchains mostly have illegal use cases and extensive activity on the dark web. Irrespective of this, it is still important for private blockchains to exist for larger enterprises to incorporate them into their ecosystems. This is the only way for them to be able to maintain their goodwill and adopt higher forms of security on their network.
The success of private blockchain is mutually exclusive to public blockchains like Bitcoin, Ethereum, etc because the willingness to adopt blockchain into large enterprises gives an incentive for other people to view blockchain development as a legitimate business strategy. This, in turn, helps boost the positive sentiments around an otherwise volatile market shrouded in dismay.
This concludes that private blockchains are necessary but private cryptocurrencies are mere digitized forms of black money.