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What Are the Top 3 Things People Get Wrong About Bitcoin Privacy?

Blockchain technology is a revolutionary technology yet most people still misunderstand how some of its core aspects work. Privacy on the blockchain is something that is rarely talked about but will certainly be an issue that will be brought to the forefront of blockchain discussions as adoption continues to grow.

Privacy advocates like Edward Snowden have previously raised their concerns about the limited privacy on public blockchains. While they recognize many of the positive aspects that blockchains offer, the lack of privacy and the ability to dox peoples’ private information becomes a major issue. To fully understand why privacy on blockchains is such a contentious issue, here are three of the top things people get wrong about it.

Is Bitcoin private? You might be surprised

Misconception #1: Your Activity is Hidden

The idea that blockchain technology conceals your activity is one of the biggest things people get wrong about blockchains. This idea is often misattributed to the belief that cryptocurrencies are used by organized crime to launder money. This idea has continually been promoted by the mainstream media, especially regarding stories on The Silk Road marketplace and its use of Bitcoin as a form of payment.

The reality is that this could not be further from the truth. This is especially the case with an open-source public blockchain like Bitcoin where every transaction is recorded and searchable through block explorers. Blockchains are designed as distributed ledgers which means that anyone who runs a node has a full copy of the entire blockchain. This distribution of the blockchain and the hash function within it create an almost immutable form of data collection. Once a transaction has been recorded on the blockchain, it is permanent and unchangeable. The concept of immutable data is key to why blockchains are such a disruptive force.

However, as more adoption occurs and more transactions are recorded on blockchains there also arises the opportunity to take advantage of this information. AI forensic projects like Chainalysis are already tracking and monetizing transaction history on blockchains. This becomes problematic because it allows for the ability to identify and potentially expose the private identity of a public address. This is especially worrisome when it comes to financial transactions and raises the question of an individual’s right to financial privacy. Imagine having every one of your financial transactions broadcasted to the world. Furthermore, identifying and broadcasting how much crypto someone owns or who owns the most valuable NFTs can make owners an unwanted target.

Misconception #2: There is No Way to Hide Your Activity

Despite the immutable nature of transactions on blockchains, several different protocols and projects currently exist or are in development that aim to add a layer of privacy back into the equation. Wallet generating services or tumblers like allow for a user to send crypto from one wallet to another untraced. These tumbler services work by disguising the end address through a middle relay address.

Additionally, there are protocols like Railgun that utilize smart contracts to create screened wallet addresses. Transactions made out of the Railgun smart contract are obfuscated through zk-SNARK cryptography. Essentially transactions are still recorded but the sending address will only reveal that it came from the Railgun smart contract rather than any specific public address.

Misconception #3: Everything is Open Sourced

It is important to understand that not all blockchains are open or created equal. The same technology that powers the Bitcoin network can also be used in a private or semi-private function. The technology can be coded in a way to give privileged access or block access to certain parties within the blockchain. This can be very beneficial in the private sector, especially within supply chains where not every party in the chain needs to view every stage of the supply outside what they are responsible for.

Other examples where privacy is beneficial can be seen in blockchain use cases for storing medical records and verifying elections. Blockchain technology can create a more efficient and secure system where individuals have autonomy and can determine who has access to their medical records. Here privacy becomes paramount.

In elections, blockchain technology can provide a safe and secure method of holding elections. An individual’s identity can be verified but hidden from those conducting the election, while still showing their results. This is an incredibly important aspect of elections, as it allows for the casting of a ballot without fear of repercussion.

Conclusion: Despite Privacy Issues, Blockchain Has Huge Potential

Blockchain technology spans far beyond the cryptocurrency and NFT mania that we have seen in recent years. It has many different uses and the potential to disrupt large sects of society.

Bitcoin and other open-source public blockchains make use of alphanumerical public key addresses to hide personal identity. With the advancement of AI forensic projects and the ability to reveal an individual’s identity, a counter movement to re-establish privacy as a necessary component of these blockchains has started. Privacy is rarely talked about in terms of blockchains today but it is safe to assume that it will soon become a major topic as more people begin to adopt the technology.

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Iain Taylor

About the Author

Iain Taylor

Iain Taylor grew up in Northern Ireland, and is currently living in Halifax, NS. He has quadruple citizenship status, and has been involved in cryptocurrency since the end of 2020. He completed a study in Bitcoin, Blockchain Technology, and Cryptocurrencies at Dalhousie in 2021, and has been writing on the industry since September 2021.

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