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Why Privacy is Actually Bitcoin’s Biggest Weakness

In light of its core ethos, it’s clear that bitcoin has a significant privacy problem. Fundamentally, bitcoin is an innovation that blends an understanding of economics and computer science to eliminate the risks inherent with state-controlled money. With bitcoin, we have the brick and mortar to lay the foundation for a society that chooses long-term thinking that benefits the many, instead of the few. A foundation that allows accessibility, a free market based on sound principles, and freedom of the individual to take precedence.

By choosing bitcoin, we stand for a world that chooses to level the global socioeconomic playing field. However, bitcoin has a major flaw is that it is vulnerable to breaches of privacy given that bitcoin transactions are perfectly traceable. This is not just a discussion about preserving the individual’s basic right to privacy, but about making sure we do not sabotage bitcoin’s mission to separate money from the state.

Should privacy be a bigger concern for Bitcoin users?

The Role of Government

It is all too easy to blame the government for the woes of society, but the fact is that it is a necessary artifact of human civilization. Without proper governance, we forgo judicial prudence, democratic values, infrastructural stability, welfare support, and more. In balance, governance introduces order to a society that would otherwise spiral into chaos. Proper governance exists to serve where decentralized means cannot.

However, governments as we know them today are not perfect. It is a cyclical property of contemporary governance that we ebb and flow between periods of freedom and corruption as we rebuild upon fallen empires, only to repeat the process again and again. The common quote, “absolute power corrupts absolutely” is proving to be true today.

The pendulum of world affairs has swung toward excessive currency debasement, and the resulting socio-economic upheavals are starting to manifest. Our governments are exerting absolute power over money. With bitcoin, we can eliminate money as a tool for excess governance, and grab the opportunity to move toward a future free of the cyclical existence of prosperity, war, and collapse.

Bitcoin’s privacy issues are undermining this vision, because it is possible to view transactions made throughout the life of each satoshi of bitcoin. Though you may not have an ID attached to your bitcoin wallet, it is easy enough to infer given the personal details necessary to buy bitcoin from exchanges. Therefore, the owner of each satoshi is recorded on the bitcoin blockchain forever. Even the most well-intentioned regulators inevitably abuse this kind of information for the sake of introducing whatever bureaucracy they deem necessary. The end result would be another economy where the state manipulates the money supply.

What Can We Do About It?

Thankfully, there are at least two methods to tackle this problem. The first is known as “coin mixing”, and the second is by using the lightning network.

Coin Mixing

Coin mixing refers to a method by which multiple people group their bitcoin together before making a transaction. Their bitcoins are then shuffled and distributed in a random manner to those on the receiving end of the transactions. The end result is a group of transactions where the senders and receivers are difficult to connect.

Coin mixers are either supervised or done in a decentralized manner. Supervised coin mixing runs the risk of privacy breaches in lieu of greater usability. Decentralized mixing, often known as CoinJoin, is more privacy preserving, but also more difficult to accomplish. Both methods are somewhat complicated procedures, which means coin mixing is not that accessible for the everyday user.

The Lightning Network

The lightning network is a secondary layer, non-blockchain technology serving to improve the privacy and scalability of bitcoin.

Essentially, the lightning network bypasses inherent blockchain security issues by allowing bitcoin to be transacted while not being recorded on the bitcoin blockchain. This way, the bitcoin blockchain can be reserved for use as a secure public record for long-term storage. The lightning network is also a decentralized network with the added advantage of integrated privacy-preserving technologies not limited by the blockchain.

The Benefit For All

We have tried time and again for hundreds of years, but the evidence is overwhelmingly against the state being an efficient mediator of money. What the evidence does support is that the state’s power of control over money only serves as a tool that leads to excessive governance. President Gerald R. Ford wrote the following:

“The Declaration [of Independence] was not a protest against government, but against the excess of government. It prescribed the proper role of government, to secure the rights of individuals and to effect their safety and happiness. In modern society, no individual can do this alone. So government is not a necessary evil but a necessary good.”

President Ford illustrated that it is an excess of government that should be avoided. Bitcoin represents a means to curtail the necessity of government services. It is a technology for restoring the balance of government at the most, and maintaining it at the least.

Our Responsibility

It’s our own fault that we let governance practices escape beyond our reach, and it is our responsibility to restore the influence of the state to its proper role. We need the state to return to serving the people, instead of the other way around.

Bitcoin in its current capacity is an incomplete technology, but it is improving by way of coin mixing services, the lightning network, and more. In light of the myriad of criticisms bitcoin faces, its privacy limitations are likely the most valid. Each of us can contribute by reminding ourselves that our privacy is important, and by using and improving upon the technologies that are making bitcoin better.

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Gerrit van Sittert

About the Author

Gerrit van Sittert

Gerrit van Sittert is a cryptocurrency investor keenly interested in the ramifications of blockchain technology. Since graduating from a commerce and entrepreneurship degree, he has specialized his knowledge of how cryptocurrencies are set to impact the global supply chain and emerging markets. He started his crypto journey in 2017 while hosting an entrepreneurial focussed meetup group in Victoria, BC.

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