Cryptocurrency Coverage: Bitcoin Isn’t Anonymous Enough For A Growing User Group

Bitcoin is not anonymous enough for a growing group of crypto users seeking greater isolation.

A volatile class of cryptocurrency known as privacy coins, created with the primary aim of anonymizing users and transaction details, has quietly gained prominence this month as Bitcoin matures into mainstream finance.

Monero and Zcash, among the most popular, have gained 7.6% and 46% respectively since March 1, according to CoinMarketCap data, even with Bitcoin losing about 5%.

The pair is up 4.7% and 16% in the past week. An index that tracks privacy coins more broadly, compiled by research firm Macro Hive, rose 4%.

This could be a sneak peek into the wild ride of privacy coins, which hide more information about transaction amounts and parties through differences in their underlying blockchain.

In the past five years, Monero’s market cap — the total value of all coins in existence — has fallen from $100 million to $6.8 billion to $3.4 billion now, according to CoinMarketCap data.

However, the concern for crypto privacy coincides with the waning of bitcoin’s function as an anonymous currency. It also comes against the backdrop of war in Europe, a tight web of sanctions and strong noise from policy makers in the US, EU and Japan over regulation of the cryptocurrency market.

Aidan Arasingham and Gerard Dibepo of the Washington-based Center for Strategic and International Studies note that bitcoin is not really anonymous, but rather a pseudonym, as coins can be held in open wallets with alternate or fake names.

“If the wallet can be linked to an entity or person, the perpetrator can be identified,” they wrote in a report in the context of the possibility of using cryptocurrencies in Russia and Ukraine to transfer funds. “Their transactions and wallets can be tracked.”

Aside from volatility, there are many obstacles preventing privacy coins from being a top-tier altcoin, or alternative to bitcoin, which has a market capitalization of around $776 billion.

Some major cryptocurrency exchanges do not list privacy coins due to the possibility of them being exposed to illicit activity, for example. Monero’s daily trading volumes were mostly below $250 million this month while altcoin Ripple sees more than $1.5 billion traded daily.

“Privacy coins are likely to grow,” said Dave Siemer, CEO of asset manager Wave Financial in Los Angeles. “The challenge is that you have to do a lot of things that make them anonymous which leads to a terrible user experience and adds significant transaction costs.” Angeles who owns some Monero coins.

Track the last satoshi

Privacy coins have evolved in recent years as the ability for authorities to track blockchain activity for bitcoin and other major cryptocurrencies has become more advanced.

“It could, with some effort, return the coins to the last ‘satoshi,’ the smallest unit of bitcoin,” said Teunis Brossens, chief economist for digital finance and regulation at ING, in a note.

“Recent reports of ransomware recovery, and arrests of crypto exchange hacks made years ago, attest to this progress.”

Major regulators have the cryptocurrency market on the horizon, with efforts ramping up over fears that Russian oligarchs and other sanctioned people may use bitcoin to secretly transfer funds.

US senators have introduced a bill that could give the president the power to sanction foreign exchange firms. The European Union also voted in favor of comprehensive digital asset legislation. Japan’s Financial Services Agency said it will punish anyone who makes unauthorized payments to those targeted by sanctions.

So how does bitcoin move?

Bitcoin’s moves have been partly contained by the conflict in Ukraine and the hawks of the Federal Reserve.

Crypto kingpin has been stuck between $35,000 and $45,000 since mid-January, and hasn’t been able to reach the $50,000 level it was in at the end of 2021. Binance’s buy/sell ratio is at 1.5, the same level it was at On February 24 when Russia invaded.

Meanwhile, data from Glassnode shows a jump in the proportion of bitcoin supply absorbed by entities with a low statistical history of spending.

Marcos Sotiero, an analyst at UK digital asset broker GlobalBlock, sees this as “indicating a bull market structure in the medium and long term.”

“Bitcoin is consolidating below $41,000 as the percentage of long-term holders in the market continues to increase,” Sotiriou said.

(Reporting by Lisa Pauline Matakal and Bansari Mayor Kamdar in Bengaluru; Editing by Vidya Ranganathan and Praveen Char)

(The title and image for this report may have been reformulated only by the Business Standard staff; the rest of the content is automatically generated from a shared feed.)

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