Why Privacy In Cryptocurrency Is A Big Topic In 2020 | UseTheBitcoin
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Why Privacy in Cryptocurrency Is a Big Topic in 2020

As the cryptocurrency market continues to mature, it faces a variety of shifts. For example, bitcoin halving, expected to happen in May, “will reduce the number of bitcoins rewarded for successfully mining a block in the digital ledger by half, from 12.5 to 6.25 BTC.” This event, meant to stabilize bitcoin supply, is likely to cause unpredictable price fluctuations.

Other current shifts include the introduction of Facebook’s cryptocurrency (Libra), greater federal regulation, more decentralized exchanges, and innovations within the financial technology industry. These changes could lead to disruption, consolidation, or a combination of the two.

Another big consideration with cryptocurrency in 2020 is privacy. This topic has played out in the last several years within the context of social media and technology tools in general. As within other applications, users are often willing to give up the luxury of privacy for the necessity of greater convenience. Yet, to meet growing concerns, providers must become more mindful of privacy, as well as other issues such as security and quality assurance.

Sensitive Financial Data

Financial transactions can be particularly sensitive in nature but data is generated with each deposit, withdrawal, or transfer. Banks collect information, as do credit cards, which track not only what you spend but where you spend it and what you spend it on. The same is true for modern payment methods like Venmo, which also collect potentially damaging information.

Every bit of data generated about financial transactions is something that could be used against you, as in famous data breaches at financial companies like Equifax. While many companies do their best to avert such disasters, others are lax in their security policies, making privacy ever more elusive and consumers ever more vigilant.

Because cryptocurrency transactions are performed by sending information, there are many points at which they could become compromised as well. Plus, these transactions carry with them metadata that is public and can, therefore, be used to identify personal information.

Privacy Coins

Privacy coins are the industry’s answer to these issues. They’re cryptocurrencies designed to mask the details of each transaction. Specific privacy coins include Bitcoin Private, Dash, Monero, Verge, and ZCash. These cryptocurrencies use a number of privacy technologies, including those listed here.

Using stealth addresses enables you to create a new address with each cryptocurrency transaction. With this action, you make it impossible for anyone to link payments to your wallet address. A more complex version of this tool is dual-key stealth address protocol, which uses a private view key and private spend key instead.

Zero-Knowledge proofs are a method for proving ownership of a piece of information without revealing what that information is. So, you can reveal that you own cryptocurrency without sharing the denomination or other details, keeping that information private. Given its widespread applicability, this method can be used for activities beyond cryptocurrency in a variety of fields.

Ring Signatures combine other send signatures along with your own to mask the real sender. A more robust version, Ring Confidential Transactions (RingCTs) similarly mask your identity and also encrypt the transaction output.

Mimblewimble is a privacy technology that collects multiple transaction requests into a single unit and then breaks them down again to complete each one. This process makes each transaction harder to recognize. “But,” according to WIRED, “former Google engineer Ivan Bogatyy says the protocol is flawed because an attacker could set up a node that listens in on all others.”

Steps Users Can Take

 

In addition to taking advantage of privacy coins, cryptocurrency users can take matters into their own hands with several measures.

  • Each cryptocurrency transaction requires an address but it doesn’t have to be the same one. Using a new address each time increases your level of privacy.
  • Using a separate email account, especially one that’s encrypted, to manage cryptocurrencies boosts privacy for both your main account and your transaction activities.
  • Keeping your security keys offline is another way to build a layer of protection, security, and privacy into your cryptocurrency use. You can also separate your keys into parts and store them in dispersed multiple locations.
  • For added privacy, use an extension like Privacy Badger to get around trackers used to monitor your online activity without your permission.
  • Using a VPN provides an added layer of privacy and masks IP addresses when logging into exchanges as well as other online locations.

In Summary

In the still-new world of cryptocurrency, one of the challenges yet to be resolved is transaction privacy. Just as with other monetary forms — including traditional banking, credit cards, and app-based payment methods — users expect the amounts, purposes, and transaction partners of each exchange to remain undisclosed. Yet, it can be surprisingly easy for interested parties to discover these details. Privacy coins and user measures are two ways the market is trying to address this issue.

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