The Yin and Yang of Cryptocurrency: Which is More Important, Privacy or Transparency?

Privacy-centric solutions have become increasingly important to the cryptocurrency industry over the past few months.

Blockchain surveillance drives the development of privacy tools

The most striking feature of cryptocurrency is privacy, which requires the currency to have anonymity and fungibility. It seems that fungibility has always been the pursuit of the entire ecosystem. Bitcoin can definitely achieve the same functions as other sound currencies, but it still needs to make further efforts in the development of fungibility.

Privacy is also not guaranteed in the absence of fungible assets, as both of these characteristics are unique. Recent market transactions and developments have shown that people have begun to worry about the development of fungibility and anonymity.

Recently, Bitcoin.com interviewed Daniel Krawisz, the developer of the Bitcoin privacy tool Shufflepuff. He said that the technology is still in the development stage, but the first mixed transaction was completed on August 15. This Coin Shuffle protocol can shuffle the user's Bitcoin in the transaction because the protocol is an upgraded version of the mixing technology.

On August 29, another similar mixed transaction TumbleBit appeared on Reddit. The project developers are still planning future development routes. They said that David Chaum's Zcash brought a lot of inspiration to the design of TumbleBit.

The project’s white paper states:

Every transaction on TumbleBit is backed by Bitcoin. We can guarantee that Tumbler will not destroy anonymity, steal Bitcoin, or initiate payments privately to "print money". We guarantee that the security of TumbleBit is supported by real-world computing paradigms and random oracle modes, using standard RSA encryption algorithms and elliptic curve digital signature algorithms (ECDSA). We have used TumbleBit to mix transactions from 800 users and proved that our off-chain payments can be completed in seconds.

The founder of TumbleBit said that anonymity was the reason why Bitcoin was initially popular. However, the blockchain "surveillance" industry has made the anonymity of Bitcoin increasingly weak. Therefore, a large number of privacy tools and platforms have emerged, and platforms like JoinMarket handle at least $1 million in transactions every month.

The Yin and Yang of Cryptocurrency: Privacy vs. Transparency

Privacy tools are essential for most people. In addition to seeking out coin mixing services, some cryptocurrency enthusiasts also choose to use more private coins, especially Monero and Dash. Due to their strong anonymity, these two coins have been used very frequently in the past few months.

Privacy has once again become a hot topic of discussion as more software companies are involved in monitoring transactions on the Bitcoin blockchain. Elliptic, Block Seer, and Chainalysis are all developing their own products that will endanger the fungibility of Bitcoin. These companies work directly with law enforcement, and their software is used to prevent malicious activities such as exchange attacks, ransomware, and dark web markets.

Privacy and transparency are at opposite ends of the spectrum. Once surveillance technology is upgraded, methods to provide privacy will continue to emerge. Privacy tools like Shufflepuff and TumbleBit have already driven many Bitcoin users crazy. But some people are against this because these mixing platforms will only exacerbate the block capacity problem and charge additional fees. Some people believe that the smaller block capacity, higher handling fees, and higher Coin-Join costs are the culprits of Bitcoin's privacy problems.

As time goes on, the cat-and-mouse game between privacy technology and government surveillance tools will continue, but it’s worth noting that privacy advocates are constantly developing new tools to keep their users one step ahead of regulators.