There are several distinct groups who all want different things from the cryptocurrency phenomenon that eventually replaces fiat money, and they are all in opposition. The nature of Bitcoin and Blockchain is something of a dual personality, and almost everyone wants the best bits for them.
They are a few basic tenets of the original cryptocurrency, Bitcoin, and its blockchain environment:
- Decentralization – No centralized authority or point of weakness, across a network of 1000s of nodes
- Immutability – It can’t be changed.
- Transparency – The blockchain is public and is readable by anyone
- Anonymity – In the beginning, there was no need for names, addresses, and proof of identity
These are some major pillars of the new crypto-religion. However, there are some significant problems in maintaining all of those aspects when attempting to translate it to real-world adoption by the general public, banking centers, and governments.
With genuine decentralization comes the question of responsibility. Each miner or block producer node in the system is responsible for their own little space on the blockchain network, but not one of them can be held accountable for the whole network. Theoretically, each node would have a copy of the blockchain and that way everyone knows everything, but who is responsible for the continued functioning of the network as a whole?
It is a difficult question to answer because we reach into the realms of “who watches the watchmen”. At present the Bitcoin Core community looks after the development and functionality of the bitcoin blockchain environment, essentially becoming a distributed community management team, spread across the globe.
For a speculative investment, as cryptocurrency is now, it isn’t a problem. Bitcoin is self-regulating in its processes, and people who invest are aware of its unregulated nature and deal with it. If Cryptocurrency is to become the money of the future, regulation will be essential, accountability and responsibility will also be necessary. But how do you regulate a distributed and decentralized network? How do you hold any entity accountable if there is no centralized hub? Technology has been known to fail and it
If the blockchain environment is immutable how can mistakes be rectified? It’s no use pretending that with cryptocurrency there will be no mistakes. As long as there is human involvement in the transfer of money, there will be human error.
A simplistic example: A company is paying its employees in Bitcoin, and a transcription error happens while inputting the figures at the end of the month. Instead of 0.5 BTC being transferred to the employee’s wallet, the staff-member gets 1.5BTC. For most banks, this is a reversible error. In the case of the immutable blockchain, recouping that overpayment would require the receiver to initiate a payment back to the employer wallet. The erroneous payment can’t just be rolled-back because that would mean undoing every subsequent transaction on the blockchain.
Transparency is a buzzword when dealing with governments, publicly listed companies, finance, and many other public-facing or serving organizations.
Regulators require transparency as a customer protective measure; Customers need transparency for the same reason. Companies like to claim transparency to attract new clients. However, when it comes down to personal finance and investments, no one is particularly happy about having a transparent transaction log which can be read by anyone.
Transparency and pseudonymity are two strange partners that have common themes.
In the present financial climate, while regulators scramble to produce appropriate and comprehensive guidelines for cryptocurrency, banks and other traditional money men are not keen on the anonymous part. Financial regulators across the globe insist on “know your customer” (KYC) processes, Anti-Money Laundering (AML) measures, in addition to some Counter Terrorism Funding (CTF) checks. None of those checks and measures can happen when the client is anonymous.
It has come to the point where big crypto-business still needs access to banking, and banking wants to take names.
In theory, most wallet addresses are somewhat traceable, whether through giving detail when creating the wallet or when using a wallet address to pay for physical goods or through ISP details. Most wallets won’t even let you create an address without more information now.
Transparency & Pseudo-Anonymity = Double-edged sword
Mo’ Real-world Problems
Fact 1: All Bitcoin transactions are traceable.
Fact 2: Anonymity is leaving the crypto space to make way for regulations and business.
What this means is that all transactions remain visible and traceable, and as anonymity decreases all of your purchases and investments become essentially public viewing.
In the world of business and government spending, I’m sure that the public and company investors will be thrilled. In the realms of personal finance, most people would be horrified. Is it in the public interest to know if someone is paying a therapist, has a pornography addiction, or paying for fertility treatment? No. All of those things are sensitive information, which could then be exploited by commercial companies, blackmailers or other unscrupulous characters.
No middle ground
So we have at least three separate groups with opposing ideas for the future of crypto.
- Business – Wants consumer information (removal of anonymity), and don’t mind transparency (too much) because it draws more clients. Yes to Transparency, No to Anonymity
- Ordinary people – Don’t mind transparency as long as they maintain their anonymity or switching it around don’t mind the loss of their anonymity as long as their transactions aren’t publicly available – Transparency OR removal of anonymity – NOT BOTH
- Banking (traditionally) wants client information, AND it wants to keep transactions confidential – No to both Transparency and Anonymity
Then we have a fourth group, Government, which then has to be broken down into the entity that governs and the individual people, the politicians.
- Government – Doesn’t want to disclose transactions (spending of public taxes). Anonymity doesn’t really count when it is an entity that is easily identifiable.
- Politicians – men and women who have personal lives and needs, but are also in the public eye with access to federal funds. Want to straddle the two worlds of anonymity and transparency.
Then there is the last sector that I will just call “National Security”. If the world adopts a global currency, on a TRANSPARENT blockchain there is simply no chance of hiding payments and spending on things that only a state’s government should know about.
None of these groups have a common ground when approaching the topic of global crypto adoption; they all want part of the package, not all of it.
The Future, After the Hype
Bitcoin’s emergence and the hype of cryptocurrency so far have been a wake-up call. Bitcoin and Blockchain were developed to shake up the existing and domineering financial climate, where personal finance is subject to the whims and mistakes of governments and central banks.
Decentralization, in defiance of the state-dominated monetary structure. Immutability, in the face of increased cyber attacks on banks and financial institutions and state control over access to finance. Transparency, in the place of governmental and banking secrecy. Anonymity, in defense against increased digital scrutiny.
It was a dream of the future without the constraints of a banking and financial system that seemed to have torn global finance apart at the seams.
The dream lacked a vision of the future in which it could possibly work, but the concept has made us think much more in-depth about what the future of finance could be, and the ways in which we could adopt cryptocurrency, globally.