Bitcoin is unique in its approach to privacy. Uneducated observers lament its advantages for illicit activities, but the blockchain keeps track of every transaction and who has how much coin. The revolutionary part of this system is the fact that one must divulge his or her Bitcoin address to lose anonymity, which leaves us with a new kind of privacy–conditional privacy, known in Bitcoin as “pseudoanonymity.”
Most people who support privacy rights are worried about the invasiveness of governments and corporations, and there are plenty reasons why you might not want to reveal your Bitcoin address. Suppose you were or wanted to support a gay rights group in Russia, or an Occupy movement in the United States. Maybe you want to register a political website, in a country where that’s not allowed. Drugs might take the spotlight in Western countries, but anonymity has real uses in other parts of the world, where the law is used to deny citizens basic freedoms.
Private entities are often little better with our private information, selling it to marketers or worse–an insurance company with access to your medical information could ruin your ability to get coverage, forever. We have no reason to spy upon ordinary citizens, but conversely, anonymity has a different meaning when it comes to people in power. Few will fight for the privacy rights of stock exchanges, banks or governments, as that has failed throughout history. If we want to avoid bank collapses, insider trading, and inhumane secret programs, we have to know what they’re doing with our money.
Once you realize that Bitcoin’s psuedo-anonymity accomplishes exactly that, it’s easy to see why many institutions don’t like cryptocurrency: it encourages a society in which privacy is a privilege, reserved for those we don’t trust with our lives and future. The arrival of exchanges like CoinFloor–which are fully auditable by the public via the blockchain–puts many traditional exchanges in a shaky position. Shouldn’t we be curious why they’re not as forthcoming? If you wanted to know just how flimsy your bank’s fractional reserve is, that becomes easy, too.
The possibilities for reducing economic corruption are just the tip of the iceberg. Now imagine we paid our taxes via Bitcoin. True, mixers to anonymize a person’s bitcoins exist; we can detect if such a system were used, however, and that politician will have to answer some questions. We could conceivably construct a program to trace how all of our money was used, which would shed welcome light on black budgets, how campaigns are financed, and the entire lobbying industry. The blockchain will notice every secret program an agency attempts to fund, and any “gifts” they might be receiving.
Like most ideas spawned by crypto, this is a fairly radical suggestion, and far from becoming a reality. As people start to understand crypto, however, the possibility of a society that runs this way–and the political and economic benefits–will become harder to ignore. Some traditional institutions won’t enjoy the transition, but we’ve got no reason to avoid it–those in positions of power should have nothing to hide.