Cryptocurrency has been on a boom in today’s financial market. Users are increasing daily and have found an excellent alternative for managing and investing their money. Cryptocurrency privacy holders can invest, trade and save lots of cash by leveraging their digital coins. Users of crypto coins are increasing as they are in demand, and so do the chances of fraud. Thus, proper security measures are needed to protect users’ investments.
As the cryptocurrency environment slowly advances, scrutiny and emerging regulations on digital currencies and assets have created new challenges and risks to financial institutions. Also, central banks have shown keen interest in digital money. Because they deal with money issuance, it is probably not surprising that central banks have long been interested in cryptocurrencies.
Today, most central banks are actively investigating using blockchain or other technologies to issue digital versions of fiat currencies for general use – what has become known as central bank digital currencies or CBDCs. This digital currency is administered and monitored by the central bank and has a wide range of privacy issues.
CBDCs raise many privacy concerns. For example, citizens have an account at the central bank, and payments would be made by debiting and crediting accounts. That means the central bank would be informed of all the transactions made in the country. Such information could be advantageous in resolving government affairs or more.
Additionally, Bitcoin also seemed very private as you do not have to sign up; there is no higher authority and no need for personal information. It has widely targeted many idealists concerned with financial and individual freedom. However, when people became more familiar with Bitcoin and blockchains, it became increasingly apparent that blockchains are not very private. With some effort, anonymous Bitcoin transactions can be “de-anonymised”, sometimes to a staggering degree.
Impact of Cryptocurrency privacy
Given the current data cryptocurrency privacy trends and regulations, companies are beginning to understand the importance and need for data protection. In cryptocurrencies, it is often assumed that these are anonymous or cannot be linked to an individual’s account. However, when a few additional pieces of information are provided, like a wallet identification (“ID”) may be considered Personally Identifiable Information (“PII”) since the blockchain contains wallet IDs. It can be attributed to a specific individual.
Currently, the cryptocurrency privacy concerns of a system include:
- Surveillance of centralised entities
- Evaluation of further data available against cryptocurrency privacy laws
- To track the spending history of a wallet
- Need for physical cash or tokens to provide user cryptocurrency privacy
The supervision of a centralised entity could intensify such concerns. E.g., The United States Dollar, including the digital version, is a centralised asset governed by the Federal Reserve. Suppose the government implements an exclusively centralised crypto utilising blockchain technology.
In that case, all transactions of every citizen could be publicly available and would likely require consumer protection laws focused on client data to remove anonymity. Based on cryptocurrency privacy market trends, there is a low probability that all transactions would move to a public ledger maintained by a single centralised entity.
How to Handle them?
Due to continuous technological advancements, data privacy regulations are developing along with increased perusal from regulators, but the question remains – is more cryptocurrency privacy better? Regarding cryptocurrency, a few questions arise about the privacy of each blockchain, like how consumers can navigate their rights, cryptocurrency privacy levels in the future, which data should be anonymised and more.
Every consumer is accountable for ensuring adequate consumer’s cryptocurrency privacy is maintained in each blockchain environment in which we participate. Given the circumstances, there is no correct answer about the level of privacy.
Instead, the future may have various coins, exchanges or blockchains, each having varying levels of privacy, useability, centralisation, and functionality. As the stakeholders, consumers, or participants, we must educate ourselves about each blockchain ecosystem and its benefits and risks.
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With multiple currencies and diverse levels of privacy, the utilisation of cryptocurrency in the future is an expected reality. There would be a Central Bank Digital Currency (“CBDC”) in addition to various decentralised and centralised decentralised finance (“Ce-DeFi”) options.
To navigate this complex ecosystem, users must research and partner with trusted advisors to maintain a competitive edge and prepare a resilient foundation for the world’s future.