If BTC privacy ends, Bitcoin die!

WATERCOOLER
#1

I would like to know your opinion about my idea. Do you agree or not?

KYC is the gateway to the government to regulate the industry until death. Never underestimate the power of the state.

Gold has trillions in market value, thousands of influential people and states have gold, and none of this prevents the Comex from rehipotecating gold futures contracts, as we have already seen in investigations, thats why I disagree that a bigger industry will be enough to prevent governments from attacking Bitcoin.

If regulation is too much it will destroy privacy and the government may ban UTXOS considered illegal from being accepted by companies, if UTXOs started to be “tainted”, this will destroy Bitcoin fungibility.

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#2

Have you done the Privacy course yet? I finished it a few days ago. Very good. It’s a bit technical but I learned a lot and so will you.

  1. FYI Bitcoin currently offers very little in the way of privacy out of the box. It’s pseudo-anonymous (though MimbleWimble is coming and that will help). Strategies like CoinJoin do help, but they’re far from real privacy offered by coins like Monero and ZCash.
  2. KYC/AML is a fact of life. There’s pretty much no getting around it for centralized platforms that are fiat on/off ramps in developed countries
  3. Bitcoin is global. Any harmful regulation would need to be a global coordinated effort between many governments to be meaningful. Odds of this actually happening are low. The global decentralized nature of crypto was designed for exactly this scenario.
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#3

As much as I agree with you on points 1 and 2, I do not agree on 3 (I would like to, but I do not agree). Currently, we ALREADY have a problem with fungibility.

Evidence of this:

Exchanges prohibiting withdrawals from users who used mixers / Coinjoin:

Companies and people buying “virgin” Bitcoin with a 20% premium:

That is, there is already a problem of fungibility, which for the time being is not serious, but it can get worse.

In these two contexts, we can already see that blockchain transaction tracking allows the association of these UTXOS with the KYC of people and companies.

From that point on, if a country’s government prohibits companies from accepting UTXOs that are considered dirty, that UTXOs will not have the same fungibility and this could have very bad consequences for Bitcoin.

#4

Interesting articles. The specific issue of "black, “grey”, and “white” UTXOs is something to keep an eye on to see how it progresses. Whether it becomes a significant issue of regulation or not it’s still in the best interest of exchanges to blacklist scam funds. Opt-in privacy features like CoinJoin do have a stigma associated with them (this is touched on the Privacy course) as they can viewed as only people “having something to hide” use them.

I think the real question is whether these issues become a big enough problem for the majority of users. From the article, the “black” scam/hacked coins make up 2%, these are certainly a problem but not for most users as exchanges should already have blacklisted these. Grey coins are 40%, this could be a problem if exchanges stop accepting them. Ultimately though, if this becomes a real nuisance, then I think a privacy by default solution will become a priority for the developers. Then all coins become grey. MimbleWimble is step in the right direction.

The other point to consider is the narrative of BTC as “digital gold” vs “medium of exchange”. Most people would rather hodl their BTC than spend it. BTC is a horrible medium of exchange due to it’s volatility, but it’s an excellent long term store of value. Stablecoins are the de facto medium of exchange token in the current market and for the foreseeable future.

I’d be interested to hear what @Grant_Hawkins perspective is on this. He’s the instructor of the Privacy Course.

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#5

Regulation will attack centralized platforms. That is to be expected. But there is nothing stopping us (even you or me) from creating decentralized exchanges and noncustodial alternatives to centralized forms. China has one of the most oppressive governments in the world, but they still cannot stamp out crypto. Keep it off centralized platforms and there will be no need for KYC.

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#6

I agree with you, but if people start to give up their privacy and do KYC, the government will be able to monitor UTXOs around the world and impose sanctions on weak points (stores and commerce in general), limiting or prohibiting Bitcoin purchases of certain UTXOs. My concern is that if that happens, Bitcoin’s fungibility will be seriously compromised.

And the main point and my strongest criticism is in relation to those who defend regulation without thinking about these consequences. The crypto space is already creating forms of self-regulation that preserve privacy through Zero Knowledge proofs for example.

To expect the government to regulate in a favorable way to cryptos is absurd.

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