For bitcoin’s creators, their vision has always been to create a decentralized system of currency. In the context of cryptocurrency, this means a payment system in which money can be distributed without government interference.
And while this structure might seem simple, its vision is about to get a lot more complex.
In the simplest terms, Bitcoin’s programming code presents a three-tier privacy layer. As per news reports, this means that within this layer, miners earn Bitcoin by supporting a network of governments on behalf of consumers or small businesses, for example.
What Is Hidden in Bitcoin’s Code?
But this code does more than just function as a payment system for consumers. It also allows users to incorporate their digital identities into the transactions. It’s when this code is combined with incentives that we start to see the messier side of Bitcoin’s code.
Right now, the code base doesn’t provide an ideal incentive for users to try to build credibility on Bitcoin. On the contrary, it pushes them to minimize the privacy implications of Bitcoin transactions, in order to increase the stability of the network and the value of the network as a whole. For example, if you lose your privacy layer, you are forced to give the miners access to the information they originally demanded as part of the transaction.
If you’re scared of the idea of losing your anonymity, you might want to read on to learn the story of Nathaniel Federman, the convicted Silk Road member. Federal authorities have put him in a jail cell, where he only receives letters and sees two visitors a month. An affidavit reportedly says that he now knows the entire site was built using a part of Bitcoin’s code.
For would-be developers, this tradeoff of trust and anonymity can be brutal. Indeed, recent moves by the government are further reminders of just how controversial this digital currency is, and how it must be made trustworthy before it can spread its benefits.
Last month, the IRS changed its rules to claim income tax on bitcoin and other cryptocurrency. Bitcoin is now considered “property” and not a currency. For all intents and purposes, this rule change could potentially be crippling for cryptocurrency: It would make Bitcoin’s value effectively just paper money and would preclude any hope for much of the bitcoin-based currency infrastructure that could be used to distribute a lawful, decentralized currency to the public.
Even more surprising, the Department of Justice recently made an unlikely move by proposing to ban transactions of certain types of cryptocurrencies. As if that’s not bad enough, this ban also aims to create a legislative process that may lead to a crippling and constricting of the digital currency industry.
It is worth pointing out that the DOJ has not yet approved this ban. So far, the court system is not looking forward to the end of crypto’s open, even and unregulated, existence. With all this regulatory interference, it makes sense that blockchain proponents and cryptogamers have attempted to shift the conversation back toward the goal of Bitcoin’s founders: decentralization and the increasing efficacy of decentralized payments.
Public Policy Perspectives
The consumer benefit of making a transaction digitally is, of course, always an important consideration. The question here is about how the protection of consumers is protected, and how user privacy is also protected.
The government may want to protect those who need to be protected, and with so many innocent users potentially caught in their webs, privacy needs to be a critical consideration.
On the other hand, there’s also a sizable audience that craves more anonymity. While it’s true that digital currencies like bitcoin promise to offer an identity that isn’t in the hands of other government entities, this side of digital currency has its limits.
In recent days, we’ve been hearing a lot about the alleged massive transaction involved in cryptocurrency news site 9to5Mac’s story last week. While the details remain murky and the reactions questionable, one thing is clear: Regardless of the particulars of this private information breach, it’s clear that there are vast underground markets for this type of information.
In order to maintain the faith and trust of the people who want to use Bitcoin, it’s important that the crypto world moves away from the governments that are often pushing the crypto world to balance law with code. It can be difficult to do so, but we have made great strides in moving the crypto world from government to (as technical terms go) “blockchain.”