Could Bitcoin's transparency be its downfall?

[TheNineClub]

Serious question I am not anti Bitcoin do not get the wrong impression and I have grown a deep hatred for our fiat system that is exploitative and ill natured.

When we compare Bitcoin to fiat there are a couple of differences which I think could impact us in the future:

1. Bitcoin's will become more tainted over time

2. This pushes governments to become concerned and impose more KYC requirements

3. Eventually most Bitcoin will be tainted to a degree. If we look at this research concluded by economist Rogoff[1]:

Rogoff’s estimate of the share of currency held by consumers for legitimate purposes is even more suspect. He relies on surveys of consumers, who report holding 5 to 10 percent of all outstanding currency. Then, by assuming that any cash that the surveyed consumers do not fess up to holding must be held for nefarious purposes, he concludes that 34 to 39 percent of all currency in circulation is used by criminals.

34-39% in fiat currency is a huge of money. Bitcoin is further limited by its cap of 21 million which means that if Bitcoin becomes the mainstream currency used by everyone the share of tainted money would be higher because of the cap with fiat more money is printed in the fiat currency which reduces this amount.

We already know that governments require anti-money laundering evidence for many transactions outside of cryptocurrencies such as buying a house requires proof that the money was earned legally and not through illegal activities. Exchanging money on exchanges requires identity which they probably look at your salary reported by the government.

We have seen that in the last couple of years governments have started to require KYC more, and I believe that as the share of tainted money increases, government regulation and intervention will also increase.

I am not saying it is a problem of Bitcoin because I think it is unfair and most of us have probably touched money that has been used in criminal activities without knowing it. That is the nature of cash but cash cannot be tracked as easily. Blockchain works against us in this way, providing an easy way to discover tainted coins. The government could use this as propaganda if it wanted to and convince people that cryptocurrencies are bad because a good portion of them are used in criminal activities but not just this because they can prove it and further convince others that btc is "bad".

How do we prevent this type of propaganda attack or invasion of privacy?


[1] source: https://www.independent.org/publications/tir/article.asp?id=1289

Well, it would be foolish of us to think that BTC would gain real adoption without having to change anything about it. And when it comes to transparency, it will just have to tweak it to fit the government's needs. So it will have to be transparent for their needs, but maybe not transparent as we would like it to be. It's all a game of give and take if we really want mass adoption. I would say some of those gives would be beneficial, while some might undermine the foundations of crypto.

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[BlackHatCoiner]

The problem, as you alluded to, is that we can evade all kinds of laws with software and technology, but in the end we live in a society that has rules, like not to launder money.

This wasn't my point. My point was that if an entity perpetually brainwashes everyone and tries to create a bad picture of bitcoin for their own benefit, you shouldn't bow your head and admit you're doing things wrong. For example, if few politicians state that bitcoin wastes too much energy and advise against its usage, don't try to change the code; the problem isn't into the code. We've spent hours on this debate, and we've debunked it.

Same goes for KYC. There's no study that reveals less criminal activity due to this undoubtedly extravagant requirements of personal info. Pretty much the opposite, it's extremely dangerous; it encourages identity theft, scams and helps scammers stay undetected. The reason the governments want it, and exchanges often intentionally add it, is control. It makes mass surveillance work more easily and effectively, it's moneymaking from the CEX's perspective, it's advantageous for chain analysis which brings even more money etc., all these entities cooperate for control.

So, when a CEX imposes KYC or some other arbitrary rule, such as "tainted coins", don't try to figure out a technical solution, such as improving privacy on a protocol level with cryptography. Just don't use the exchange.

[n0nce]

The problem, as you alluded to, is that we can evade all kinds of laws with software and technology, but in the end we live in a society that has rules, like not to launder money.

This wasn't my point.

Sorry for misquoting - wasn't intended!

So, when a CEX imposes KYC or some other arbitrary rule, such as "tainted coins", don't try to figure out a technical solution, such as improving privacy on a protocol level with cryptography. Just don't use the exchange.

I wholeheartedly agree with this. As I said before, someone trying to define taint and starting to censor certain transactions, should be cut out of business by all its users, just like people would stop going to a store that suddenly defines some of their paper bills as tainted and stops accepting them. I mean, it's a major inconvenience at least; going shopping, with all the stuff in your basket and being denied at the cashier, due to handing a dirty, old bill or one that has microscopic amounts of cocaine on it. Nobody would be interested in that; so they'd go to another store.
We need to see the same thing in Bitcoin and 'Bitcoin taint freaks'.

What we can do?
Run our own nodes, hold our keys, accept any Bitcoin and refuse any random arbitrary party's definition of 'taint'. Otherwise an economy doesn't function. Nobody checks a dollar bill's serial number or the substances found on it. Everyone just accepts it and uses it, certain that it will be accepted.
If someone were to start differentiating which bills they accept, they would be cutting themselves out of part of the economy; we should treat those who try to have this attitude on Bitcoin, the same way. Stop making business with them if they don't want our coins, instead of trying to convince them our coins are good (by sending KYC documents or whatnot) - so they understand they're cutting themselves out of part of the economy, not the other way round.

[Artemis3]

Just because the State legislates, doesn't mean everyone will obey. Bitcoin works with or without their blessing, it was designed thinking it would be outright banned worldwide, and turns out, it wasn't. Who decides what is tainted or not? That is not in Bitcoin's code. The moment you introduce any form of discrimination, the coin loses its value. That is why Bitcoin has remained strong, despite countless altcoins wishing otherwise. No centralization, no discrimination.

[amishmanish]

Bitcoin transparency is a two way sword, to some extent it has some disadvantages and largely its transparency is beneficial, as bitcoin trail is actually more identifiable than fiat. There is a need to understand that bitcoin can't be used for illegal activities or corruption in most legal entities. Which actually constitute the major chunk of corruption. Also it is always easier for government agencies to track more efficiently than fiat. On contrary bitcoin allows us to reduce cost of financial transactions, streamline financial management and allow better control over Realtime managements of funds.

[fiulpro]

There are certain countries where it can be a huge problem no doubt about it but then again we must understand that it's easier to do it in fiat which is something that is untraceable and at the same time more used by the illegal businesses and bitcoins can be tracked once you have a hold of the whole thing which am sure not many people in the government sector do. Fiat goes on and off in many ways and I also know people who keeps gold in their houses and evade paying taxes, they also sell it to various businesses so that they are not targeted also they can use other people to do that as well, with Bitcoins it's much more complex and the acceptance starts from knowing that it's not that private, it's trackable

[goldkingcoiner]

Excuse me, what happened to "Verify, don't trust"?

My point is that the government do not care if their claims are legit they care about convincing the others which are not yet using btc that is is bad. This is something I think will be a problem even if a lot of people do not share the same opinion here.

That's definitely happening: Lobby groups and governments do already pay millions to paint Bitcoin in a bad picture. It seems like a last-ditch attempt at stopping people from buying and using Bitcoin, which is very telling.
We have a topic here where they try the old 'Bitcoin == climate change' falsehood which cost them a ton of money and I believe it has achieved nothing:
"Change the Code, Not the Climate" FUD campaign coming next month

But to get back on topic; if Bitcoin's transparency was going to be its downfall, all these weird attempts and mental gymnastics to somehow make Bitcoin seem like a bad thing for people, wouldn't be needed at all.

That is 100% true. It might sound like some sort of conspiracy theory for some, however we all well know and have evidence for the fact that all governments are playing the propaganda game. Controlling thought is how you control people, and thats what they want. Control.

No matter how bad they paint a picture of Bitcoin, they might only achieve a slight slow-down of Bitcoin adoption. But the adoption itself is inevitable in reality. I think the governments of the world should know that by now.

However, never underestimate human stupidity...

[Fortify]

Serious question I am not anti Bitcoin do not get the wrong impression and I have grown a deep hatred for our fiat system that is exploitative and ill natured.

When we compare Bitcoin to fiat there are a couple of differences which I think could impact us in the future:

1. Bitcoin's will become more tainted over time

2. This pushes governments to become concerned and impose more KYC requirements

3. Eventually most Bitcoin will be tainted to a degree. If we look at this research concluded by economist Rogoff[1]:

Rogoff’s estimate of the share of currency held by consumers for legitimate purposes is even more suspect. He relies on surveys of consumers, who report holding 5 to 10 percent of all outstanding currency. Then, by assuming that any cash that the surveyed consumers do not fess up to holding must be held for nefarious purposes, he concludes that 34 to 39 percent of all currency in circulation is used by criminals.

34-39% in fiat currency is a huge of money. Bitcoin is further limited by its cap of 21 million which means that if Bitcoin becomes the mainstream currency used by everyone the share of tainted money would be higher because of the cap with fiat more money is printed in the fiat currency which reduces this amount.

We already know that governments require anti-money laundering evidence for many transactions outside of cryptocurrencies such as buying a house requires proof that the money was earned legally and not through illegal activities. Exchanging money on exchanges requires identity which they probably look at your salary reported by the government.

We have seen that in the last couple of years governments have started to require KYC more, and I believe that as the share of tainted money increases, government regulation and intervention will also increase.

I am not saying it is a problem of Bitcoin because I think it is unfair and most of us have probably touched money that has been used in criminal activities without knowing it. That is the nature of cash but cash cannot be tracked as easily. Blockchain works against us in this way, providing an easy way to discover tainted coins. The government could use this as propaganda if it wanted to and convince people that cryptocurrencies are bad because a good portion of them are used in criminal activities but not just this because they can prove it and further convince others that btc is "bad".

How do we prevent this type of propaganda attack or invasion of privacy?


[1] source: https://www.independent.org/publications/tir/article.asp?id=1289

I think that Bitcoin has several pitfalls or disadvantages at the moment, which might be eliminated over time or fixed it a different type of cryptocurrency. Transparency is possibly the best thing that Bitcoin has going for it now and can actually be used to the advantage of governments if all the input / outputs of the system are properly governed. It's similar to saying are dollar notes tarnished because they are used by criminals or maybe for snorting cocaine? All the previous uses of the coins may be coordinated and tracked, which is what governments like having access to with conventional banks, but that doesn't necessarily tarnish the current owner of those coins - they might be required to account for the source if they are identified though.

[Quidat]

Bitcoin transparency is a two way sword, to some extent it has some disadvantages and largely its transparency is beneficial, as bitcoin trail is actually more identifiable than fiat. There is a need to understand that bitcoin can't be used for illegal activities or corruption in most legal entities. Which actually constitute the major chunk of corruption. Also it is always easier for government agencies to track more efficiently than fiat. On contrary bitcoin allows us to reduce cost of financial transactions, streamline financial management and allow better control over Realtime managements of funds.

But i could say that transparency is more off an advantage or pro rather than on its cons but i cant really deny about being like a blade on having two blades which risk is really there or talking about disadvantage.
If transparency was its cons or cause of its downfall then it should have be replaced by  something more private or something in opposite with its characteristics which we cant deny that there are alts who do
have this kind of qualities or aspects thats why i dont really believe on such talks about its downfall because the support of the community of the king of all crypto is something that cant
really be shaken off easily.

[FanEagle]

I understand that there is a worry about the transparency and I understand that this could be used as a narrative against it. But at that point, you need to ask yourself, is fiat any better?

Obviously it is not that better but at the same time it is not going to be something that would be not followed neither, you are at the palm of the governments in that situation as well. Hence, we should not be really worried about the current situation and we should go with crypto and we would be a lot better and happy with it as well. That is at least what I think, maybe I am wrong but that is what I believe and fiat is always much worse than crypto.

[kryptqnick]

I think that if cash is still quite useful to criminals, there are often no requirements of providing any ID (especially for small sums) with, and a third of all fiat was used by criminals at some point, it makes no sense and is very unfair to target cryptos with all that AML stuff. Fighting financial crimes is important, and I think that starting with the biggest criminals (those laundering very big sums) must be the priority. This should affect cash, banks (through which billions are laundered till this day despite the KYC), and cryptos (but again, if we're talking at least about millions of dollars worth of them). Then, once we successfully fight that, we can move to smaller criminals. And anything below $1k is IMO not justifying imposing privacy violations on everyone.
And Bitcoin's transparency already makes it easier for authorities than when dealing with cash, for example. That should account for something.

[davis196]

1.I hate the concept of "tainted money" or "dirty money". Some lazy bureaucrats have invented this concept, so they could do less work trying to find criminals and money launderers. The lazier the bureaucrats the dumber laws and regulations we get.
2.The Bitcoin protocol isn't written on stone. The protocol could be adapted to the new conditions and it could be improved as well.
3.Why would Bitcoin's transparency be it's downfall? The "powers that be" (governments and central banks) like transparency(to some extent). They don't like complete privacy and anonymity. Do you think that privacy coins like Monero will ever become mainstream? I don't think so.

[Kakmakr]

One thing I have learnt over time is that the Internet can adapt to the needs of the people. We know from past experience that governments will clamp down one illegal site (Limewire, Frostwire, Kazaa Lite, Gnutella, and BitTorrent) and the next moment you will see several similar sites popping up like mushrooms in it's place.

The same will happen when governments force KYC requirements on Crypto sites... because you will see a lot of clone sites popping up ...that will not require KYC requirements. (Mixer sites / Online casinos / Faucets ....etc) Those sites will be used to break the chain. 

[hatshepsut93]

No one really cares that there are some illegal transactions in transaction history of many coins, not even governments care. You're not gonna get busted for having a tainted coin in this sense. What government might care is if Bitcoin becomes more and more popular among criminals - that would mean that Bitcoin became a loophole in the modern world of financial monitoring.

[Jemzx00]

No one really cares that there are some illegal transactions in transaction history of many coins, not even governments care. You're not gonna get busted for having a tainted coin in this sense. What government might care is if Bitcoin becomes more and more popular among criminals - that would mean that Bitcoin became a loophole in the modern world of financial monitoring.

There might be some instances where it really cares especially if the amount transacted is too large. I don't doubt that the government are monitoring some wallets that has huge amount of bitcoin or other crypto. So yes, there's a possibility that you might get in trouble or be busted for tainted coins on your wallet. Also, Bitcoin and other crypto are already popular to various criminal activities such as Darkweb transactions not only today but also a few years back.
I suggest to try mixing your btc first if you will be engaging in large sum of btc where you do not know where it originated.