For Some Crypto Users, Bitcoin And Other Similar Cryptocurrencies Are No Longer Anonymous Enough

For Some Crypto Users, Bitcoin And Other Similar Cryptocurrencies Are No Longer Anonymous Enough
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A growing proportion of crypto users seeking more private transactions believe that bitcoin is insufficiently anonymous for them.

As bitcoin grows and approaches mainstream banking, a dangerous category of cryptocurrency known as privacy coins has quietly gained traction this month. The main purpose of privacy coins is to conceal users’ identities and transaction details.

According to CoinMarketCap data, Monero and Zcash, two of the most popular cryptocurrencies, have gained 7.6% and 46%, respectively, since March 1, while bitcoin has lost roughly 5%.

The pair has gained 4.7% and 16% in the last week, respectively.

The value of an index maintained by research firm Macro Hive, which analyses privacy coins more broadly, has risen by 4%.

This could be a turning point in the wild ride of privacy coins, which hide more data about transaction amounts and participants by varying the blockchains that underpin them.

Monero’s market cap – the total value of all the coins in circulation today – has climbed from $100 million to $6.8 billion to $3.4 billion in the last five years, according to CoinMarketCap data.

The surge in interest in crypto privacy, on the other hand, coincides with bitcoin’s demise as an anonymous currency. It also comes amid a European war, heightened penalties, and strong language on cryptocurrency regulation from authorities in the United States, the European Union, and Japan.

Aidan Arasasingham and Gerard DiPippo of the Center for Strategic and International Studies remind out that bitcoin is not totally anonymous, but rather pseudonymous, with currency kept in wallets opened under multiple or fictional names.

“If a wallet can be linked to an entity or person, the actor can be identified,” they wrote in a report in the context of the possibility of crypto being used in Russia and Ukraine to move funds. “Their transactions and wallets can be traced.”

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Apart from volatility, there are a few impediments to privacy coins becoming a top-tier altcoin, or alternative to bitcoin, which has a market capitalization of $776 billion.

Some prominent crypto exchanges refuse to list privacy coins due to their potential for illegal activity. This month, Monero’s daily transaction volumes have been typically under $250 million, whereas Ripple’s has been over $1.5 billion.

“Privacy coins will probably grow. The challenge is that you have to do a lot of things to make them anonymous that makes for a horrible user experience and adds big transaction costs,” said Dave Siemer, CEO at asset management firm Wave Financial in Los Angeles who owns some Monero coins.

Privacy coins have risen in popularity as authorities’ ability to track blockchain transactions for bitcoin and other large cryptocurrencies have gotten better in recent years.

“Coins can, with some effort, be traced back to the very last “satoshi”, bitcoin’s smallest unit,” Teunis Brosens, head economist of digital finance and regulation at ING, said in a note.

“Recent reports of ransomware money being recaptured, and arrests made for crypto exchange hacks made years ago, attest to this progress.”

Large regulators have targeted the crypto industry due to concerns that Russian billionaires and other sanctioned individuals could use bitcoin to move funds secretly.

Senators in the United States have introduced legislation that would allow the president to impose sanctions on foreign cryptocurrency firms. In addition, the European Union approved comprehensive digital asset legislation. The Japanese Financial Services Agency has declared that anyone who makes illegal payments to anyone who is subject to sanctions would be penalized.

The Ukraine conflict and the Federal Reserve’s hawkishness have helped Bitcoin’s fluctuations to be contained.

Since mid-January, the crypto powerhouse has been trapped between $35,000 and $45,000, unable to break over the $50,000 mark it reached at the end of 2021.

The bitcoin long-to-short position ratio on Binance is still at 1.5, the same as it was on February 24, the day Russia invaded.

Meanwhile, data from Glassnode shows that organizations with a limited spending history are consuming a greater amount of bitcoin supply.

This “suggests a bullish market structure for the medium-long term,” according to Marcus Sotiriou, an analyst at GlobalBlock, a UK-based digital asset dealer.

“Bitcoin is consolidating under $41,000, as the percentage of long-term holders in the market continues to increase,” Sotiriou said.

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