Bitcoin has a fungibility issue; it is transparent, which can be both good and bad. Transparency allows everyone to check how many bitcoin are in circulation and to ensure that nobody is cheating.
But it also allows bad actors (such as governments) to monitor the chain and compromise users’ privacy.
When a new user buys bitcoin using a regulated, know your customer (KYC) exchange, his information (including Bitcoin address, government ID and other identifying information) is being provided to his local government. This information allows them to view the activity of his wallet, since his coins are linked to his identity. It also allows easier seizure in case of a government ban on bitcoin.
This is obviously dangerous, especially if you live under an authoritarian government. There are options available for buying bitcoin without revealing your identity and compromising your privacy, but those are less popular and are usually harder to follow.
This calls for a privacy standard in Bitcoin: Where a majority of wallets enable privacy features by default, making it much harder for chain analysis firms to link transactions and wallets to real-life identities and/or previous transactions. Users must make sure each and every one of our transactions are private. This can be achieved by utilizing tools like CoinJoins, PayJoins and other privacy enhancing techniques. While these tools are no silver bullet, using them in the right way can allow users to achieve a remarkable amount of privacy. Stealth addresses also have an important role in the privacy standard, as they allow users to share their addresses without needing to worry about them being linked to their digital or physical identity. Running your own node will also play an important part, dramatically reducing the possibility that a node will be used to link your transaction history to your real-life IP address, which can be used to deanonymize your transactions.
If we are able to do that, we will be able to disarm…