Bitcoin and Anonymity

zorroThe entire concept of crypto-currencies is profoundly polarizing. Most people have grown up with a strong intuitive notion that currency should only be controlled by national governments. No one but the Treasury Department of the United States has the right to directly create additional money, for example. Huge teams of people are out there working to track down and punish anyone else who tries. In that context, it’s natural that many people would react with a certain amount of suspicion to the idea of currency existing outside of national control. A closely related, and equally polarizing, issue is the anonymity that the platforms offer.

Engaging in transactions anonymously with a typical currency is incredibly difficult. Any electronic transaction tends to be carefully noted in several different computer systems, including details about what account was used. Cash can be a way of getting around this, but requires that someone be physically present during the transaction. This means that there will always be a possibility of witnesses or video. There are tricks that can make it very difficult to trace back from a transaction to a particular person, but they tend to require a lot of planning and a deep commitment to staying out of sight. Just the fact that someone is willing to go to all of the effort involved tends to raise suspicions from the sort of people who believe that you shouldn’t fear government wiretapping unless you have something to hide.

With crypto-currencies like Bitcoin, on the other hand, anonymity is a major feature of the system. The protocols that are used to generate and trade value only care about math and numbers; they don’t have any particular interest in the humans behind them. On one hand, this allows people to enjoy a level of privacy with their purchases that hasn’t otherwise been possible since the rise of electronic transactions and ubiquitous video cameras. On the other, it clearly does make it more difficult to trace genuinely criminal activities back to the person responsible.

The dispute is ultimately about priorities. One group of people mainly values law and order, and feels that trading away potential privacy for the promise of additional safety is a wise move. Another group believes that privacy and anonymity are fundamental requirements for freedom. The tension between the idea of protecting freedom and that of potentially enabling crime isn’t going to go away any time soon.