Is Bitcoin's Increasing Anonymity a Threat to Privacy Coins?

Published on by Cointele | Published on

In recent months, the privacy it offers users has been steadily increasing, given that a number of coin-mixing services and add-ons are successfully providing more and more users with the anonymity that Bitcoin itself doesn't quite furnish on its own.

In other words, it's possible that Bitcoin is becoming an existential threat to such privacy-enhancing coins.

On the one hand, numerous privacy coins offer technological advantages over Bitcoin, even when Bitcoin is benefiting from mixing services.

In 2014 researchers at Pennsylvania State University managed to map the IP addresses of over 1,000 Bitcoin wallets, doing so by analyzing the Bitcoin network's data flow and looking for isolated transactions from single IP addresses.

"A lot of the privacy coins offer better 'technological' advantages, yet from a practical point of view can be a lot less private. Simply put, there's a lot more bitcoin users, and use cases. So if you can 'hide' in the crowd of bitcoin users, it's a much bigger crowd than say ZCash."

In addition to Bitcoin's improving privacy, a crackdown has been launched against privacy coins in various corners of the globe.

Asked whether the recent 100-person CoinJoin on Wasabi Wallet was a sign that Bitcoin would make privacy coins irrelevant, Havar replied, "No, not really. Firstly, it's not zero-sum, and I doubt Wasabi will be widely used as it's expensive and opt-in."

More damningly, experts associated with privacy coins argue that, while they boost Bitcoin's privacy to an extent, protocols such as CoinJoin don't really come close to providing the kind of anonymity offered by the privacy coins.

From one perspective, this is unfortunate, because even if some might suppose that cryptocurrencies need to be absolutely transparent in order to legitimize themselves, it's arguable that the reverse is necessary if Bitcoin or any other crypto is to become a bonafide and widely used currency - especially when privacy is becoming an important concern for an increasing number of people.

"I think improving bitcoin's privacy is important for its survival. The lack of privacy directly attacks bitcoin fungibility, which is what makes bitcoin a useful currency."

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