Let's talk a little bit about privacy

At this moment, it seems like people, in general, still don't know what to think about privacy, and I think I know why.  The news we hear or read about privacy is all about "the government wants to tax cryptos", "the use of cryptos for illegal activities" and other similar negativity.

One of the reasons why Bitcoin was created is because it provided "privacy", and this such privacy came because the wallet address was that really long sequence of numbers and letters, making it impossible to determine who owns it.

If you think that, let me say: you are way off! You have no idea what is going on. In reality, not only do people know how much money you have in your wallet, but they also know where it comes from and where it is going. Let me give you some examples.

You have BTC and decide to buy a Tesla Model 3

At this point, for this example to make sense, our great friend Elon Musk has to say that Tesla will accept BTC as payment again. So let's assume that is the case. I will give you a spoiler: at the end of this example, you will probably tell Elon that you are the one who doesn't want to buy a car and pay in BTC.

Let's say a Model 3 costs 1BTC: you walk into the Tesla store and buy your car. At the cashier, they give you a wallet address and you are requested to transfer 1BTC from your wallet to theirs. You do the transfer and then you have to send them either the link to the transaction or your wallet address so they can see, in the blockchain explorer (a BTC scan) that the transaction was done and was confirmed.

I’m sorry to say so, but now they know everything about you.

Let's say you sent them the link for the transaction. Now, they review the transaction and they are able to see:

1. Address of the purchaser wallet: 0xasdviqr834laskdn1
2. Amount of BTC in this wallet: 30.235435 BTC
3. Addresses from where BTC come into this wallet
4. Addresses to where this wallet sends BTC

Your name is not there. But you just bought a car at Tesla and, certainly, you had to give them your name, address, phone number etc. Now, Tesla has your name and they know your wallet address.

Let's say you use BTC to buy other stuff and, of course (why not?), you use this same wallet to pay for that. Now, Tesla knows exactly where you spend your money. Once again, the address where you send your money is a complicated series of letters and numbers but honestly, it wouldn't take too much time for someone to build a table and find out the names associated to the wallets where you send money.

One of the most important marketing tools is to understand your clients individually: know what they buy, where they go, what food they eat and so on... when you understand that, you are able to design a product/service that is targeted for that exact person. In today's world, who has all this information? Credit Card companies. They shouldn't be allowed to sell this information to companies, but who knows?

In the bitcoin world, this information is now public. It's not owned by Visa or Mastercard or Amex. Anyone can access it.

Do you want Tesla to know everything about you? After I thought a little bit more about this, I thought to myself “Thanks Elon, for saying that Tesla will not accept BTC anymore.”

Analyzing your competitors

In this second example, let's say you own a supermarket and you decided to accept ETH (I'm just writing this example using ETH instead of BTC because the problem is the same for both crypto coins) as payment.

To make it simple, you have your wallet address printed as a QR code at the cashier. You don't know, but a big supermarket chain is planning to open a store in your neighborhood and they have started to estimate your sales/revenue you make per month, quarter, semester and year.

In the past, if you wanted to get this kind of information, you would have to hire a few consultants to interview the people in that neighborhood and ask them where they get their groceries, how much they pay every time they do it, how often they go etc.

Since your supermarket takes ETH, all they have to do today is read that QR code at your cashier and that's it. Now they know how much ETH goes into your account everyday and they can see how much people buy every week, month, if they buy more on Mother's Day, on the Holidays and everything else. It's public.

In the "non-digital currency" world, the money that you receive goes into your business bank account. Does that bank show anyone how much money is in your account? Of course not! Why? Because you don't want people to know this information. But the amount of money in your crypto wallet is public, as long as they know the public key to it (that address).

"Oh, but as soon as the crypto gets into that account I transfer it somewhere else", you could say. And my answer to that is "So what? Once someone knows your business' wallet address, it is easy to see where you are transferring the money." This is zero privacy!

A security problem

This example is built on top of the previous one (the supermarket owner) and is related to something particular in the country I was raised: Brazil.

This is a country where kidnapping became a well organized industry. Once the kidnappers have your wallet address, they know how much money goes into it daily and how much money is in there. In the past, they would estimate "this guy must have money". In this digital era, they will simply know "this guy has money!".

Privacy is super important

I just gave 3 examples on how the lack of privacy is not good, and notice that not one of them mentions government. You might not like to pay taxes (I don't know anyone who likes to do that), but they are owed. Any government, more corrupt or less corrupt, has bills to pay and, in order to pay for those bills, they rely on taxes. I'm not writing this article to discuss if your government charges too many taxes or doesn't provide good service with the taxes you pay. That's not my intention. I'm just saying that taxes need to be paid. Hiding your income/money so you pay less tax is bad for everybody in your community (you might not like what I just said but it is the truth).

Who is against privacy?

You might think that the entities that are most against crypto currencies are the countries (governments) and their central banks. Let's analyze this.

Governments

Governments are afraid to lose income because people may be hiding their wealth in crypto. Yes, this could be true and governments could go bankrupt if the whole country started using cryptos and not reporting their earnings to the tax authority. Let's not turn this into a war between the people and the government. In my opinion, the people will always lose, and in a situation like this, the middle and lower classes. The very rich already know how to deal with their wealth in order to pay the smallest tax possible and they will do it with crypto too.

Governments have other ways to verify the people's income. If you work, you get paid for it somehow and you use that money to buy stuff: groceries, car(s), a place to live, you travel. Let's say that, suddenly, everybody in the country and all companies decide to use a crypto and "hide" that money from the government. If people are buying stuff, traveling and doing all sorts of things, that means that money is changing hands. That's enough for any government to be able to charge taxes somehow. If people are hiding the money, the governments will create different rules and those will be, usually, worse for the people.

I think that this is one reason why governments must be involved in the privacy subject discussion. In fact, I think this has already started. I don't think that governments are against privacy, but they are surely worried they could lose income.

Central Banks

Central Banks are always very close to the countries governments but I thought it would be best to analyze them separately because now we are not discussing taxes but other issues like money printing and interest rates.

I think the first reaction of Central Banks was to be totally against cryptos because they could become irrelevant, but that would be their own fault! I have read some articles where I notice that some Central Banks are discussing that they should be issuing their own crypto (digital currency), and I applaud that.

This is very interesting because any Central Bank in a serious country would discuss things like privacy very seriously when creating their own crypto, and one of the talking points would be something like "Central Banks are not interested in knowing where and how much people spend their money, in order to prepare marketing campaigns targeting them". Once again, I'm not defending a centralized financial system because, the way I see it, crypto created the decentralized finance and is fixing a problem created by the Central Banks. However, not everything that a Central Bank does is terrible. We need to acknowledge that. We might just find a solution that's in the middle, where the CB is not able to issue more currency but was able to determine governance rules that cover privacy without excluding tax reporting, for example.

Banks

Who are the guys that make a lot of money managing and transferring money all around the globe?

In my opinion, the banks might be the big losers if crypto become widely used as currency. They take complete control over our money. Just a few examples:

• Savings accounts: they pay us 0.01% interest and lend our own money to others (and ourselves) at 10%.
• Fees: for anything you want to do, they charge ridiculous fees. For international transfers, where SWIFT is used, fees seem to be especially high and service really poor, taking days for the receiver to get the money.
• Credit cards: they charge fees for absolutely every time you use your credit card, and they hold your money for some time until they actually transfer it to the vendor, so they earn an extra $ in interest.
• 401k (or, your retirement fund): don't even get me talking about what they do with this money!

Imagine what could happen to banks if people suddenly notice they can send money to anywhere in the world for almost no fees, and instantly. How much revenue would they lose?

You will notice that banks are, somehow, trying to take over, or surf the crypto wave by creating apps that will help people transfer money faster and cheaper, invest money with better interest rates. At the same time, they are also financing campaigns against crypto, attacking specifically the privacy issue. Why that? Because they provide privacy. Who knows how much money there is in your account other than you? Nobody right? Wrong. Your account manager and other managers at the bank know. The question you should be making is: why don't they sell this information to other people or companies? Because they have a fiduciary responsibility. Banking is regulated and if they do that, they will go to prison.

Banks are in disadvantage here: they are completely regulated and everything in crypto in unregulated. That's the reason why, in general, they cannot just jump in there and make a lot of money. So, while they aren't able to get in there, they that place is a bad place. They will change their opinion as soon as they are able to officially get in there.

Regulation and Privacy

The Wild West: Billy the Kid robbed a bank. Who lost the money? The bank owner or the account holders? Today, the answer to this question is very clear: it's the bank's money. But at that time, what do you think is the answer?  That’s right, the account holders.

What I’m trying to say here is what is and always has been true: Financial Services need to be regulated, or the powerful people in the world will take advantage (because they can) and the small ones will suffer. Do you think Elon Musk lost money when he said that Tesla wouldn’t accept BTC anymore? This was a really good opportunity for him to make another couple of hundred million dollars:

1. He sold his own BTC before the announcement and
2. Buy even more back after the 20% dip he caused

Why “can” he do this? Because the market isn’t regulated. If he does that in the stock market, he will be put in prison.

Who wants the crypto world to be regulated?

This should be clear now: governments, Central Banks and Banks. Do they want to have it regulated because it will be better for the people? Certainly not. They are defending their own interests. 

Who doesn’t want the crypto world to be regulated?

The whales (who, in my opinion, should be called sharks instead). Why? Because then, they will be able to do whatever they want and not face any kind of charge for what, in regulated markets, would clearly be defined as crimes.

The organized crime – I’m talking about powerful organizations that know how to hide their revenue/income already and just gained a new powerful set of tools in the cryptoverse.

And what about the normal person that made a few million dollars having invested on crypto?

Well, the normal person will pay taxes, somehow, at some point. It is not easy and it costs money to keep hiding money. Are you willing to create a trust fund, then a LLC under that fund, and another company in the Cayman Islands and so on, in order to hide that money? That’s the kind of thing that very rich (not the normal person that made a few million) do, or the organized crime, or Corporations. I’d say the normal person just wants to be able to buy a nice house, a nice car, maybe a boat, and be able to travel and not worry about the future. 

The average person needs privacy because of the reasons I mentioned in this article, but he also wants the safety that regulation will bring to him. Paying taxes may be worth to defend him against the sharks.

Regulation will come to the crypto world, and serious discussions regarding privacy should be done then.

Conclusion

My intention, in writing this article, was to make you aware of the real importance of privacy and how the conversations around this subject are misleading. We have to stop talking about privacy because of the government, illegal activities and tax evasion and start to discuss it based on real problems that could end privacy for all the good people in the world.

Someday in the future, the cryptos that are used in the real world (as currency), will have to have privacy in them. Do you think BTC will be able to implement privacy? Or ETH? Guess which crypto was created considering privacy in it's design? Yes! $TXL. It is not available now because of unclear regulations (meaning governments are reviewing privacy) but, based on what Tixl wrote in their last roadmap article (Jun/21), once privacy becomes a reality, Tixl will just need to "turn it on" (I'm over-simplifying this, most likely).

Privacy needs to be discussed and figured out. Governments need to regulate this. It's not an easy discussion, but just like crypto currency, privacy is something that will have to exist.