Bitcoin was long believed to be a digital currency that allows people to transact anonymously online. However, this myth, which has been propagated by mass media, is far from the truth. Due to the Bitcoin network’s public blockchain, every wallet address and each transaction that has ever been made can be publicly viewed by anyone. While these addresses do not contain its owners’ personal information, methods have been developed, such as address clustering and linking Bitcoin transactions to IP addresses, that can expose the real-world identities of Bitcoin wallet owners.
Bitcoin is, therefore, not the best solution for those who rank financial privacy high when transacting online. However, there are now several altcoins that are specifically tailored for this purpose.
In this guide, you will discover five reasons why you should consider adding privacy-centric cryptocurrencies to your digital asset portfolio.
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Bitcoin “Crackdown” Will Push Users Towards Anonymous Coins
Bitcoin’s exuberate increase in value, from $1,000 in January to $20,000 in December 2017, has not gone unnoticed by financial regulators and tax authorities. Around the globe, lawmakers are preparing legislation that will dictate the use as well as the taxation of cryptocurrencies.
While an outright cryptocurrency ban is unlikely in most major economies, new legislation covering decentralized digital currencies will very likely not be very accommodating for cryptocurrency users. Hence, those who prefer to keep their digital currency dealings hidden from the prying eyes of the government, will increasingly move a substantial amount of their cryptocurrency holdings into anonymous digital currencies such as Monero (XMR), Zcash (ZEC), PIVX (PIVX), or Verge (XVG).
Idealistic “Be Your Own Bank” Cryptocurrency Users Will Move Into Privacy-Centric Coins
Aside from those who are concerned about future cryptocurrency regulation that could have an adverse effect on holders, there are also early adopters of Bitcoin who believe in the original “be your own bank” ethos of Bitcoin.
In light of the recently developed deanonymization tools for Bitcoin transactions, many libertarians, anarcho-punks, and cypherpunks in the cryptocurrency community will likely also move more of their digital currency holds into privacy-centric coins to prevent anyone from potentially accessing their funds.
Given that many of these are early adopters, this could lead to a substantial amount of funds moving into privacy coins.
Dark Web Marketplaces Are Switching to Anonymous Digital Currencies
When dark web marketplaces first arose to prominence — thanks to the infamous Silk Road — Bitcoin was used as the main currency to conduct transactions. However, due to the increasing efforts by law enforcement and other arms of government to de-anonymize the Bitcoin blockchain, there is now an increasing shift towards the use of anonymous cryptocurrencies to make sales and purchases on the dark web.
According to a report by cyber threat intelligence provider Recorded Future, Bitcoin is still the most commonly used digital currency on dark web marketplaces. However, users are increasingly switching to other currencies with Litecoin (LTC) being the second most popular pick. Dash, Monero, and Zcash are also popular currencies among those conducting business on the dark web.
The main reasons cited by Recorded Future for the change in dark web users’ financial habits are the increase in Bitcoin transaction fees, which have made purchases more expensive, as well as an increasing demand for more privacy.
The privacy-centric coins that emerge as the go-to digital currencies for dark web purchases could potentially see that positively reflected in their prices in the future.
Merchant Adoption for Privacy Coins is on the Rise
Another factor that speaks for investing in privacy-centric coins is the increase in merchant adoption.
Dash currently boasts over 500 merchants that accept the digital currency, according to DiscoverDash, and is positioning itself as a popular online spending currency due to its instant transaction and low transaction fees.
The Zcash team announced the formation of the Zcash Foundation in March 2017 to promote the cryptocurrency’s adoption. The PIVX team announced in August 2017 that they have launched two new projects — mobile wallets and a point-of-sale (POS) terminal — that are aimed at boosting merchant adoption while Verge is already being accepted at over 30 retailers according to the cryptocurrency project’s website.
Monero lists over 100 merchants and service providers who accept the anonymous coin as a payment method and due to its very active community this list keeps growing.
Furthermore, Monero’s lead developer Riccardo “fluffypony” Spagni, and entrepreneur and Monero enthusiast Naveen Jain launched Project Coral Reefin 2017 to increase the adoption of the anonymous digital currency by enabling fans to purchase albums of artists such as Mariah Carey, G-Eazy, and Sia using Monero at a discount during the Christmas period.
Given that these type of cryptocurrencies are primarily meant to be used as spending currencies as well as for low-cost remittances, increasing merchant adoption should also result in an increasing value of these coins. Hence, if this trend continues and the teams behind these currencies continue to push for merchant adoption, the values of these coins should also increase.
Transactions Are Faster and Cheaper
Due to the way in which the Bitcoin network has been coded, the digital currency has struggled with scalability issues for several years. These challenges have resulted in increasing bitcoin transaction fees and slower transaction confirmation times.
Another reason why leading privacy-centric coins, such as Monero, ZCash, Dash, and PIVX, make for a good investment is because their transactions are faster and cheaper compared to their pioneering predecessor and they add an additional layer of transactional privacy on each payment. This alone should bode well for the future values of privacy-centric cryptocurrencies as they can effectively do everything that Bitcoin can do as a spending currency and as a remittance system but also protects users’ financial privacy.
Regardless of whether you see anonymous digital currencies as a threat to society, as they could be used for criminal purposes or whether you believe that every individual has the right to personal financial sovereignty, in light of the current developments surrounding Bitcoin, it is likely that more funds will flow into the privacy-centric coins, which, in turn, would boost their values to new highs in the coming months and years.