Bitcoin and the Quest for Privacy: A Market Analysis
Good money in the Information Age is (1) recognizable, (2) scarce, (3) censorship-resistant, (4) durable & indestructible, (5) extensible, (6) salable, (7) portable, (8) fungible, (9) private and (10) divisible.
In this article, we will examine the undisputed digital monetary product, Bitcoin, and see whether there could be market demand for an alternative product that provides greater fungibility and privacy.
Bitcoin: Enough Privacy?
The Bitcoin protocol revolutionized computer science, creating a peer-to-peer digital currency that is scarce, secure, open and censorship-resistant. It enables individuals to conduct trust-less, permission-less transactions anywhere in the world. For more than ten years, Bitcoin has proven to be the world’s most secure public ledger, running on a network of over 10,000 nodes with a market capitalization of nearly $170 billion.
Could it be that Bitcoin’s success and steadily growing popularity will ultimately deprive its users of the privacy and control that some may be seeking? Is there an alternative coin or protocol that enables greater privacy while ensuring security, scarcity, and fungibility?
Blockstream Chief Strategy Officer Samson Mow said, "Money needs to be private and fungible in order for it to be a 'good' money. With Bitcoin, every transaction is open for anyone to see, so we still have a lot of work to do to get it there. Without privacy and fungibility, money can be used as a tool for oppression or financial surveillance. Bitcoin is the future of money and the future of money shouldn’t be Orwellian."
In this March 2020 interview with Blockstream CEO Adam Back privacy and fungibility are major topics.
Are these solutions good enough and coming to market fast enough? Even with these advancements will there be an opportunity for a new base layer coin to work in a complimentary manner with Bitcoin to satisfy market needs?
The Briefest of Histories
Since the early 1980s, computer scientists have been on a quest to develop a payment system or currency that guarantees individuals’ privacy and sovereignty over their assets. The challenge was to create a form of cryptography that hid the personal information of the parties involved in a transaction from the eyes of third parties. Another was to develop a process that issued new Bitcoin on predetermined, regular intervals but limited the ultimate supply to a finite amount of 21 million – thus ensuring its scarcity value.
There were several attempts to create a safe, secure digital currency in the 1990s. None came to fruition but all proved to be significant stages in the evolution of cryptocurrencies as we know them today. The true seminal event of this evolution occurred in 2008 with the publication of the Bitcoin white paper. In January 2009, the Genesis Block of the Bitcoin blockchain was mined, followed within days by the release of the software and the first transaction.
Within years, developers were introducing Bitcoin-like alternatives (“altcoins”) to the cryptocurrency universe. These coins were typically issued with specific use cases in mind and are each unique due to the use of various scripting languages, consensus algorithms, transaction organization schemes, security protocols, etc.
Conclusion
The unparalleled success of Bitcoin as a digital currency and store of value over the past decade is testament to both the genius of Satoshi Nakamoto and the diligence of the many entities that have executed, maintained and upgraded the network and the protocol along the way. Bitcoin is the category creator of the cryptocurrency asset class and with a market capitalization greater than $170 billion with hundreds of thousands of individual and corporate holders conducting over one million transactions per week and the bellwether of the cryptocurrency asset class.
Because it is so valuable as a result of its characteristics such as scarcity, portability and salability, therefore, it has naturally become the target of hackers and fraudsters looking to take advantage of users and attempt to find vulnerabilities in the protocol and the network. The forensic blockchain analysis industry has developed sophisticated techniques that can trace transactions and ultimately disclose the identity of participants in Bitcoin transactions.
At the same time, government regulators are requiring market participants to disclose significant amounts of personal information. The sharing and storage of this data, particularly public or private keys, by exchanges and government entities represents a separate area of weakness to the security and privacy of the participants.
Technology is constantly evolving though and developers now have a decades worth of experience and information gleaned from Bitcoin and the multitude of altcoins. Bitcoin has stood the test of time but a close study of its strengths and weaknesses reveals that there may be an unmet need in the market of product offerings for extremely scarce ghost money.
MWC is largely unknown and less than six months old but by market capitalization is already the number three privacy coin behind Monero and Zcash and the number eleven proof of work coin behind Dogecoin and Digibyte. As MWC’s brand recognition increases, exchange listings proliferate, users conduct due diligence on the superior blockchain technology of Mimblewimble that delivers mathematically provable scalability, privacy and fungibility and get more comfortable with it applied in the base layer with MWC and the remaining HODL rewards are distributed and overhang absorbed by the market then the interesting exercise of price discovery can really get started.
What does a world look like where anyone with an $80 cell phone can run an extremely scarce ghost money full node mobile wallet behind TOR and do atomic swaps with BTC or their stablecoin of choice? That is on the MWC Roadmap and will hopefully be delivered before the end of the 2020.
Just how much does the market want extremely scarce ghost money? That opinion will be arbitrated in the orderbook. Good luck MWC hodlers!
