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< | -- By RaulMazzarella; 11 Oct 2019 | >
> | -- By RaulMazzarella; 4 January 2020 | | | The need for privacy in the online financial system | |
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< | The creation, adoption, and use of the internet has modified the financial sector in a great way in the last few decades. Nowadays, a considerable amount of financial transactions is made in a digital fashion and everything indicates that this trend will keep growing. These kinds of transactions, have to be made through centralized systems that the banks control, so it is almost impossible to escape from them if you want to perform an online transaction. Of course, cash is always an alternative, but it is not convenient to travel with a big bag filled with cash, especially if the transaction is international. | >
> | The right to privacy has been recognized as a human right in several constitutions and statues around the world, among other reasons, because of its importance as a form of respect to the individual and its relation with freedom of speech. The protection of the right to privacy within the internet is of the biggest importance, especially after the famous Snowden’s global surveillance disclosures. In this context, privacy cryptocurrencies appear as an alternative to protect this right specifically within the online financial sector but with several problems to be confronted on the way. | | | | |
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< | Moreover, some central banks are evaluating the idea of issuing a digital currency fully controlled by the relevant government or the relevant bank, eliminating cash altogether. Of course, this idea of a centralized digital currency would have great benefits for users, such as fast and secure (or at least insured) transactions. For the States, this would be an ideal system as, within the boundaries of their laws, they would be completely aware of every transaction that all the users of the system make, they would have easier control of money laundering, bribery, terrorism financing and they would be able to conduct investigations of all kinds really fast. However, this new financial system comes paying a great price: privacy for the users of the system. Furthermore, there is always the risk that, with this kind of power, the privacy laws would not be respected by the States or the private institutions that control this system. | >
> | Nowadays, a considerable amount of financial transactions is made in a digital fashion and everything indicates that this trend will keep growing. These kinds of transactions, have to be made through centralized systems that the banks control, so it is almost impossible to escape from them if you want to perform an online transaction. Of course, cash is always an alternative, but it is not convenient to travel with a big bag filled with cash, especially if the transaction is international. | | | | |
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< | The universal declaration of human rights of the United Nations and the United States Constitution proclaims the right to privacy as a human right, and in the quest of this right, some alternatives have emerged as an answer to the control of the banks' centralized systems or a hypothetical cashless future. | >
> | Moreover, Some central banks are evaluating the idea of issuing a digital currency fully controlled by the relevant government or the relevant bank, eliminating cash altogether. Of course, this idea would have great benefits for users, such as fast and secure (or at least insured) transactions. For the States, this would be an ideal system as, within the boundaries of their laws, they would be completely aware of every transaction that all the users of the system make, they would have easier control of money laundering, bribery, terrorism financing and they would be able to conduct investigations of all kinds really fast. However, this new financial system comes paying a great price: privacy for the users of the system. | | | The alternatives | |
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< | In general, cryptocurrencies are an internet-based medium of exchange which uses cryptographical functions to provide financial transactions. These new kinds of currencies, most of the time, use blockchain technology and proof of work mechanisms to gain decentralization, transparency and immutability. They also share two additional characteristics: (1) they are open source; and (2) they are censorship-resistant. This means that States can prohibit the use of the crypto asset itself, but they cannot stop the transactions unless they gain control of 51% of the network, which is, in most cases, extremely costly. | >
> | In general, cryptocurrencies are an internet-based medium of exchange which uses cryptographical functions to provide financial transactions. These new kinds of currencies, most of the time, use blockchain technology and proof of work mechanisms to gain decentralization, transparency, and immutability. They also share two additional characteristics: (1) they are open source, and (2) they are censorship-resistant. | | | | |
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< | Notwithstanding the controversy around cryptocurrencies (and especially around price manipulation), the technology behind some of them could have a great impact on privacy in the financial sector. | >
> | Non-fully private cryptocurrencies, such as Bitcoin, are pseudo-anonymous (no individual person can be linked with a specific wallet or transaction per se). However, most of the time, they have public blockchains, that, in simple terms, are public ledgers where the information about wallets and transactions is stored. With this information, companies like Chainalysis manage to identify wallets that are connected to malicious or criminal activity, such as Darknet transactions, linking such transactions to real identities. | | | | |
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< | Monero, Zcash and Verge | >
> | To the contrary, privacy cryptocurrencies use the same blockchain technology, but try to go one step further, concealing information about senders and receivers during transactions through a variety of technical methods. The most famous of these coins are Monero, Zcash and Verge. | | | | |
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< | Non-fully private cryptocurrencies, such as Bitcoin, are pseudo-anonymous (no individual person can be linked with a specific wallet or transaction per se). However, most of the time, they have public blockchains, that, in simple terms, are public ledgers where the information about wallets and transactions is stored. With this information, companies like Chainalysis manage to identify wallets that are connected to malicious or criminal activity, such as Darknet transactions, linking such transactions to real identities. | >
> | The law in most places, including the U.S. doesn’t prohibit the use of cryptocurrencies and neither privacy cryptocurrencies and, in general, they follow collectibles rules for tax and other purposes. | | | | |
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< | To the contrary, privacy cryptocurrencies use the same blockchain technology, but try to go one step further, concealing information about senders and receivers during transactions through a variety of methods. The most famous of these coins is Monero, which uses ring signatures, ring confidential transactions, and stealth addresses to obfuscate the origins, amounts, and destinations of all transactions, providing all the benefits of a decentralized cryptocurrency, without any of the typical privacy concessions. On the same note, Zcash shielded addresses (that include their associated balances) are not visible on the decentralized blockchain that it uses. Finally, Verge uses multiple anonymity-centric networks such as TOR and I2P. The IP addresses of the users are fully obfuscated and transactions are completely untraceable in the decentralized blockchain that it uses. | >
> | Effectively, the use of this kind of cryptocurrencies nowadays may be the only way to “escape”, for legitimate reasons, the financial system control ensuring full and complete privacy to any user than want to make an online transaction. | | | | |
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< | Effectively, the use of this kind of cryptocurrencies nowadays may be the only way to “escape”, for legitimate reasons, the financial system control ensuring full privacy to any user than want to make an online transaction. Furthermore, if the “cashless” future is true, this kind of cryptocurrencies may become the only way to protect this human right to its full extent within the financial system. | >
> | The issue | | | | |
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< | However, due to its intrinsic characteristics, private cryptocurrencies have been subject to controversies for their relation to ransomware attacks, hacks, money laundering, bribery and terrorism financing. For these reasons, some cryptocurrency exchanges are delisting this type of coins and even some countries like Japan and France are banning these kinds of crypto assets entirely. | >
> | Due to its intrinsic characteristics, private cryptocurrencies have been subject to controversies for their relation to ransomware attacks, hacks, money laundering, bribery and terrorism financing. For these reasons, some cryptocurrency exchanges are delisting this type of coins and even some countries like Japan and France are banning these kinds of crypto assets entirely. Moreover, this is one of the easiest ways to achieve financial secrecy and tax evasion by the world’s rich, which is a big economic issue for States that are always trying to collect the maximum amount of taxes permitted by law. | | | | |
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< | Notwithstanding that these accusations may be true and that they need proper review and care, we cannot forget that criminals use every new technology in their favor. Shockingly, criminals use cars, mobile phones and the internet itself. Additionally, we have to take into account that some researchers have calculated that the U.S. Dollar is used 800 times more than Bitcoin (the main and biggest cryptocurrency) in money laundering activities. | >
> | Taking this into consideration, the cure could be worst than the disease. The risk of letting unregulated and uncontrollable digital assets take control of the financial system is too high to be allowed, reason why my view is that this kind of assets should be regulated and controlled in the only instance that is possible: within the cryptocurrency exchanges at the moment of its conversion to a traceable cryptocurrency or fiat (regular) money. The users of these assets should justify a general reason for its use just to discard the abovementioned risks as much as possible, following the standards of anti-money laundering regulations. Of course, this will limit the intended privacy that these crypto-assets intend to have but I believe this is the only reasonable way to keep them under control. Therefore, I believe that complete secrecy and privacy within the financial sector are impossible to achieve to its full extent for the risks associated with this specific sector. | | | | |
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< | At the end of the day, everything comes to a political question. What kind of financial system do we want? A financial system fully controlled by banks and governments choosing complete security over the privacy of its users or a financial system that chooses the privacy of its users over complete security? Is there a real middle ground between these two alternatives? | >
> | Now, looking at the other side of the coin, we cannot forget that criminals use every new technology in their favor. Shockingly, criminals use cars, mobile phones and the internet itself. Additionally, we have to take into account that some researchers have calculated that the U.S. Dollar is used 800 times more than Bitcoin (the main and biggest cryptocurrency) in money laundering activities, so its also impossible to have complete control over these activities. | | | Conclusion | |
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< | This paper discussed privacy concerns in the financial system, analyzing its current status, the potential future of the same, and the options for privacy that currently exist. There are people that have begun to apply solutions to these concerns within the boundaries of the technology that we have today. Maybe, society can reach a reasonable agreement that respects privacy and security within the system, maybe the utilization of this technology could be justified. In any case, it is worth to analyze this kind of technology and its relation to the human right to privacy.
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> | This paper discussed privacy concerns in the financial system, analyzing its current status, the potential future of the same, and the options for privacy that currently exist. There are people that have begun to apply solutions to these concerns within the boundaries of the technology that we have today, but with severe possible issues on the way to achieve this. | | | | |
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The draft is full of barely digested information. Your linking style suggests that, offering as link anchors long paraphrases of individual documents providing basic explanations. | >
> | At the end of the day, everything comes to a political question. What kind of financial system do we want? As a matter of public policy, governments should implement the strictest privacy laws to ensure that the “standard” online financial system protects this important right. In the way to accomplish this, the academy and the general population should help letting the governments know of their interest in privacy. | | | | |
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< | The best route to improvement is to assimilate this information, leaving most of the details behind, telling the reader what she needs to know in order to understand your own idea, which needs to be more prominent. It's hard in this draft to find your own individual contribution, as the conclusion shows. All that effort to learn results in nothing more definite than "maybe society can reach an agreement" and "it is worth [?] to analyze this kind of technology." | >
> | Regarding privacy cryptocurrencies, they should be regulated within the context of the cryptocurrency exchanges, applying to them anti-money laundering policies trying to preserve the privacy of the users as much as reasonably possible to avoid as many risks as possible.
I believe that it is impossible and dangerous to achieve complete privacy within the online financial system due to the risks involved, but we, as a society, should do everything at our disposal to protect the privacy of the users of the system as much as possible. | | | | |
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< | What is the idea you have formed for yourself after doing this reading? Put it at the top of the next draft. Show clearly how it emerges from the details, without subjecting the reader to the profusion of low-quality information about "cryptocurrencies" that floats out there. Give the reader some actual sense of how law treats the existing collectibles markets, from bitcoin to the ethanol tax credit, and why—as you mention but do not discuss—all of this is a pimple on the backside of a flea on the tail of an elephant when it comes to how the world's rich actually achieve financial secrecy and licensed tax-evasion. Then you can offer a conclusion which furthers the reader's understanding of your own idea—whatever that may be—and gives her a chance to take her own thinking further. | | | | |
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