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| | | The need for privacy in the online financial system | |
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< | 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. | >
> | The right to privacy has been recognized as a human right in several constitutions and statutes 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 greatest 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 addressed on the way to this goal. | | | | |
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< | 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.
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. | >
> | 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. 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 and States would have easier control of money laundering, bribery, terrorism financing. However, this new financial system comes paying a great price: privacy for the users of the system, and here is exactly where this technology enters the game. | | | 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. | >
> | 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. | | | | |
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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. | >
> | 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 link transactions to real identities. | | | 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.
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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< | 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. | >
> | Effectively, the use of this kind of cryptocurrencies nowadays may be the only way to completely “escape”, the financial system control ensuring full and complete privacy to any user than want to make an online transaction. | | | The issue
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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< | 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. | >
> | Taking these factors into consideration, the cure may 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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< | 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. | >
> | 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 in money laundering activities, which proves that is impossible to have complete control over financial activities in general. For these reasons, I believe that these assets should not be banned in their entirety. | | | Conclusion
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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< | 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. | >
> | 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 this human right. | | | 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. | |
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> | | | | 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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