Daily Management Review

Bitcoin And The Likes Are No More Anonymous Enough For Some Crypto Users


Bitcoin And The Likes Are No More Anonymous Enough For Some Crypto Users
An increasing number of crypto users who are looking out for more secluded transactionsw think that bitcoin is just not anonymous enough for them.
As bitcoin matures and moves closer to mainstream banking, a risky category of crypto dubbed as privacy coins has discreetly been making headway this month. Privacy coins were designed with the sole goal of disguising users' identities and transaction details.
Monero and Zcash, two of the most popular cryptocurrencies, have gained 7.6 per cent and 46 per cent respectively, since March 1, according to CoinMarketCap data, while bitcoin has lost around 5 per cent.
In the last week, the pair has gained 4.7 per cent and 16 per cent, respectively. An index maintained by research firm Macro Hive that tracks privacy coins more widely has increased 4 per cent.
This could be a break in the crazy ride of privacy coins, which use variations in their underpinning blockchains to hide more data about transaction amounts and participants.
According to CoinMarketCap data, Monero's market cap - the total worth of all the coins around nowadays - has risen from $100 million to $6.8 billion to $3.4 billion within the last five years.
However, the rise in enthusiasm in crypto privacy correlates with bitcoin's decline as an incognito currency. It also comes amid a European conflict, increased sanctions, and strong rhetoric from officials in the United States, the European Union, and Japan regarding governing the cryptocurrency business.
The Center for Strategic and International Studies' Aidan Arasasingham and Gerard DiPippo point out that bitcoin is not completely anonymous, but instead is pseudonymous, with currency maintained in wallets opened under different or fictitious names.
"If a wallet can be linked to an entity or person, the actor can be identified," they wrote in a report in the context of the possibility of crypto being used in Russia and Ukraine to move funds. "Their transactions and wallets can be traced."
Aside from volatility, there are a few roadblocks that prevent privacy coins from becoming a top-tier altcoin, or alternative to bitcoin, which has a market worth of $776 billion.
Because of its potential for unlawful activities, some large crypto exchanges do not list privacy coins. Monero's daily transaction volumes have been mostly under $250 million this month, whereas Ripple's daily trading volume is over $1.5 billion.
"Privacy coins will probably grow. The challenge is that you have to do a lot of things do make them anonymous that make for a horrible user experience and adds big transaction costs," said Dave Siemer, CEO at asset management firm Wave Financial in Los Angeles who owns some Monero coins.
With authorities' ability to trace blockchain activity for bitcoin and other large cryptocurrencies has improved in recent years, there has been emergence of privacy coins. 
"Coins can, with some effort, be traced back to the very last "satoshi", bitcoin's smallest unit," Teunis Brosens, head economist of digital finance and regulation at ING, said in a note.
"Recent reports of ransomware money being recaptured, and arrests made for crypto exchange hacks made years ago, attest to this progress."
Concerns that Russian billionaires and other sanctioned individuals could use bitcoin to shift funds secretively have prompted large regulators to target the crypto industry.
Senators in the United States have sponsored legislation that would allow the president to sanction international cryptocurrency corporations. In addition, the European Union voted in favour of comprehensive digital asset laws. The Financial Services Agency of Japan has stated that anyone making unlawful payments to anyone targeted by the sanctions will be punished.
The Ukraine war and the Federal Reserve's hawkishness have helped to keep Bitcoin's swings under check.
The crypto powerhouse has been stuck between $35,000 and $45,000 since mid-January, being unable breach the $50,000 level it had hit at the end of 2021.
On Binance, the bitcoin long-to-short position ratio remains at 1.5, the same as it was on February 24, when Russia invaded.
Meanwhile, data from Glassnode reveals an increase in the proportion of bitcoin supply consumed by firms with a limited spending history.
This, according to Marcus Sotiriou, an analyst at GlobalBlock, a UK-based digital asset dealer, "suggests a positive market structure for the medium-long term."
"Bitcoin is consolidating under $41,000, as the percentage of long-term holders in the market continues to increase," Sotiriou said.