Banks have long balked at the idea of bitcoin and most other digital assets, assuming their so-called "anonymity" opened them up to lots of risk and little reward.
I know this because I was once among them. For years, I worked within the walls of legacy financial institutions, where we'd openly deride crypto and, specifically, bitcoin.
But after I learned more about the space and eventually started a business centered around it, I quickly discovered that line of thinking is, well, plain wrong. Bitcoin offers holders many benefits; privacy just isn’t one of them.
In reality, it's even more transparent than our current bank accounts. Every transaction is traceable on the blockchain — though only to the addresses that initiated it. Compare this to Fedwire Funds Service and ACH payments, which don’t have this transaction history available. In fact, only issuing banks can see the transaction history in customer accounts.
Of course, bitcoin is nearly a decade old now, so it makes sense that industry players have found ways to enhance privacy. For instance, services like Bitcoin Fog anonymize coins, and CoinJoin obfuscates transactions.
These privacy tactics make basic detective work a bit more difficult, but blockchain forensics tools like Chainalysis use advanced tracking methods to trace cryptos back to the first block ever mined. The more points of data available, the easier analysis becomes.
Let's say I use an email address or verify my bank account information when creating that address. It’s only a matter of time before I can be attached to a transaction. Both identifying pieces of information are commonly used by exchanges to verify users. This transparency is both a gift and a curse.
If bitcoin were to go mainstream, banks will begin transacting in cryptos with retail businesses. And let’s be honest, retailers don’t have the best security integrity. Instead of waiting for the next inevitable retail data breach, transaction details could easily be scraped by myriad web trackers at any point.
Even still, this transparency is key to mass acceptance of cryptocurrency. The real question is to what extent that oversight should occur and how much the crypto community will concede.
Daniel Hoffmann, co-founder of Hedge, contributed to this article.