Updated: Sep 30, 2021
I've been a huge Pokemon fan basically since the day I was born. One of the things I love about the games is the variety of Pokemon available to choose from. For almost any type you choose there are usually 3 or 4 different types that can counter it, which provides balance to the entire ecosystem.
I personally favored Psychic-types because of the Anime episode where Sabrina's Alakazam completely dominated Ash's team. Overwhelmed by his defeat, Ash re-evaluated the situation and set out to catch a strong Ghost-type Pokemon to counter the Alakazam. After catching a Haunter, Ash was finally able to return to the gym battle and defeat Sabrina.
Similar to Ghost-type Pokemon, private cryptocurrencies stay lurking in the shadows of the crypto world. You may not need to use them in every scenario, but they certainly serve their purpose when the time is right.
There are a lot of people with the mindset "I don't need privacy if I'm not doing anything illegal." Although this makes sense in theory, privacy is more complex than that. My goal by the end of this article is to help you understand the role that private assets play in the crypto ecosystem as well as the opportunity it presents.
Bitcoin vs. Venmo - Public Ledgers
Bitcoin is a public blockchain. There are 2 important words to know here:
Public: Viewable by anybody
Blockchain: Immutable database of transactions
This means anybody has access to a permanent record of all Bitcoin transactions that is being updated constantly. If you've ever used Venmo this next section will be easy to understand. Venmo can be compared to Bitcoin in a few different ways when looking at their transaction details.
Since I'll be referring to Venmo frequently in this section, here's a screenshot I've taken from the global feed which we will use as an example:
There are a three elements of this transaction that we will focus on.
User accounts (Let's call them Red & Blue)
In this Venmo transaction we can see that Red sent Blue money.
Clicking on Red's name will take us to her personal feed where we can see her public transaction history.
Now let's pretend Red paid Blue in Bitcoin -- The two previous statements are the same however this is where things start becoming different. Firstly, Red & Blue's names would appear as their Bitcoin addresses which makes the transaction pseudo-anonymous. Similar to Venmo, if you search someone's Bitcoin address you are shown a history of their past transactions. This can present a problem once you match a person to a wallet, because you are then able to discover much more information depending on how well you know them.
The second major difference between a "Bitcoin account" and Venmo account is that when somebody searches your Bitcoin account, they are able to see all the money in your wallet.
Let's imagine Red was looking at Blue's Bitcoin feed and recognized their mutual friend Green's wallet address. If these are Blue and Green's only Bitcoin wallets, Red now knows how much BTC each of them own. Red also now has enough information to find out every time Blue has sent or received Bitcoin from Green. This record includes the details into the date & time the payment occurred AND the amount of money in each transaction.
This is just a micro-scale example of what is possible through blockchain monitoring. The graph below shows the growing number of federal contracts with blockchain analytics companies each year. If crypto continues to rise as a global asset class, it's only a matter of time until governments start monitoring all transactions conducted on public blockchain networks.
Up until this point I have been providing 100% facts. This specific section will be opinionated so I want to make my stance clear beforehand: Optional privacy is not privacy.
Cryptocurrencies with optional privacy, similar to Venmo, already exist (see: Zcash) but their private transactions are not utilized as much as you'd expect from a so-called "privacy coin." A majority of Zcash transactions are made publicly since that is its default payment setting. I would imagine this explains why so many Venmo transactions are made public as well.
Whether you decide if optional privacy is the right "Pokemon-type" for you, there is no 100% correct answer. As you gain a better understanding of how the crypto world works, you will start developing your own ideological list of features that are important to you. This will ultimately help you determine which investments will bring you the most peace of mind. Sometimes I think of it like selecting an economic-religion.
Privacy coins - "Fuck you" Money
Privacy coins are the cash of the crypto world. The advantage they hold over non-private cryptocurrencies is called fungibility. Privacy coins achieve fungibility through hidden transactions, making each unit of currency indistinguishable from one another (just like cash).
This concept might not click at first, so hear me out.
Let's use Monero as an example. The reason Monero coins are indistinguishable from one another is because there is no public existence of their transaction history. This makes each coin like a freshly printed dollar bill that has never been used before.
Still not clicking? Here's a scenario:
Pretend you own an online clothing store that accepts Bitcoin. You've had a successful year and sales are really starting to pick up. You go to cash out some Bitcoin profits into your personal wallet but are stopped from depositing the money. You open your wallet and receive the (100% real) following message:
You find out that sometime within the span of the year, somebody used "tainted BTC" for multiple purchases at your store and you are now in possession of it. This leaves your address susceptible to becoming blacklisted by certain platforms whether you did anything wrong or not. This is possible is because Bitcoin doesn't have the fungibility of private crypto assets.
Long story short: Without fungibility, people are free to judge your credibility based on your previous transaction history.
Maybe you want to spend BTC at your favorite gun store? Congratulations, your wallet is now banned from spending BTC at stores that don't support the 2nd Amendment.
Maybe you decide to support your local marijuana dispensary? Oops, your employer may have some words to say about that.
Maybe you find yourself down bad-bad and decide to actually pay for PornHub? Sorry, gotta find a new exchange to trade on.
Obviously these are exaggerated hypothetical scenarios, but it's not too difficult to imagine a future like this considering the censorship we see around the world today.
Privacy coins give users full control of their finances for the first time in history. And this, my friends, is why privacy coins are "Fuck you" money.