Cryptocurrencies have tried to accomplish quite a lot in the last 10 years. This is evident, especially in the case of the world’s largest and oldest cryptocurrency, Bitcoin. From being positioned as a decentralized form of cash that rivals traditional fiat to being considered as a robust store of value that gives gold a run for its money, the use cases of crypto seem to haven’t only diversified, but have become a lot more accessible.
However, in light of its relative success, it is only likely that there was compromises made. The past few years demonstrated how scalability and decentralization are often at odds together, and exactly the same can also be argued when it comes to increasing crypto-regulations and financial privacy.
On a recent episode of the What Bitcoin Did podcast, Brian Armstrong, Co-Founder & CEO at Coinbase, discussed issues regarding cryptocurrencies like Bitcoin becoming easier to use and the role of blockchain analytics companies, the latter that seem to be generating extremely divisive opinions regarding whether or not they are expected. Armstrong highlighted,
“There are certainly some challenges if you want to get easy payment methods hooked into crypto. Well, at least on those platforms, you’re probably gonna have to give up some privacy. If those things are gonna follow the law and stick around.”
Armstrong continued to note that after it involves AML regulations, the basic idea is that of deterrence, adding this could lead to quite a few operational challenges for exchanges like Coinbase. He argued,
“We’ve tried to work with regulators and even if every regulation isn’t perfect and has some unintended consequences, they do some good and we have to follow the law to kind of stay in business.”
However, among the key differentiators for the crypto-market, instead of traditional finance, is the power to have a higher standard of financial privacy. With the sudden growth of blockchain analytics companies, many feel that the differences between crypto and traditional finance from a privacy viewpoint may be in danger.
However, Armstrong suggested that although encryption is a new norm on the Internet, it should positively be the default in finance. Highlighting the explanation behind Coinbase Analytics, Armstrong went on to state that it is primarily to limit data sharing with third parties.
Regarding 3rd party blockchain analytic companies, that he said,
“They are essentially selling data that’s publicly available. It’s just, they’re packaging it up right. They’re looking at all the public blockchains. And they’re saying, what kind of patterns do we see?”
The debate within the necessity of analytics firms for the crypto-industry probably will continue.
According to data collated by Chainalysis from CryptoScamDB, an open-source database that allows users to report scams and their associated cryptocurrency addresses, since 2018, trust trading has been accountable for over 71 percent of the reports they receive. The recent Twitter hack can be considered to be the latest and most sophisticated.
Given the circumstances, just like how scalability has already established to re-negotiate terms with decentralization, regulations and safety concerns might soon have to do the same with user privacy and reach a middle ground.