Edward Snowden shocked the world in 2013 when he revealed that conspiracy theorists were right about the U.S. government’s indiscriminate mass surveillance. Though the news came as a surprise to many, perpetual surveillance is common practice in many industries, particularly in the banking and finance sectors. Whether these incursions into the minutiae of our daily lives are justified to keep us safe from militants, drug lords, or tax evaders is a complicated question. We can definitively say, however, that the market for privacy has exploded, and the cryptocurrency market are a natural outlet to fill that demand.

Cryptocurrency Market
dry2 / Pixabay

There has always been a market for privacy. The modern equivalents are tools like Tor, VPNs, proxy servers, asymmetric encryption, and now cryptocurrencies. The Silk Road online drug market was the first “killer app” for bitcoin, mainly because, for the first time in history, the market saw a way of executing a financial transaction between strangers who had some reason to not want to know each other. Privacy clearly has value in black markets, but that was just the start.

The next major user group to jump on Bitcoin were libertarians who had been trying to create free market money for the previous several decades, and asymmetric cryptography hinted at the possibility of private virtual money. This group fundamentally believes in the separation of money and state, and was willing to speculate on bitcoin as the first successful implementation of this theory.

Fast forward eight years and about $85 billion in market capitalization, the cryptocurrency market is rapidly developing, with more than 800 currencies and nearly 200 digital assets built on the technology. Blockchain startups have raised about $1.5 billion in venture capital investment, and nearly $1 billion in crowdfunding through Initial Coin Offerings (ICOs). Its aggregate value propositions are so much larger than privacy, but privacy is nonetheless a fundamental component of the technology.

Indeed, even within the cryptocurrency market, a niche market for enhanced privacy features has developed. The top five privacy-enhanced cryptocurrency market currently have a combined market capitalization of more than $2.5 billion. The reality of this figure is that it represents more people voicing, at least through their capital allocation, that privacy is not just the domain of criminals.

Bitcoin is often mischaracterized as an anonymous currency. It is more appropriately labeled “pseudonymous,” because bitcoin addresses are fully public and users can be identified with correlation techniques. For instance, a user might have a strange-looking base58 encoded string called a “bitcoin address” that looks unfamiliar. However, the moment the users sends funds to or withdraw funds from it on an exchange for fiat currency, the identity can be matched. At this point, the entire transaction history can be reconstructed in the user’s name since all transactions are published to the blockchain, a public ledger.

Soon after the Silk Road FBI bust, the cryptocurrency community realized there was a demand for enhanced privacy, so an innovation race kicked off to figure out how to best

obscure transactions and users. Some of the first solutions involved simply mixing coins to make it more difficult to trace transaction histories. However, this degree of difficulty is a function of the number of coins involved the mixing process. The premise behind schemes like ring signatures and zero-knowledge proofs is committing every coin to that purpose. This has also spurred an entire sub-industry within the cryptocurrency space. Some of the major players dedicated to spanning these technologies include Dash, Monero, Zcash, and ZenCash, the project that I co-founded.

As exemplified by Venezuela’s economic woes, economic privacy is vital to human welfare. Last year, consumer prices rose 800%, the nation’s GDP collapsed by 19%, and about 75% of Venezuela’s population lost an average of 19 pounds in body weight due to lack of proper nutrition. The grand Bolivarian Revolution may have offered a different brand than previous forced social experiments throughout humanity’s violent history, but delivered on the same crushing poverty.

Attempting to escape the chaos, some Venezuelans turned to bitcoin mining, only to find their government label them outlaws and hunt them down like criminals for importing “contraband” mining hardware and “misusing” electricity. That’s an unfortunate circumstance given the clear need for economic privacy among law-abiding citizens in Venezuela and the solution that digital currencies provide to this issue.

The cryptocurrency market cannot solve every humanitarian issue, but society has made significant progress in bringing money back to the people. At a minimum, cryptocurrencies can modernize the function of gold and dissociate people’s economic well-being from the idiosyncrasies of their local political jurisdictions; that alone is a big win. This may not seem like such a triumph of humanity for someone comfortable in a rich country with a highly-developed banking system and low economic volatility, but think about the disenfranchised, those cut off from basic financial services, and the billions more who are stuck in relatively repressive jurisdictions. Having control of their own peer-to-peer money outside the whims of local rulers is a game changer, but for these technologies to be ubiquitous, they must design privacy into their foundations. Users should be reasonably protected against reprisal no matter where they live.

We live in a world that seems to be at war with itself. There will always be a subset of people with nefarious intentions, and cryptocurrencies certainly offer them a new channel to do what they would do anyway; this is an unfortunate element of the market for privacy. Still, there is enormous value for billions of peaceful people in privacy technologies, from secure communications to economic privacy. Many live in highly volatile predatory systems for which it is a moral and pragmatic imperative to obscure both transactions and assets. Cryptocurrencies provide the most elegant solution to date, and they’re just getting started.

Article by Rob Viglione, ZenCash