Bitcoin and privacy: In the United States, a few weeks ago, three Republican senators introduced a bill that would prohibit any encrypted technology in the United States unless government agencies have unrestricted access. Translated means that the American state wants to have direct access to all encrypted data and systems at least when there is a criminally relevant reason - i.e. read all chats and messenger communications (e.g. WhatsApp and Telegram), access all cloud storages such as Dropbox and iCloud and all Wants to be able to control wallets.
This was a truly Orwellian scenario with fortunately relatively little chance of success, but it shows that the state (in this case American state, but more or less applies to all states) has a problem with too much encrypted privacy . It starts with messenger services and doesn't end with cryptocurrencies.
In addition to privacy coins such as Monero or Dash, there are also privacy developments in Bitcoin. Probably very few people can imagine anything under the Bitcoin Improvement Proposals (BIPs) 340,341 and 342. That's okay, these names are not really speaking. It becomes a little (!) Clearer if you name the content: Taproot and Schnorr signatures - but even then almost nobody outside the Bitcoin and crypto scene can do anything with it. With this article I would like to shed more light on the topic of Bitcoin and privacy and explicitly address the two GDPs Schnorr and Taproot.
Schnorr and Taproot: danger or savior for Bitcoin privacy?
In order not to become too technical: These are further developments to the Bitcoin code. The Schnorr signatures form the technical basis for merging several signatures into one, so that on the public BTC blockchain it is no longer possible to directly understand which way (via which wallet addresses) the bitcoins used in a transaction , came to the sender.
In addition, Taproot will bring about a change in the presentation of smart contracts on the blockchain. Smart contractscan be imagined as “if * -then function” on the blockchain, which, when the “if” occurs, automatically and without any further (manual / human) instance leads to the triggering of the “then” - whereby the “if” definitely does can be expanded with logical arguments (eg "If this or that then ..." or "If this and that but not that then ..." and so on). Smart Contracts currently still list all conditions that have been checked on the BTC blockchain - even those that have not occurred. With Taproot, it is then only the fulfilled condition - a smart contract transaction on the blockchain is then no longer represented as "if / ... and / or / ... / or-then", but only as "because". In simple words. No matter how complicated it is.
Can GDP lead to a ban?
First and foremost, it leads to more privacy, because it is no longer so easy to understand who received or sends which bitcoins from where and for what reason. This is actually none of your business and therefore this change in the Bitcoin code is an improvement - at least from an individual's perspective.
How advantageous is increased bitcoin privacy in reality?
Let's look at it from a different perspective - for example from the perspective of an exchange that does not want to accept / change bitcoins that come from any scams - because that would be money laundering and it is punishable, so you have to protect yourself with analysis technology. For the Exchange, because it is their daily bread, it is still affordable and is already taking place. Some exchanges no longer accept funds that have previously gone through a mixer service or are sent from “anonymous” wallets such as wasabi or samurai.
And the cafe on the corner or the little clothes shop? Let's play it through:
when accepting payment in BTC on the retailer's own wallet, there is no verification because it is a small business, with no payment service provider in between, who would be careful, reject the transaction (and hold up your hand). The Bitcoin are thus transferred from the customer to the restaurateur / dealer, the payment is completed, the goods go over the counter.
Now the retailer would like to exchange his bitcoins for euros at some point and transfer them to the exchange of his trust. He has done KYC, everything is fine with his account - the exchange freezes the bitcoins immediately on arrival because it has tracked the origin of the funds with its means and possibilities and cannot rule out money laundering. Not good at first, but can still be dissolved (if necessary by using another exchange), but may take some time and initially restrict the free movement of Bitcoin. The dealer will consider whether he will continue to offer the service - the adaptation will stall or decrease.
It is a bit like the banknote from your own wallet, on which coke is detected, even if you have never had anything to do with it - but should be detectable in 80-90% of all banknotes.
State regulation and necessity of the AML guidelines
If you now think about the development of Bitcoin and implement further GDPs in the direction of increased or even complete anonymity, the lack of transparency could lead to Bitcoin becoming a privacy coin. However, these are already under increased scrutiny by lawmakers and are facing concrete prohibition efforts on the part of the FATF and expressly the government of France, which has already led to delisting reactions from large stock exchanges - a stock exchange simply cannot risk being involved in illegal transactions be, not even as a passive service provider.
In Germany, the privacy coins have also made it onto the radar of the authorities - for example, the Federal Ministry of Finance named Monero and ZCash in the "First National Risk Analysis" . These serve as a negative example compared to pseudo-anonymous cryptocurrencies such as (also named by name) Bitcoin and Ether. With the increasing spread of cryptocurrencies and thus the increase in usage, it is almost foreseeable that privacy coins will be banned at the state, if not even international, level.
Conclusion: will Bitcoin now be banned?
No. To put it very clearly: In my opinion, there is no danger of a ban with Schnorr and Taproot. It becomes more difficult in analytics, but not impossible to understand transactions and therefore cash flows. The developer community should still keep a sense of proportion and be aware of the fact that it is no longer just about Magic Internet Money with perhaps 100,000 nerdy users worldwide, but that cryptocurrencies have become a global and indeed earth-shattering industry, that of Bitcoin is cited. This is an immense responsibility that Satoshi Nakamoto was probably aware of when he / she / it created Bitcoin. Complete anonymization and thus an increase in Bitcoin privacy instead of pseudo-anonymization would have been possible in 2008/09. However, Satoshi Nakamoto obviously made a conscious decision against this anchoring.
A ban on Bitcoin would have an immediately destructive effect on the entire cryptocurrency ecosystem worldwide - no matter how well or badly such a ban can be enforced (this is a completely different discussion), the crypto-mother ship would get to the bottom in the direction of acceptance and adaptation of the sea sink and the course accordingly.
