Bitcoin will eventually lose its prominent anonymity due to central banks

By: Andrew Moran

Toronto, ON (CLN) – What was once considered the monetary tool for anarchists due to its anonymity and fight against fiat currency will soon become just another regulated payment system that will lose its prominence in the world of alternative currencies.

First, please allow me to confirm that I support the ultimate goal of a lot of bitcoiners: a legitimate alternative(s) to the failed experiment of fiat money. As a libertarian and a student of the Austrian School of Economics, I am fully in favor of competing currencies in the free market; gold and silver, bitcoin and litecoin. Anything is better than the greenback or the euro.

Therefore, to all the bitcoiners who will ultimately disagree with my conclusion, please do not bombard me with anger, rage, vitriol and even death threats. Now, onto the point of this piece, which I concede will not gain the favor of bitcoin owners, investors and miners.

Over the past month, I have reported and opined extensively on bitcoin for a handful of publications – I have also been following the digital currency regularly since about 2010 when I first heard about it through the Ridley Report. One aspect that is continually promoted is that the cryptocurrency is anonymous and therefore a perfect tool for those who are described as monetary anarchists.

Perhaps at first it was, but with growing acceptance among both the marketplace and even governments around the world, it shall no longer be. Whether it’s a pump and dump scheme (Robert Wenzel) or a Ponzi scheme (Gary North) is a different story, but the bitcoin is losing one of its most popular characteristics: anonymity.

Earlier this month, the government of China instituted a ban on financial institutions from taking part in transactions that include bitcoin. This led to numerous vendors from rescinding their bitcoin method of payment. It also led to BTC China, the world’s largest bitcoin exchange, to prompt new and old users to provide identification.

“In response to a recent policy shift, BTC China now requires users to submit identification or a passport number. Existing users will need to provide this information upon login. We apologise for any inconvenience,” the company said in a statement.

This could prompt governments from instituting similar prohibitions and cause other exchanges to establish such policies.

This week, bitcoiners were ecstatic that the Swiss parliament is considering a proposal that would make both the government and the financial sector treat bitcoin as a foreign currency. At first, this would make it seem that the cryptocurrency is one step closer to full legitimacy. However, with growing recognition by public officials, comes the erosion of anonymity.

On Thursday, it was announced that Fidelity would be partnering with SecondMarket’s Bitcoin Investment Trust to permit its clients to save for their golden years by allocating bitcoins into self-directed IRAs.

“If you are a Fidelity client, you can now invest in the Bitcoin Investment Trust through an IRA,” said Barry Silbert, chief executive of SecondMarket, in an interview with the Wall Street Journal.

With such a measure, it’s quite certain that eventually the IRS would begin the process of filing paperwork that would regulate bitcoin.

Although bitcoiners in general seem to understand the power that the federal government and central banks hold, they seem to dismiss the possibility of authorities infiltrating bitcoin and being the facilitator of its demise. Former Texas Republican Congressman and three-time presidential candidate Ron Paul understands this as he has said in a few interviews over the past week that the government and central banks would “come down hard” on the virtual currency.

Indeed, according to Paul, if enough people use bitcoin it could very well be one of the perpetrators of the inevitable end of the U.S. dollar. This doesn’t bode well for the state. Paul, who noted he doesn’t own bitcoins nor will he, added that governments and central banks want to have full control and “demand a monopoly” of money and credit.

It’s happened before when the government confiscated the people’s money. During the Great Depression, President Franklin D. Roosevelt issued Executive Order 6102 and made it a criminal offense to possess monetary gold no matter who you were. Some states are attempting to pass legislation that would make it easy to track precious metal purchases.

Federal Reserve Chairman Ben Bernanke issued a letter to Congress stating that the central bank is not in a position to regulate bitcoin, but if the digital currency generates even more momentum on the world stage and becomes a threat then be prepared to see his successor, Janet Yellen, produce policies that would tackle adversaries to the greenback.

In the end, anonymity in bitcoin is an illusion since the government has an unlimited amount of resources to track acquisitions by people who might be considered the enemies of the state.

I shall now apply my virtual armor for defense against the passionate bitcoiners!

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  • David Loboy

    “In the end, anonymity in bitcoin is an illusion since the government has
    an unlimited amount of resources to track acquisitions by people who
    might be considered the enemies of the state.” We’ll just have to see about this, won’t we?

  • http://tradewithdave.com Dave Harrison

    Okay… where do I start. How ’bout the headline.

    Bitcoin will eventually lose its prominent anonymity due to central banks

    (Bitcoin promoters never claimed anonymity as a key feature. Nonetheless there is a rising tide of mixing solutions that may or may not prove to be advantageous to those whose focus is anonymity).

    What was once considered the monetary tool for anarchists due to its
    anonymity and fight against fiat currency will soon become just another
    regulated payment system that will lose its prominence in the world of
    alternative currencies.

    (You don’t think that displacing MC/Visa/Amex/Discover/Paypal with a global alternative is disruptive and anarchical? Being regulated doesn’t dismiss the potential impact on vested banking interests.)

    First, please allow me to confirm that I support the ultimate goal of
    a lot of bitcoiners: a legitimate alternative(s) to the failed
    experiment of fiat money. As a libertarian and a student of the Austrian
    School of Economics, I am fully in favor of competing currencies in the
    free market; gold and silver, bitcoin and litecoin. Anything is better
    than the greenback or the euro.

    (“Anything” is better. That’s a strong generalization)

    Therefore, to all the bitcoiners who will ultimately disagree with my
    conclusion, please do not bombard me with anger, rage, vitriol and even
    death threats. Now, onto the point of this piece, which I concede will
    not gain the favor of bitcoin owners, investors and miners.

    (I’m fairly critical of some of the shortcomings of Bitcoin, just not the ones that you claim as fundamental.)

    Over the past month, I have reported and opined extensively on
    bitcoin for a handful of publications – I have also been following the
    digital currency regularly since about 2010 when I first heard about it
    through the Ridley Report. One aspect that is continually promoted is
    that the cryptocurrency is anonymous and therefore a perfect tool for
    those who are described as monetary anarchists.

    (Indeed cryptography does have significant implications to anonymity or lack of anonymity across a wide spectrum of applications…. Edward Snowden for one.)

    Perhaps at first it was, but with growing acceptance among both the
    marketplace and even governments around the world, it shall no longer
    be. Whether it’s a pump and dump scheme (Robert Wenzel) or a Ponzi scheme (Gary North) is a different story, but the bitcoin is losing one of its most popular characteristics: anonymity.

    (“Growing acceptance” and “no longer shall be” is a non-sequitur. To say that Bitcoin could be a victim of its own success and that volatility is the enemy of any means of exchange would have been a valid argument.)

    Earlier this month, the government of China instituted a ban
    on financial institutions from taking part in transactions that include
    bitcoin. This led to numerous vendors from rescinding their bitcoin
    method of payment. It also led to BTC China, the world’s largest bitcoin
    exchange, to prompt new and old users to provide identification.

    “In response to a recent policy shift, BTC China now requires users
    to submit identification or a passport number. Existing users will need
    to provide this information upon login. We apologise for any
    inconvenience,” the company said in a statement.

    (Sounds like an endorsement from the “People’s” Bank of China to a new “People’s” currency if you ask me. Would you prefer that China embraced Bitcoin as an expression of democratic thought?)

    This could prompt governments from instituting similar prohibitions and cause other exchanges to establish such policies.

    (prompt from?… I’m confused.)

    This week, bitcoiners were ecstatic that the Swiss parliament is considering a proposal
    that would make both the government and the financial sector treat
    bitcoin as a foreign currency. At first, this would make it seem that
    the cryptocurrency is one step closer to full legitimacy. However, with
    growing recognition by public officials, comes the erosion of anonymity.

    (See above. By the way, I don’t think the Swiss parliament ever discussed Amazon dollars or Facebook credits, so maybe it’s a form of recognition.)

    On Thursday, it was announced that Fidelity would be partnering with
    SecondMarket’s Bitcoin Investment Trust to permit its clients to save
    for their golden years by allocating bitcoins into self-directed IRAs.

    “If you are a Fidelity client, you can now invest in the Bitcoin
    Investment Trust through an IRA,” said Barry Silbert, chief executive of
    SecondMarket, in an interview with the Wall Street Journal.

    With such a measure, it’s quite certain that eventually the IRS would
    begin the process of filing paperwork that would regulate bitcoin.

    (Okay, so Bitcoin is about tax evasion? Does that mean people who use MasterCard don’t cheat on their taxes. As a means of exchange there are few if any tax implications. As a vehicle for speculation indeed there are implications but the same would apply to real estate or equity investments… no?)

    Although bitcoiners in general seem to understand the power that the
    federal government and central banks hold, they seem to dismiss the
    possibility of authorities infiltrating bitcoin and being the
    facilitator of its demise. Former Texas Republican Congressman and
    three-time presidential candidate Ron Paul understands this as he has said in a few interviews over the past week that the government and central banks would “come down hard” on the virtual currency.

    (Now this is a good question. How does the government “come down hard” on the world’s largest distributed computer network? I’m being serious. This particular question is worthy of discussion while the other issues you raise IMHO… not so much)

    Indeed, according to Paul, if enough people use bitcoin it could very
    well be one of the perpetrators of the inevitable end of the U.S.
    dollar. This doesn’t bode well for the state. Paul, who noted he doesn’t
    own bitcoins nor will he, added that governments and central banks want
    to have full control and “demand a monopoly” of money and credit.

    (news flash… and could someone who wears a toupee ever be elected president… I guess Rand Paul can prove the theory.)

    It’s happened before when the government confiscated the people’s
    money. During the Great Depression, President Franklin D. Roosevelt
    issued Executive Order 6102
    and made it a criminal offense to possess monetary gold no matter who
    you were. Some states are attempting to pass legislation that would make
    it easy to track precious metal purchases.

    (huh? Is this a Bitcoin article?)

    Federal Reserve Chairman Ben Bernanke issued a letter to Congress
    stating that the central bank is not in a position to regulate bitcoin,
    but if the digital currency generates even more momentum on the world
    stage and becomes a threat then be prepared to see his successor, Janet
    Yellen, produce policies that would tackle adversaries to the greenback.

    (More validation by recognition if you ask me. If you consider the former BOE head Mervyn King’s proposal for a divorced currency model, Bitcoin actually is a perfect fit for satisfying the double coincidence of needs in a fully “means-testable” model. Who knows who created Bitcoin… it may have been the Fed or the NSA for all I know.)

    In the end, anonymity in bitcoin is an illusion since the government
    has an unlimited amount of resources to track acquisitions by people who
    might be considered the enemies of the state.

    (Unlimited? No. Anonymity as a promoted feature? No. The blockchain does the tracking for Bitcoin, so why are any resources needed. If you’re talking about catching tax cheats, you can’t deal in Bitcoin stateside without submitting to “know thy customer” protocols. Will there be dark wallets and silk road 2.0? My guess is that there will be criminal activity and that as always cash will be the preferred method for illicit transactions.)

    I shall now apply my virtual armor for defense against the passionate bitcoiners!

    (I’m not a passionate bitcoiner, but I’ve been covering it since 2011 and there is plenty to cover beyond the strawman argument of anonymity.

  • Rassah

    There is no dispute that bitcoin is not anonymous at the edges, where people convert into and out of fiat currency. But once their government tracked cash gets into bitcoin, it’s pretty much a black hole in there, with people being able to create multiple account addresses on the fly, use mixers, etc.
    There is also the issue of bitcoin being completely global. Sure, governments can track people to see who is doing what, but again the question returns to “which government?” US government can track US citizens, and Chinese government can track Chinese citizens, but can they track each other’s citizens? Since bitcoin is a decentralized network, transactions don’t necessarily happen in the country the people are trading it. Two people exchanging or mixing bitcoin in US could have their actual bitcoin transaction be happening in China, or Russia, or any other country, without them knowing it.

  • Tycho Brahe

    The MPIA, RIAA, and DOJ “came down hard” on the distributed peer-to-peer “Bittorrent” file sharing networks. They threw all the money and all the law in the world at these networks. After 12 years of trying, they have not even put a dent in online file sharing activity. What makes you think they will be any more successful “coming down hard” on and “infiltrating” the distributed peer-to-peer file sharing network known as Bitcoin?