Currencies like Monero, Zcash and Dash stand out when it comes to privacy. However, what would be the impact on these projects with respect to privacy optimizations in Bitcoin?
So-called ‘privacy-focused currencies’ may have a tough day with eventual privacy updates on Bitcoin.
During a podcast recently, Charlie Lee, creator of Litecoin, gave his opinion on the MimbleWimble protocol – which is being implemented – detailing the reasons why he first decided to work on the currency privacy update.
Lee argued that Bitcoin and Litecoin are like money, except for one difference – both do not have “true fungibility.” Noting that privacy and fungibility go hand in hand and that the MimbleWimble implementation will help Litecoin solve this problem, Lee said:
When I send Litecoin, you can see the address, the history, you almost find out how much money I have, don’t you? Care must be taken not to expose your finances to others and this makes using it a little difficult.
He added that this was something he wanted to achieve with Litecoin, commenting that Bitcoin will eventually need something like this to make it more fungible.
The risk of privacy-focused currencies
With all this, the idea that such updates in currencies like Bitcoin, Litecoin and Ethereum could be a threat to privacy currencies cannot be ignored. For example, although there is a delay in implementing development protocols such as privacy optimization technologies (Taproot/Schnorr) on Bitcoin, the PoS update from Ethereum and MimbleWimble for Litecoin look very promising.
These developments could potentially diminish the use of privacy coins and their support to the community, in addition to hindering their growth in the future. Furthermore, scalability is another challenge that privacy currencies face, something that is not necessarily a problem in other currencies. Commenting on the same topic, Lee adds:
Privacy-oriented coins like Monero, Zcash and Dash have excellent privacy, but they don’t scale much, right? The block size is simply huge. The transactions are huge.
On the other hand, privacy-focused currencies are no stranger to regulators. Transactions in these types of currencies have long frustrated financial authorities, all of whom have been waiting to tighten measures on those currencies.
Today, the question is if Bitcoin and other altcoins update their privacy features and end up outperforming privacy currencies, would they be subject to regulations? If so, what is the point in improving privacy features in the first place? These are some of the questions that will have to be answered in the near future.