We Have Entered the Age of Anonymous Crypto

Recently, following a change to Whatsapp’s privacy policy, hundreds of thousands of people from all over the world left for other services. Signal, an encrypted messenger service, saw so many sign-ups that it temporarily crashed.

This was followed by a mass exodus from social media, as Twitter and Facebook became embroiled in a debate on free speech and censorship, a chain of events that may signal a shift in how users value privacy.

Rachel-Rose O'Leary is a coder and writer at Dark Renaissance Technologies. She was a tech writer for CoinDesk from 2017 to 2018, covering privacy tech and Ethereum. She has a background in digital art and philosophy, and has been writing about crypto since 2015. The views expressed in this article are her own and do not necessarily reflect those of the publication.

Riccardo Spangi or "fluffypony,” the former lead maintainer of privacy-centric cryptocurrency monero, called this a "watershed moment" for privacy. "People are realizing that you don’t get privacy just handed to you. You have to stand up and take it," he told CoinDesk.

For years, topics including anonymity, censorship resistance and decentralization were the purview of political extremists. Armed with a pessimistic, even paranoid outlook, the forefathers of cryptocurrency engineered tools, like Bitcoin, for a world where civilization had fallen.

But now, spurred on by an information crisis and compounding global unrest, privacy has entered popular consciousness.

As on the popular consumer-facing apps such as Signal, activity on the encrypted anonymous internet, the darknet, is on the rise. While it’s hard to estimate usage due to its anonymity benefits, Tor Browser was downloaded 10% more on average this January than last year. In the past 12 months, the number of hidden websites has increased 180%.

This rising popularity could be driving an increase in monero transactions. In December, darknet market Whitehouse reportedly announced it would no longer accept bitcoin payments, strengthening monero’s foothold as the cryptocurrency of choice for the darknet.

See also: Steven Waterhouse – The Pandemic Turbocharged Online Privacy Concerns

In fact, despite being delisted from exchanges Shapeshift and Bittrex, monero’s price has steadily grown 140% in the past year, while its daily transactions have increased by a staggering 290%. Zcash has likewise increased nearly 70% in price.

All of this is to say there’s a growing demand for privacy. What’s more, the privacy scene has never been more prepared for an influx of users.

A new dawn

Privacy has always been a core value of the crypto-anarchist philosophy. Bitcoin itself was designed to be pseudonymous, but its privacy-protecting features are insufficient to protect users from blockchain analysis.

In the past 10 years, fully anonymous cryptocurrency has emerged as a Holy Grail of blockchain research. Millions in research dollars have been committed, though until recently no purely private cryptos emerged without substantial trade-offs to scalability and decentralization.

Several small, incremental achievements are beginning to come to fruition. Litecoin is testing a potential privacy upgrade, Mimblewimble. Privacy coin Firo, previously named Zcoin, is pioneering new cryptographic research with its recent release of Lelantus.

Meanwhile, earlier this month, Zcash announced its plan to implement Halo 2, a groundbreaking upgrade that will allow the cryptocurrency to add new assets to its base layer, such as an anonymous stablecoin or wrapped versions of other cryptocurrencies – while Monero is also building toward a multi-chain paradigm, specifically with privacy implications for Bitcoin through atomic swaps.

Further, while Monero's ring signatures reduce its anonymity, a new upgrade called TRIPTYCH will make this privacy leakage less of a concern.

Bitcoin, too, will see privacy-protecting enhancements with the long-anticipated rollout of its Taproot upgrade. When activated, Taproot will allow smart contracts written in the Bitcoin scripting language to appear like normal transactions, so more complex code can populate the blockchain undetected.

It's not just traditional cryptocurrencies that are undergoing a renaissance. Privacy apps are proliferating on decentralized finance (DeFi) while private smart contract platforms like Secret Network and Aleo are enabling general purpose, programmable privacy.

Can the state withstand a full-blown Bitcoin offensive?

All of these advancements are made possible by significant improvements in privacy tech, especially zero-knowledge cryptography. Having authored the first privacy-oriented Bitcoin wallet in 2013, Amir Taaki has been working on anonymity tech in crypto for nearly 10 years.

"Zero-knowledge is probably the biggest breakthrough in cryptocurrency since the invention of Bitcoin itself. It enables an entire new class of privacy applications that previously couldn't exist before," he said.

The darkening

Advances in privacy tech have the potential to revolutionize not just cryptocurrency, but all aspects of how we interact with the web. The internet is currently dominated by data harvesting and surveillance. In exchange for using a service, user data is collected by companies for increasingly surreal purposes, such as behavior prediction and control.

By offering a new economic vision for technology, the cryptocurrency ecosystem has the potential to challenge this paradigm. Mixnet provider Nym Technologies is working in this direction, offering privacy-friendly applications the ability to monetize their services.

Still, these new vistas will not be without their challenges. For the last year, crypto has been awash with rumors and headlines foretelling an impending regulatory crackdown.

In an interview that coincided with her statement that the European Central Bank (ECB) will release its own digital currency – the digital euro – within the next five years, ECB President Christine Lagarde called for global bitcoin regulation. Separately, U.S. Treasury Secretary nominee Janet Yellen said that cryptocurrencies are a “particular concern” for terrorism financing, and stated the need to “curtail their use.”

Both the U.S. and European Union – formerly a privacy stronghold – have also floated rules that threaten end-to-end encryption and privately held crypto addresses.

See also: Proposed Crypto Wallet Rule Among Those Frozen by Biden Pending Review

If there was ever a need for strong, unhackable, privacy-preserving tools to be built, it’s now.

Worst-case scenario

Regulatory pressure may have an unintended consequence by making privacy-preserving cryptocurrencies more attractive. In a scenario where crypto is banned, crypto will merely go underground, where it had its beginnings.

A nightmare scenario for an industry overrun by bankers, such a grim regulatory outlook is widely dismissed as FUD. Not only would this cripple the emerging cryptocurrency ecosystem financially, but it would severely damage its core value propositions: openness, accessibility, being permissionless.

Still, perhaps in anticipation of regulatory crackdowns, Bitcoiners are adopting an increasingly militant rhetoric. Rumors of an impending "privacy war" have been circulating on Twitter, with cryptocurrency advocates volunteering themselves for the front line.

According to Taaki, such a confrontation is effectively preprogrammed.

"I don't see a resolution between an emerging cryptocurrency industry and the state-backed fiat system," he said, "These things are [at] loggerheads, and using anonymity to shield participants in a network is of vital importance to our success as a movement."

See also: Michael Casey – A World Where Privacy and Saving Lives Can Coexist

The developer of privacy-focused Bitcoin wallet Wasabi, Max Hillebrand, said he is confident Bitcoin’s users will step up to the challenge. Armed with advanced technology and an ideology capable of carrying its followers to the barricades, he wondered:

“Can the state withstand a full-blown Bitcoin offensive?”