In the wake of the President’s recent economic report, it’s more important than ever to address misconceptions about cryptocurrencies. The report presents a negative perspective on digital assets, highlights illicit financial risks and potential threats to consumers and the financial system, and proposes a change in the Biden administration’s approach to the sector – from neutrality to a more hostile stance. While it is imperative for government to recognize the potential risks and challenges inherent in any emerging technology, they cannot overlook the myriad benefits and opportunities that cryptocurrencies offer in today’s rapidly evolving digital landscape.
Harnessing the transformative power of new technologies paves the way for unprecedented progress and innovation. By recognizing the potential for positive change, we can foster a forward-thinking mindset that breaks down barriers and fosters solutions. Such an approach invites us to co-create a future where technology serves as the engine of growth and prosperity.
Focusing solely on the potential misuse of new technology can lead to costly mistakes and limit our ability to seize opportunities for progress. Cryptocurrencies in particular have met resistance and skepticism due to their occasional association with illegal activities. But according to Chainalysis in its 2023 Crypto Crime Report, the share of all cryptocurrency activities related to illegal activities in 2022 was just under 0.24% of transactions. That’s right, less than a quarter of 1%.
The positive benefits of blockchain technology far outweigh its negative aspects, including the growing prevalence of charitable crypto donations and humanitarian aid distribution. And privacy-focused cryptocurrency features, such as those used for shielded transactions, can actually reduce the risks associated with criminal activity by making it harder for bad actors to access sensitive information.
Dealing with privacy concerns and misunderstandings
Especially when it comes to crypto privacy technology, shielded transactions provide an end-to-end encrypted system. This ensures that only the sender and intended recipient(s) have access to the transaction data and no one else can read it, including hackers or unwanted third parties. The encrypted data is not accessible on the blockchain and provides a crucial layer of security. Transactions that offer as little data as possible are not inherently illegal. On the contrary, it reduces participants’ vulnerability to illegal actors.
That’s not even mentioning the business benefits of crypto privacy technologies. Businesses can conduct confidential transactions and protect sensitive information from competitors and malicious actors. Privacy-focused crypto protocols are increasingly using advanced cryptographic techniques, such as B. Zero-knowledge proofs to further protect sensitive information. Such techniques can make it impossible for illegal actors to intercept and read the data, even if they did gain access.
I have a particular affinity for zero-knowledge technology, as I hold the position of Head of Global Regulatory Relations for Electric Coin Co. (inventor of Zcash and one of several organizations supporting the protocol and Zcash user experience today). Nonetheless, developers focused on many other networks, including Ethereum, are working to implement the zero-knowledge technology developed by Electric Coin Co., and they too can further develop their own applications of this technology and benefit from it.
In short, the positive benefits far outweigh any perceived negatives. This is the case with people who avoid stalkers and try to leave abusive relationships. The Pennsylvania Coalition Against Domestic Violence reported that 98% of domestic violence cases involve financial abuse, which may involve monitoring bank and credit card transactions or restricting the victim’s access to money.
The role of cryptocurrency in financial inclusion and empowerment
Cryptocurrencies have the potential to improve financial inclusion by giving people access to financial services who would otherwise be excluded from the traditional financial system, such as those in remote or underserved regions who rely on remittances.
As another example, Cuban YouTuber Erich García Cruz told CoinDesk in 2021 that he relies on cryptocurrency payments because he doesn’t have access to global payment lanes.
Cryptocurrencies support impressively fast cross-border transactions, provide access to alternative financial services and increase financial independence by removing the many high fees, delays and obstacles often associated with the traditional financial system.
Understand the broader context of technology abuse
Cybercrime and other illegal activities are not limited to cryptocurrencies, as evidenced by the widespread use of the internet and cell phones for criminal purposes. Cars were also used for illegal activities such as theft and drug trafficking.
Although cash has been used for money laundering and other illegal activities, it remains a widely accepted form of payment. The positive benefits of these technologies such as revolutionizing communications, enhancing connectivity, improving mobility and providing convenient payment options far outweigh any negative aspects.
The same applies to cryptocurrencies. While some people use cryptocurrencies for illegal activities like money laundering, drug trafficking, and cybercrime, the vast majority of uses are for legitimate purposes (like financial transactions, investments, and even fundraising for startups). Additionally, traditional banking is often inaccessible or too expensive for many people around the world, particularly women and marginalized communities in developing countries.
The importance of privacy and security in the digital age
With the proliferation of digital technology and online activity, personal and financial information has become an increasingly valuable commodity that is frequently bought and sold. While this information can be used for positive purposes, it can also be misused. This raises privacy and security concerns, as individuals may not know exactly who is collecting their financial information and how it is being used, misused, or even weaponized.
The case of Nebraska teenager Celeste Burgess, who was charged with having an abortion in 2022, underscores the potential dangers of not encrypting personal data. In this case, Facebook made her private messages available to the police, which ultimately led to her arrest. This incident shows how failure to encrypt private data can endanger the freedom of anyone, regardless of whether their actions are in accordance with the law or not.
Shielded digital asset transactions that provide additional security and privacy by encrypting transaction data (including sender, recipient and transaction amount) provide an additional layer of security and ensure financial transaction data remains secure and private. Similar to HTTPS, a protocol that encrypts and authenticates data transmitted over the Internet to prevent unauthorized access, shielded transactions protect sensitive financial information from interception and arming.
Finding a balance between regulation, privacy and innovation
As concerns about the privacy and security of financial transaction data continue to grow, shielded transactions offer individuals the ability to conduct financial transactions without revealing their identities or sensitive financial information.
Even Microsoft, a traditional tech giant, has developed a new zero-knowledge proof framework to improve user privacy and security for digital credential systems in decentralized identity ecosystems. Because there is obviously a wide range of legitimate business use cases for this privacy technology, it is critical for lawmakers to implement technology-neutral legislation. Fraud and theft are already illegal, regardless of whether the perpetrators use cash or crypto. The solution is to improve law enforcement strategies for a digitally advanced world, rather than banning or restricting the technology itself.
All in all, the vast majority of uses of blockchain technology are for legitimate purposes, and cryptocurrencies have the potential to offer many benefits, including increased financial accessibility. By focusing on the positive aspects of cryptocurrencies – and reformulating the narrative by not judging a technology on its misuse – we can work to overcome the challenges and unlock its full potential for the benefit of all.