Kevin Pan, CEO of Poolin, one of the largest Bitcoin mining pools said in an interview that Bitcoin needs better privacy in order to avoid any regulatory clampdowns in future. Pan said,
“The real problem with Bitcoin may be privacy. There is no other big question if the privacy issue is solved.”
Bitcoin is often proposed as a digital currency with great privacy features, but the truth is privacy has become it's biggest concern other than scalability. Bitcoin transactions are definitely transparent given you can track each transaction on the public ledger, but privacy-wise it does very little. With the advancements of market monitoring tools that are even used by federal agencies, the privacy aspect of Bitcoin looks on shaky grounds.
Privacy is one of the key components of a decentralized currency like Bitcoin, and weak privacy casts doubt over currency's fungibility property.
The Poolin CEO expressed concerns over the consequences of weak privacy on the Bitcoin network, he said, governments can exploit this by blacklisting Bitcoin addresses and would have a monopoly on the network by deciding which transactions can be processed by the miners and which can't.
With better privacy the amount of the transactions can be masked, so that authorities won't know to which address the amount is being transferred to. He explained,
“What is more troublesome now is if the government or law enforcement departments begin to create a blacklist of transaction addresses, it will make certain transactions unable to be packaged. In fact, these can be done. But if there is privacy, you can't know who the address belongs to, and you can't determine how much the amount is, and there is no way to control the currency system. So for me, Bitcoin is basically no problem if the issue of privacy can be solved.”
Government can Create Mining Centralization and Enforce 51% Attack
When Pan talked about agencies gaining more control on the network through potential regulatory clampdowns which in the absence of heightened privacy features could give them an upper hand by creating centralization in mining.
Pan also hoped that developers on the network can take inspiration from privacy centered coins like Monero to build Bitcoin's privacy features.
The developers on the network have been actively working towards improving the privacy on the network, and one such project is Taproot which is slated to improve on many aspects of current privacy functionalities. However, till then wallet makers and exchanges should take the responsibility to provide that necessary privacy to their customers.