Cryptocurrency - Bitcoin - Blockchain - Risks - Privacy

Bitcoin’s Fundamental Flaw That No One’s Talking About

Intro

Bitcoin has a lot going for it. It has a very robust network, is highly decentralized, can’t be duplicated, etc. We’ve all heard the sales pitch. However, Bitcoin has a fundamental flaw that no one’s talking about. We say “fundamental” and not “fatal” because this issue is inherent in its design and, while we believe it’s a serious issue, it may be one that investors can navigate.

When many hear “Bitcoin”, they think, “Anonymous hacker money.” This isn’t surprising given the sensational and inaccurate reporting we hear from the mainstream media. However, Bitcoin is far from anonymous – it’s pseudonymous, which is at the crux of our concerns. Bitcoin is pseudonymous in that wallet addresses definitively indicate an identity, but don’t directly reveal your identity. Through various analyses and enrichment from other data sources (e.g. cryptocurrency exchange KYC, bank, and transaction data), Bitcoin addresses can be tied to individual identities depending on a number of factors. Because Bitcoin’s blockchain is publicly visible, this data will exist indefinitely. The significance of this is that if your identity hasn’t been revealed yet, a future mistake or improved technique may reveal you, and your transaction history, in the future. We don’t like the sound of that, and you probably shouldn’t either.

Podcast

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Hey everybody, welcome to the Bigger Insights Finance podcast, where we’ll help you build

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a life you don’t need a vacation from.

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Look, we need to talk about Bitcoin’s fundamental flaw that no one’s talking about.

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So if you’re considering buying Bitcoin, you own some, or you’re a maxi, go ahead and use

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your diamond hands to turn up your volume, because we have some things to talk about

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that need to be said.

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And by the way, if you’re listening to the audio version of this, we also publish video

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content for each episode on our website, BiggerInsights.com, and Spotify.

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So if you’re interested, go feast your laser eyes on that.

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If you’re not familiar with our work, we also produce a privacy and security podcast called

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Bigger Insights Privacy & Security, if you can believe that. You should go ahead and take

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a gander at that as well.

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But the reason we bring this up is because we debated whether to publish this episode

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here in Finance or our Privacy & Security podcast.

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If you haven’t guessed, we’re very concerned about the privacy ramifications of Bitcoin,

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but we decided to publish this in Finance because we see an awful lot of maxis in the

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finance space that seem to have zero clue as to what those privacy ramifications are.

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And you might be thinking to yourself, “Yeah, yeah. We all know Bitcoin transactions can

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be traced.

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So this must be a nothing burger.” But we encourage you to listen because we’re going to be discussing

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how things are likely to evolve in the future and give you a perspective on Bitcoin that

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you might not be thinking about.

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That perspective is that of the producer, the one accepting Bitcoin as payment for goods

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and services rendered.

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There are two sides to every transaction.

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Much of the crypto activity thus far has been between investors.

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Investor A sells to investor B who sells to investor C. But we really need true adoption

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for Bitcoin to moon like everyone thinks it will. As an investor or maybe even as a consumer,

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you might not be thinking about these things, but as a producer, there are serious risks

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to accepting Bitcoin that you need to consider.

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Let’s just provide a little bit of background into the privacy concerns that Bitcoin presents.

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When some people think of Bitcoin, they think that it’s anonymous, which is completely false.

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Bitcoin is pseudonymous in that your identity isn’t directly published on the Bitcoin ledger,

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but there’s still an identity involved in that identity can be traced back to you.

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Bitcoin operates on a transparent, public ledger.

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The transparency is the fundamental flaw that we want to focus on.

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And we say fundamental and not fatal because this won’t necessarily cause Bitcoin to go

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to zero, but this is an issue that is inherent to Bitcoin and it may seriously hinder its

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adoption by everyday individuals and businesses going forward.

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We might go into more detail in a future episode about techniques for de-anonymizing Bitcoin

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users.

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But if you do own Bitcoin, it would be conservative for you to assume that your identity can and

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will be matched to your Bitcoin transactions.

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That may already be the case or that may occur at some point in the future.

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Keep in mind that transactions are permanent.

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Even if someone can’t identify you today, they may be able to put enough pieces together

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over time to identify you at some point in the future.

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Companies like Chainalysis exist for a reason. And that is to identify Bitcoin users and

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other information like tracing where coins are coming from, where they’re going,

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whether they’re involved in crimes, etc.

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If you use a KYC’ed exchange like Coinbase or Kraken or something like that, your identity

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is obviously tied to those transactions.

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But even if that isn’t the case, there may still be enough clues regarding the transactions

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leading up to your Bitcoin purchases or at the time of sale that indicate you’re the

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person behind those transactions.

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Let’s just say for the sake of argument that the authorities want to know who’s behind

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your wallet address, but they can’t yet identify you.

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Could they perhaps identify who sold you your Bitcoin and get them to rat you out?

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Maybe.

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But again, assume you either are or will be identified not just by authorities, but by

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private businesses or individuals as well.

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For those of you who are new to privacy, let’s talk about that for a minute.

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Your finances are among the most sensitive data that you own.

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We would say it’s right up there with health data, perhaps even more sensitive for some

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people.

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If you can be identified as the owner of your Bitcoin wallets, imagine what that can mean

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for you.

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That exposes your holdings, transaction times and amounts, and whom you’re transacting with.

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If you’re just speculating and selling to other investors, that might not be a big deal.

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But again, if we want Bitcoin to succeed, we need more widespread adoption than just

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relying on greater fools.

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What would happen if, for example, we had a competing crypto that offered the same benefits

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as Bitcoin plus better privacy?

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And even if you did only intend to speculate, why would you not want those added privacy

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benefits?

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I mean, if you had to choose between two banks, Bank A: which makes your data public, or Bank

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B: which keeps your data private, why would you choose Bank A over Bank B?

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It doesn’t make any sense.

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If you are spending your Bitcoin, think about what those transactions may reveal about you.

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Your financial transactions can be used to determine or somewhat accurately infer your

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age, gender, race, location, income, sexual orientation, political views, physical and

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mental health, eating and drinking habits, hobbies and interests, education levels, various

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forms of risk like credit-worthiness or other information for auto insurance, etc.

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What’s on your shopping list potentially, on and on.

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Now when we say somewhat accurately, this is where things get interesting and kind of

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scary to be honest.

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If you sit down and think about it sometime, we don’t really know anything.

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We assign probabilities to determine what we think we know.

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So when third-parties analyze you and your data, they make inferences based on that data,

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which may or may not be accurate.

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Let’s say, for example, that you go to your local brewery a few times a week, not to drink,

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but to eat their barbecue or pizza or whatever.

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Let’s also say that that brewery has laser eyes, so they accept your Bitcoin.

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Now when the advertisers and analytics companies, insurance companies and so on, analyze that

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data and identify you as the source of those transactions, and they see how much you’re

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spending at the brewery and how frequently you visit, what inference do you think that

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they’re going to make?

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They’re probably going to assume that you drink – a lot.

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You’re basically Jim Leahy at this point. It doesn’t take a lot of imagination to

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see how that might hurt you when you go to buy insurance or apply for credit or whatever,

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now does it?

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For our clients who request our privacy consulting services, we recommend that they use cash

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for most in-store purchases.

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This offers pretty good anonymity, but that basically goes out the window when you use

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Bitcoin.

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You know, credit cards, debit cards, and checks have similar issues to Bitcoin, but at least

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those transactions aren’t public record.

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Now let’s talk about tainted coins.

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If you’ve done much research in the crypto space you’ve probably heard about tainted

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coins. The concept here is basically that certain Bitcoin or other traceable cryptos

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may be considered tainted or dirty based on someone’s interpretation of the transaction

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history behind those coins.

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We read what seemed to be about a 900 page article on why the idea of tainted coins

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is nonsense.

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We generally agreed with the author, but he was basically arguing that businesses and

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institutions shouldn’t consider coins to be tainted because it’s a silly idea.

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However, from the individual investor’s perspective, no matter how asinine it might be for an

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entity to consider your coins to be tainted, this is always a risk that you have to consider

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when investing in a cryptocurrency with the transparent ledger.

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I mean, just imagine if you bought Bitcoin that was considered to be

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“clean” from a legitimate source like Coinbase or a friend or something with legitimate money.

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Then it’s later determined that those coins were involved in a serious crime at some point

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in the past where they were stolen by somebody, you might have a problem on your hands.

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Keep in mind that Bitcoin is considered property. Which means that if you receive Bitcoin, even

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if you legitimately paid for it, and it was determined that those coins were stolen from

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someone else, you’re required to return them to their rightful owner without any compensation.

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That’s like what pawn shops have to deal with. If they buy, say, a watch from somebody and

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then the police come and they find it and they say, “Hey, you can’t sell that

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watch. That was actually stolen.” They would take that from the pawn shop and the pawn

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shop would get nothing in return.

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That’s just the way that it goes with property.

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And if the coins that you bought from this legitimate source turned out to be involved

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in a serious crime, that might make you look suspicious. That might make it seem like you

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are a part of that crime.

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That’s not good either.

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And you know, these are risks that you need to accept if you’re going to invest in Bitcoin.

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And the longer that time goes on, the larger that history becomes and the more likely it

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is that you’re going to run into a problem.

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I don’t remember the exact statistic, but I heard many years ago that some large percentage

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of cash contains traces of drugs like cocaine.

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Now, fortunately for cash users, there’s no official history of every transaction that

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your bills are used for.

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But imagine if there was. It might be the case that many or most of the bills that you have

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were either stolen by somebody or used in some sort of crime at some point in the past.

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That’s the kind of future that you’re looking at with Bitcoin.

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Even if the vast majority of the transactions are legitimate, the few that are not can cause

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serious problems because of this transparent ledger that never goes away.

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Now let’s talk about business adoption.

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Again, if we want Bitcoin to moon, it would be very helpful if we could see real adoption

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by businesses.

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The lack of corporate adoption is one of the major hurdles for cryptocurrencies, but we

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certainly understand the hesitation.

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The transparent ledger makes Bitcoin a non-starter for many businesses for several reasons.

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The first of which is the risk of receiving tainted coins.

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There was a funny incident that happened with tornado cash that made the news.

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In case you missed it, the US Treasury sanctioned Tornado Cash.

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Now Tornado Cash was basically an Ethereum mixing service.

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When the US sanctioned it, this made it illegal for US citizens, residents, and companies

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to use it. Which is a problem because at the time this went down, there was about $100

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million in this service, which obviously put many users in a bind.

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But one of the funny things that came out of this, which is where we’re going with the

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whole tainted coins things, is that some tornado cash user sent small amounts of Ether from

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blacklisted Tornado Cash addresses to several celebrities and businesses who published their

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wallet’s public address.

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This included Jimmy Fallon, Puma, Brian Armstrong, Vitalik Buterin, and so on.

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So now these people and businesses have received tainted Ether, which one could make the case

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that they broke the law.

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They technically accepted payment from a sanctioned service.

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Now that might sound over dramatic, but listen to what the Treasury said about this.

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They said, “OFAC will not prioritize enforcement” against those recipients.

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Our interpretation of that is that enforcement is still on the table for these people, but

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it’s just not a high priority.

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So just think about that right quick.

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Let’s say you’ve got your diamond hands and your laser eyes.

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So like a good Maxi, you publish your Ethereum address online somewhere. So far, so good.

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Then some jabroni sends you tainted coins.

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Now you’ve got a big problem on your hands.

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You see where this is going?

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Look at that from a business’s perspective.

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We don’t want to deal with stuff like that.

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The last thing that we want to do is get into hot water with the feds because some client

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of ours knowingly or unknowingly paid us with tainted coins.

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So if a client wants to pay us in Bitcoin, how are we supposed to ensure that those coins

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aren’t tainted?

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And if they are, what are we supposed to do about it?

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What is our responsibility or liability here?

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If those coins were stolen, we might need to give them up.

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If they were involved in a crime, now we’re involved as far as the law is concerned.

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It’s not a good situation.

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Alright, issue #2 from a business’s perspective.

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Since the blockchain is transparent, it may be incumbent upon a business to do some due

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diligence to determine whether said coins are tainted or not.

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Even if this isn’t expressly required by law, governments may still seek action against

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you if, for example, customers of you used ill-gotten coins to purchase your products

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or services.

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You know, they can very easily argue that you could have done your due diligence by

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doing X, Y, or Z, or employing A, B, or C, and maybe if you had done that, you would

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have known that those coins were tainted and you wouldn’t have accepted them.

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And by failing to do so, you’re complicit in facilitating these transactions.

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Now just to be clear, we’re not in any way saying that we agree with that logic, we’re

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just saying that this is basically the world that we live in.

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You know, I saw a story once where the police in some town were trying to basically seize

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this motel.

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I can’t remember if they were actually successful or not. But they were trying to seize it because

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the police identified some illegal activity going on inside the motel rooms.

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So when you’re a business owner or investor, you need to be very careful because you can

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be held responsible for things that you shouldn’t,

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just because a few bad actors broke the law, even though you didn’t have anything to do

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with it.

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The third reason why cryptocurrencies like Bitcoin can be a non-starter for many businesses

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is the fact that we don’t want to publicly expose our holdings, our transactions, our

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income, our expenses, or our customers.

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Why would anybody want to do that?

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Especially us, you know, we’re trying to run a private business, we’re trying to protect

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the privacy of our customers.

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The last thing we want to do is expose their financial details.

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Now I’ll admit, it would basically be a dream come true if we could just put up a QR code

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or something on our website like BiggerInsights.com/pay or something and all of our customers

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would pay us through that and it would be fast and secure and not have to deal with

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the banks and transaction fees and all that.

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That would be great, but the problem with doing that, at least with Bitcoin, is now

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we’re exposing our information and our customers’ information.

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We are still considering accepting Bitcoin because it’s popular, although that might

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not ever happen. But if we do, we’ll probably do something like set up a separate wallet

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for each client and then immediately convert the Bitcoin that they send us into something

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like Monero.

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That would protect our data from them and the public as well as protect their data from

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the public, but that has two issues still.

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One, that’s a non-trivial amount of work. And two, that still doesn’t address the concern

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of receiving tainted coins. Because what do we do if we go to liquidate those coins, but

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we can’t because they’ve been flagged?

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What are we supposed to do?

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Hand those over to the feds or meet with some stranger in a dark alley to exchange them

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for fiat?

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Let’s be realistic here.

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We’re trying to run a business.

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Right about now, you might be thinking, “Oh, but business X and Y like Tesla and my local

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coffee shop accept the Bitcoin.”

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That might be true, but generally speaking, even those businesses that do “accept Bitcoin”,

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many of them don’t really accept it directly.

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Instead, what they do is they use an intermediary that converts your Bitcoin into fiat and then

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they receive your fiat currency.

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You might think that that’s just a distinction without a difference, but it’s not.

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It shows that they don’t really want your Bitcoin.

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And if you try to pay them with your tainted coins, we don’t know for sure, but we’re assuming

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that that would be a problem between you and the intermediary, not you and your coffee

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shop.

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So, of course, we could do that as well, but now we’re basically in the same crappy boat

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that we would be in as if we were talking about accepting credit card transactions.

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And at that point, what’s the point?

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So now you’re probably thinking like, “Oh, yeah, okay. I get what you’re saying, but there

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are workarounds for all of this.” That might involve, you know, buying Bitcoin with cash

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somewhere or using mixers or tumblers or things like that. And that sounds great on paper,

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but there are risks and costs associated with doing that as well.

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So yes, you can use a mixer.

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Well, maybe, I mean, you can’t use Tornado Cash.

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I realize that that’s for Ethereum, but it’s the same concept.

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So yes, you can mix your Bitcoin and theoretically make them anonymous, but now you have a new

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problem.

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Now your coins look very, very suspicious.

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You’ve basically just self-tainted your own coins.

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Now again, we don’t believe in that. But as far as like the banks and insurance companies

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or the government or whomever, as far as all of those large players are concerned that

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actually control our financial system, your coins look very suspicious.

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So of course, if you mix your Bitcoin and you send them to us to pay your bill, well,

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now we inherit that liability.

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And I’m sure there are other techniques that you can use to try to protect your privacy.

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But no matter what you do, as long as Bitcoin has a transparent ledger, even if your transaction

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history doesn’t look tainted, if there’s anything that looks off about it, that could

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end up being a problem for you.

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There are many, many people and institutions that believe that you have no reason or expectation

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of privacy

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if you’re doing nothing wrong. Which is a horrendously flawed idea, by the way. Therefore,

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if anything about your Bitcoin history makes it look like you’re trying to hide something,

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that can be used against you.

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Now to be fair, a transparent ledger could increase adoption in some circumstances in

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between some entities.

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In highly regulated financial systems like the US, we might see that certain institutions

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can or will only deal with transparent ledgers like Bitcoin or certain stable coins.

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So from that perspective, owning some Bitcoin may not be a bad idea, but the point of this

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episode is to ground our expectations about how we should be seeing and using Bitcoin

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because we have a feeling that many Bitcoin investors aren’t going to consider these until

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they’ve been smacked by them.

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All right, now for the moment you’ve all been waiting for: Let’s talk about Monero.

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Monero is a more private alternative to Bitcoin.

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It’s not a poop coin and it is used for everyday transactions by ordinary people.

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Monero is actually quite similar to Bitcoin.

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Its primary difference is that it’s more private and anonymous.

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Monero uses ring signatures and stealth addresses and other techniques to obfuscate who is sending

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what to whom.

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As we like to say in the Monero community, “Monero is what people thought they got when

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they bought Bitcoin.” Which is really funny because when you actually listen to what a

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lot of Bitcoin owners say, they really seem to be under the impression that they’re anonymous.

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You know, they see those letters and numbers of their wallet address and think themselves

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like, “Well, I’m not 03F613… whatever, whatever. But they don’t seem to have any

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idea that their identity can be traced back to that wallet.”

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With Monero, that’s much harder to do.

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You know, with Monero, we can transact with each other without you seeing things like

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who else we’re transacting with or how much Monero we have or anything like that.

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Here at Bigger Insights, we like to say that if Bitcoin is Google Chrome, which is very

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popular, but it’s a nightmare for your privacy, then Monero is the Tor browser.

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They both get the job done, but if you want to protect your privacy, Tor browser is the

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way to go, not Google Chrome.

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If you want to protect your financial information, Monero is the way to go, not Bitcoin.

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00:24:06,920 –> 00:24:11,840
So to wrap this up, we do like Bitcoin, don’t get us wrong.

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It’s one of the more significant inventions of our time, and it obviously has tremendous

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advantages over fiat currency.

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However, we aren’t just limited to choosing Bitcoin or fiat. We have other options – better

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options as far as we’re concerned, at least as a currency.

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We don’t believe Bitcoin is a viable currency, at least relative to Monero, but you could

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make a reasonable case for it being a speculation, or at some point, it may be a relatively stable

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store value.

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Bitcoin suffers from the fact that it was designed before financial privacy really started becoming

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a big deal.

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We’re pretty confident that if Satoshi was creating Bitcoin today, he, she, it, or they

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would make it more like Monero than today’s implementation of Bitcoin.

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Monero is the closest thing to digital cash and Satoshi’s true vision of cryptocurrency.

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However, in this highly regulated world that we find ourselves in, we acknowledge that

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transparent and anonymous forms of payment both have their risks.

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Although this may change as laws and regulations change, we think individuals should really

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consider a dual-pronged approach. Which is having some Bitcoin as a speculation and some

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Monero for everyday transactions.

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You know, if you’re going to buy beer or something like that, we would prefer to do that with

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Monero over Bitcoin.

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00:25:48,640 –> 00:25:54,160
The last thing we’ll say about this is, is that this is not a hit piece or a debate,

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but an expression of honest concerns about Bitcoin’s lack of privacy.

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If you disagree with any of this, please let us know.

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00:26:03,240 –> 00:26:08,160
We fully recognize that there are some things that we may be missing, so please reach out

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to us if you have any feedback.

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We list like eight different ways that you can contact us on our website, BiggerInsights.com/contact,

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which includes options like Signal and Session if you want to contact

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us securely.

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For those who aren’t familiar with our work, we provide consulting services for clients

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like you in one-on-one sessions.

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We can help by providing the education and insights that you need to grow and protect

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your wealth without touching any of your assets.

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We don’t do that here.

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If that sounds interesting to you, go to BiggerInsights.com and fill out the short form at the bottom

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of the page so we can schedule your initial consultation.

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But other than that, thanks for staying until the end.

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Make sure you subscribe and share this podcast, admit to yourself that you’re not anonymous

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00:27:01,640 –> 00:27:08,640
when you use Bitcoin, and have a great rest of your day.

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Surveillance - Security Cameras - Privacy

Financial Privacy

General

Your finances are among your most sensitive data. It’s a shame that we have privacy laws in the US that protect health data (albeit rather poorly), but virtually nothing for financial data. How much money you have, where you spend it, and your transaction history say more about you than probably realize. With enough of a transaction history, your financial data can be used to somewhat-accurately infer your:

  1. Age
  2. Gender
  3. Race
  4. Location
  5. Income
  6. Sexual orientation
  7. Political views
  8. Physical and mental health
  9. Eating and drinking habits
  10. Hobbies and interests
  11. Education level
  12. Various forms of risk (creditworthiness , auto insurance, etc.)
  13. What’s on your shopping list
  14. etc.

Where we say “somewhat-accurately” is where things get interesting. Organizations that make inferences on your data are rarely held accountable for inaccuracies. Even if there’s precedent for doing so, how this data is being used and abused is very opaque. Let’s say, for example, that you go to your local brewery a few times a week – not to drink, but because you like their barbecue. What happens when the advertisers, analytics companies, data brokers, and other creeps analyze your transaction data? They probably assume you drink… a lot. You’re basically Jim Lahey, which goes into your file. What happens when the car insurance companies pull your file? You get the idea, but at what point do you get to see or correct assumptions that you have a drinking problem? You don’t – you just get to pay higher premiums.

Cash generally offers good financial privacy. Credit cards, debit cards, and checks present serious privacy issues, but at least these transactions aren’t public record. In using Bitcoin as an alternative, all of this data would be publicly available, which would reveal even more information than listed above (e.g. your social graph).

Tainted Coins

If you’re curious enough about cryptocurrencies, you’ve probably heard about concerns regarding “tainted coins.” The basic concept here is that certain “coins” can be flagged as suspicious based on an analysis of its lineage in the blockchain.

We recently read what seemed to be a 900-page article on why the idea of tainted coins is nonsense. We generally agreed with the author, but he was basically arguing that businesses and institutions shouldn’t consider coins to be tainted because it’s a silly idea. However, from the individual investor’s perspective, no matter how asinine it may be for an entity to consider your coins tainted, this is always a risk that you have to consider when investing in a cryptocurrency with a transparent ledger.

Imagine if you bought Bitcoin, that was considered to be “clean”, from a legitimate source (e.g. Coinbase, friend, etc.), with legitimate money. Then, it’s later determined that those coins were involved in a serious crime at some point in the past. Does that make you and your coins look suspicious? To some, yes it does. That should make all Bitcoin investors nervous in absence of vetting the transaction history of your holdings.

Business Adoption

One of the key factors that have been holding cryptocurrencies back is business adoption. After all, what good is a coin if your only exit strategy is to sell it to a greater fool? The transparent ledger makes Bitcoin a nonstarter for many businesses for the following reasons (among others):

  1. The risk of accepting “tainted” coins as described above.
  2. Since the blockchain is transparent, it may be incumbent upon you to do some due diligence to determine whether said coins are “tainted”. Even if this isn’t expressly required by law, governments may still seek action against you for if, for example, customers of yours used ill-gotten coins to purchase your products/services. The argument here would be that, had you done your due diligence by doing X, Y, or Z or employing A, B, or C, you may have been able to prevent this. And, by failing to do so, you’re complicit in facilitating these transactions.
  3. Many businesses, including Bigger Insights, aren’t too keen on publicly exposing their holdings, transaction histories, and customers. For accepting payment, it would awfully convenient if we displayed a public Bitcoin address on our website, but doing so would publicly expose very sensitive data. Of course, we could create a wallet for each client, and share it with them privately, but:
    1. Who wants to go through the trouble?
    2. That still allows the client to monitor what we do with their Bitcoin payments

You may be thinking, “But businesses X and Y accept Bitcoin.” That may be true, but generally speaking, even those businesses that do “accept” Bitcoin, many don’t accept it directly. Instead, they use an intermediary that converts your Bitcoin payment to fiat. This isn’t the same thing because you can always just do that yourself, then make your payment in fiat.

Workarounds

As with most privacy issues, there are workarounds when it comes to Bitcoin and similar coins. This may involve a combination of buying and selling the coins with cash or Monero (see below), using mixers/tumblers, etc. However, these measures carry risks, costs, and may not achieve your goals. For example, if you use a Bitcoin mixer to obfuscate your transaction history, your freshly-mixed coins may be considered by some entities to be risky because of the perception that mixers are frequently used by criminals to hide their crimes. Other measures may produce similar results because we live in a world dominated by the mantra, “If you’re doing nothing wrong, you’ve got nothing to hide.” Therefore, in such a world, if one sees you’ve taken measures to preserve your privacy, this is often met with suspicion.

One Man's Flaw

In fairness, this privacy issue is a classic case of one man’s flaw being another’s feature. Bitcoin’s public ledger, while a disaster for privacy, provides confidence for more conservative investors and institutions. This is because the transparency of the blockchain gives them some ability to determine the origin and history of the coins they’re dealing with. This transparency further reduces the risk of adverse action by regulators, whom aren’t generally favorable of transacting in money or property with limited or no verifiable history. This is why you’re treated like Al Capone when you deposit or withdraw “large” sums of cash at the bank. Along these lines, investors should consider that if we do see serious restrictions or outright bans of cryptocurrencies, Bitcoin will likely fare better than more privacy-friendly coins like Monero.

However, despite making institutions more confident, we remain of the opinion that the privacy concerns inherent in Bitcoin make it unsuitable as a currency replacement. In this scenario, Bitcoin would largely be relegated to various forms of hope:

  1. Speculation: “Investors” buying with one exit strategy – selling to other “investors”
  2. Ignorance: Perhaps many Bitcoin users will never realize how serious the privacy implications are
  3. Government and central bank demand: The US government’s recent actions (e.g. sanctions on Russian treasury reserves) are viewed by institutions around the world as a serious threat. What foreign institution wants to hold a currency that can be seized by the US government on a whim? This, along with the staggering levels of M2 money supply growth, deficit spending, stimmy checks, etc. are leaving governments and central banks around the world weary to find a dollar replacement. It’s highly unlikely that Bitcoin would satisfy this role, but certainly possible that there could be material usage by these institutions.
Cryptocurrency - Monero - Privacy Coin

Monero

Monero (XMR) is a more private alternative to Bitcoin. Although there are other “privacy coins”, Monero seems to be the most highly regarded and transacted in the privacy community. “Monero is what people thought they got when they bought Bitcoin”, those in the community like to repeat. There are nuanced differences between Bitcoin and Monero, but yes – at a high level, Monero is Bitcoin without the transparent ledger.

The Monero project has gone to great lengths to make holding and transacting the coin as private as possible. This includes obfuscating wallet balances, transaction amounts, transaction parties, etc. To our knowledge, no one has found a way to “crack” Monero in terms of constructing a reliable transaction history. Perhaps that will change in the future, but in the meantime, we believe Monero should be seriously considered as an alternative to Bitcoin for everyday use (i.e. as a currency).

Handshake - Cooperation - Agreement - Business - Finance - Blockchain

A Dual-Pronged Approach

Due to the bug vs. feature issue presented by Bitcoin’s public blockchain, we envision a world where it may be prudent for individuals to use two types of cryptocurrencies to balance privacy with usability: a “regulator-friendly” coin like Bitcoin and a “privacy” coin like Monero. In such a world, the regulator-friendly coin would be used to transact with parties that, primarily for regulatory reasons, wouldn’t accept a privacy coin. You would then use your privacy coins where you can, as well as for converting to regulator-friendly coins when needed. This approach would allow you to spend your cryptocurrency without indefinitely revealing your life story to the world.

Disclaimer

Nothing in this episode should be construed as tax, financial, legal, or other advice. Some of the material discussed in this episode may not be appropriate, applicable, or lawful for you depending on when you consume this content and your jurisdiction. Investing in cryptocurrency involves significant risk, which may not be appropriate for your situation. Consult with your financial advisor before investing in and cryptocurrency. See our full Disclaimer for more details.

Support Us

We’re an ethical company that puts our community first. You won’t find us injecting targeted ads or trackers into our website, peddling sketchy products/services, or selling our visitors’ data to 3rd-parties. As a result, our visibility and resources are rather limited.

Please consider supporting us to help keep our mission going. There are several ways to make a difference – from cryptocurrency contributions to simply sharing our content. Every bit of support is greatly appreciated and helps us make the world a more private, secure, and prosperous place.

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