The rise of privacy coins: We only care when privacy is at risk

Summer. The sunlight filters through my curtains. The forecast predicts one of the hottest days of the year, but I remain frozen in bed, reluctant to move, the weight of the world pressing me down. My phone screen lights up, and the first headline catches my eye: “29-year-old Bitcoiner robbed and murdered in Kyiv for $200,000 in Bitcoin.” The heat outside feels distant compared to the chilling realization that danger hides in plain sight in a world where privacy is increasingly elusive.

The story offered no insight into how the offenders discovered the man’s Bitcoin (BTC) holdings. However, the alleged attackers have been charged with premeditated murder, robbery, and concealment, suggesting that they managed to track and know sensitive information about the victim’s BTC.

Privacy is not just a convenience; it’s a fundamental right

After reading the news article, I was reminded of a guest article by Neeraj Agrawal in Bankless, titled “Crypto Privacy Is Humanitarian.” Agrawal argues persuasively for the critical role of privacy tools in today’s world, highlighting how “crypto privacy can be a matter of life and death” for individuals living under repressive governments. He gives various examples where the ability to maintain privacy through cryptocurrency has provided a vital means of escaping oppressive financial restrictions enforced by powerful intermediaries.

His examples include protestors in countries like Belarus and Nigeria, political opposition in Russia, resistance fighters in Myanmar, Afghan civilians struggling under sanctions, and a Chinese artist avoiding censorship.

Agrawal’s points highlight that privacy is not merely a convenience but a matter of survival for many people worldwide. However, focusing solely on these extreme cases can create the misconception that privacy is only essential in dire situations. In reality, privacy is a fundamental right that should not need justification. This narrative also reinforces the idea that those who seek privacy or resist Know Your Customer protocols must be hiding something illicit, further stigmatizing the pursuit of personal privacy.

The prevailing narrative tends to position privacy concerns on a spectrum: on one side are criminals hiding illegal activities, while on the other side, activists and freedom fighters evading persecution. Both are seen as operating outside the law, but one is villainized while the other is celebrated, even though the laws may be oppressive or unjust. Yet, this dichotomy overlooks the vast majority of people in between—the average individuals who value their privacy without a dramatic backstory to justify it or anything to hide. 

Privacy is like oxygen: Its value becomes apparent only in its absence 

The rising popularity of privacy coins seems to be closely linked to the increasing number of central banks exploring central bank digital currency. According to a Bank for International Settlements survey, 94% of the 86 participating banks said they were looking at a digital version of their national currencies. That’s up from 90% of 81 respondents in a 2021 survey conducted by the BIS, an umbrella organization for the world’s central banks. In response to rising concerns over the erosion of financial privacy, privacy coins have emerged as a potential solution.

Furthermore, privacy coins mainly gain media attention only when our privacy is infringed. For instance, Ethereum (ETH) co-founder Vitalik Buterin emphasized the need for privacy in cryptocurrency transactions following reports that he used the privacy tool RailGun to obscure the transfer of 100 ETH. According to Wu Blockchain, which cited data from Arkham Intelligence, Buterin had been gradually interacting with the privacy tool over the past six months, using smaller amounts of ETH.

Following the news of Buterin’s actions, privacy-focused digital assets such as Monero (XMR) saw an immediate spike in value, with an average price increase of more than 5%. Despite their critical role in ensuring financial privacy, advocates of privacy protocols are often stigmatized and viewed as paranoid conspiracy theorists or extremists. 

Society becomes suspicious of anyone who doesn’t conform to the norm of transparency. This shaming of privacy-conscious individuals serves as a subtle tool for social control, normalizing complacency. From there, it’s a slippery slope into a surveillance-driven society, where personal data is easily harvested, manipulated, and used as a means of control. 

How big is crypto crime, really?

Illicit activity remains a concern within the crypto world, with some harmful to honest users—such as scams and hacks—while other actions, like circumventing government-imposed capital controls, may seem to challenge unfair systems. Critics of privacy coins often focus on their use in illicit activities, but they fail to put this issue into a broader context. Blaming the tools rather than addressing the underlying human behaviors misses the point. 

Illicit activities have been happening for centuries and are not specific to any particular technology. While crypto may be used for unlawful purposes, these actions would persist with or without it. The focus should be on addressing the root causes of these problems, not demonizing the tools themselves.

According to the UN Office on Drugs and Crime, traditional financial systems are responsible for as much as $2 trillion annually in money laundering, a figure comparable to almost the total market capitalization of all cryptocurrencies. Additionally, over 99.9999% of Bitcoin transactions occur on exchanges that adhere to anti-money laundering regulations.

In January 2023, Chainalysis reported that cryptocurrency transactions tied to illicit addresses totaled $24.2 billion, making up just 0.34% of the total crypto transaction volume for that year. This marked a decline from 2022, when illicit activity accounted for $39.6 billion, or 0.42% of transactions. 

One challenge in analyzing the extent of illicit activity is the distinction between crypto holders and those actively using it for transactions. Many users acquire BTC simply to hold for long-term investment, meaning a higher percentage of active users may be involved in illicit transactions. This discrepancy adds complexity to the ongoing debate on crypto regulation. 

However, it’s ludicrous to argue that the majority of privacy coin holders are engaged in illegal activities. This narrative undermines the core principles driving many web3 natives: The freedom of essential human rights, and privacy being one of them. For these individuals, privacy is not just a shield against bad actors or invasive authorities; it is a form of liberation, a way to reclaim autonomy over their personal data and transactions. They are not hiding illicit behavior but standing firm in their belief that privacy is a fundamental human right—one that should not be compromised or criminalized.

The idea that seeking privacy implies wrongdoing is a dangerous oversimplification. Just as free speech and the right to assembly are protected regardless of how they are used, privacy deserves the same unconditional respect.