Bitcoin, which surprised markets with a sudden surge yesterday, has continued to climb today.

The bitcoin price is fast approaching $7,000 per bitcoin, reaching $6,749 on the Luxembourg-based Bitstamp exchange earlier today after starting the week at under $5,000.

Bitcoin is up around 20% over the last 24-hour trading period, while other major tokens, including ethereum, Ripple's XRP, litecoin and bitcoin cash, are up between 15% and 22%.

The bitcoin price fell sharply earlier this month as part of the wider coronavirus-induced economic ... [+] chaos which wiped trillions of dollars from global markets.

The bitcoin rally appears to be driven by large amounts of so-called stablecoin tether flooding the market.

Stablecoins, the largest of which is tether with a total value of $4.6 billion, are designed to mirror the value of the traditional currency they're tied to with the creators of such coins generally claiming to hold the fiat equivalent of their tokens.

Over the last 48-hours some $120 million worth of tether has been minted, though the company behind tether said this was just an "inventory replenish" that had not yet been issued onto the market.

"Its likely that speculators are already starting to jump in [to bitcoin] because they feel a big buy order may be coming," said Simon Peters, bitcoin and crypto analyst at brokerage eToro.

The top ten bitcoin and crypto exchanges around the world have around $350 million of liquidity on their books, according to the Coinmarketcap liquidity index and Peters thinks that if the entire $120 million of new tether went into the crypto markets, it "could move prices significantly."

"It will be interesting to see if demand continues to increase over the days to come and whether we start seeing some more prominent higher highs and higher lows in price action. This would give me more confidence that a recovery is on the cards," Peters said, adding "were not out of the woods yet."

Meanwhile, a Twitter bot that tracks major bitcoin and cryptocurrency trades, Whale Alert, has shown a number of large bitcoin transactions moving off exchanges to unknown wallets in the last 24-hours, suggesting some big investors have already taken advantage of the low bitcoin prices to buy more.

The bitcoin price has rallied hard over the last two days, adding a whopping 26% and nearing $7,000 ... [+] per bitcoin.

Bitcoin's rebound yesterday came ahead of a broader recovery in traditional markets after a global sell-off last week due to the spreading coronavirus.

Global stocks and the price of oil have climbed today, suggesting a growing raft of central bank-led stimulus has finally satisfied investors and restored some semblance of market confidence.

However, countries and major cities around the world are increasingly going into shut down as governments desperately try to minimize the impact of COVID-19.

Some analysts have warned this market rebound could be what's known as a "dead cat bounce" and markets, possibly including bitcoin and crypto, could soon fall back again.

"We've had a massive asset bubble that is now crashing," said economic analyst Jesse Colombo via Twitter.

"Right now, most people are shell-shockedtheyre still in the denial phase. I believe we are primed for a powerful bull trap very soon [especially] with all these stimulus announcements. The market will probably bounce hard, which will suck in all the dumb money ... Once investors get complacent and cocky again after a sharp market rebound, that sets the stage for the rug to be pulled out from under them, which will lead to an even more powerful crash than the first one."

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Bitcoin Is Fast Approaching $7,000Heres Why - Forbes

Sometimes bitcoin's price moves with the stock market, and sometimes it doesn't. (Photo by Bryan R. ... [+] Smith / AFP) (Photo by BRYAN R. SMITH/AFP via Getty Images)

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

As a borderless digital asset not controlled by governments or centralized companies, bitcoins price should, in theory, travel its own path, independent of other currencies and markets. Cryptos pioneer asset, however, has seen varied views suggesting correlations to traditional markets, such as stocks, safe-haven investments such as gold, or even arguments that bitcoin is not correlated to anything. Available data shows no firm answer, as bitcoins correlation seems to change with the wind, while a number of experts have varying thoughts on the matter.

I believe that bitcoin does have a correlation with traditional stock markets because they are both private assets, analyst and trader Tone Vays told me in a March 18 comment. Bitcoin benefitted a lot from the ten year bull market because people got generally wealthier, and they were more willing to speculate on something like bitcoin, Vays added, mentioning the thriving market seen over the last decade.

Vays expects a positive reaction from bitcoin during relatively uncertain economic times, such as a countrys withdrawal from the eurozone for example. People will be scared, but they still have their jobs and theyre looking for a place exit, he said, referencing people prospecting for investment opportunities.

The analyst, however, said the current situation differs. When it comes to a major situation like we have now with the markets crashing, and people worrying about their jobs, theyre not going to speculate on bitcoin, Vays said. As an asset that has only been in existence for roughly 11 years, the analyst explained bitcoin is not yet primed to take the place of cash across the globe.

Amid global coronavirus fears and oil trade wars, recent days have seen traditional markets plummet. The Dow Jones Industrial Average (DJI), a common barometer for market health, fell more than 20% from its 2020 highs by March 11, and faced continued decline in the days following. Bitcoin suffered similar carnage around the same time frame, diving from $10,500 on February 12, down to $3,870 by March 13.

Between March 12 and 13, BTC fell from $8,000 down to $3,870, while the Dow fell from 22,840 to 21,150, according to TradingView.com price charts. The Dows March 12 drop totaled over 7% which is less damage comparative to bitcoins dump, but still a severe market loss by traditional market standards.

Bitcoin Sometimes Travels Its Own Path

Bitcoins price has not always travelled in line with traditional markets, however. Based on bitcoins chart, compared to the S&P 500 index, another popular mainstream benchmark, cryptos pioneer asset has acted oppositely at times.

An article from Cointelegraph compared historical price data between 2018 and 2019 from the S&P 500 and bitcoin, showing inconclusive data for any firm trend. At times, bitcoin did not react, or acted oppositely when the S&P 500 moved sharply. During other periods, the two seemingly moved in sync.

According to Vays, bitcoins price does not follow traditional markets during times of decreased price swings, also known as low volatility, sometimes seen when markets are level or marginally trending upward. If the volatility of the stock market isnt huge, bitcoin is not correlated at all, he said. When the market is going up very quickly, or when the market is crashing, I believe there is a correlation to bitcoin because theyre both private assets.

In recent days, amid the mentioned traditional market fears and falling prices, bitcoin has held rather steady. Specifically, on March 16, the Dow suffered another red day, while bitcoin traded largely sideways, ranging between $4,450 and $5,370, rather than posting new 2020 price lows like the Dow. The asset has held strong since March 16, regardless of traditional markets, sitting at a press time price of $6,648.

Cryptos Largest Coin Stated As A Non-Correlated Asset

Morgan Creek Digital cofounder and crypto aficionado Anthony Pompliano noted bitcoins comparative action in a March 16 tweet. Bitcoin is basically flat today and the stock market is down double digits, he said.

Don't hear many people yelling about BITCOIN IS CORRELATED! today, Pompliano added. Truth is correlation doesn't matter over short periods of time. Over months and years, bitcoin remains a non-correlated asset.

Over the years, Pompliano has piped up many times, defending his stance of bitcoin as a non-correlated asset. Bitcoin is definitely a non-correlated asset, Pompliano told CNBC in a December 2018 interview. If you look at the correlation between the digital asset and the S&P 500 over the last 180 days, its at zero, he noted. If you look at it compared to the dollar index, its near zero, he added.

As of a January 2020 interview with Cointelegraph, Pompliano said his position on the matter had not changed. The most important part of bitcoin, when it comes to the global hedge, is the fact that its a non-correlated asset meaning that, as stocks go up or down, bitcoin doesnt have correlation to that, he told the media outlet.

Centralized Investor Population

Emmanuel Goh, CEO of crypto analytics company Skew, explained bitcoins price action relative to stock market investors. The top 10% wealthiest households own 84% of available U.S. stocks according to a 2016 report from the National Bureau of Economic Research (NBER). Goh told me Baby Boomers comprise most of these numbers while holding almost no bitcoin. Millennials who own bitcoin also have a small allocation to stocks, he added.

That should make, in theory, bitcoin more immune to liquidations and margin calls during a global sell-off, Goh explained. Bitcoin was still down 10% in sympathy today - a muted reaction in our view given the context for global markets and bitcoin high volatility, he said on March 9, noting a relatively small move for bitcoin given its regular tendencies.

As bitcoin continues to age, gaining further recognition with time, the asset may develop a more predictable correlation or lack of correlation to traditional markets or world events. At this point, however, cryptos pioneer asset appears to be finding its way one step at a time, changing its correlation at times.

Disclaimer: I actively trade cryptocurrencies, as well as hold a small amount of BTC, ETH, LTC, XMR, NEO, ZEC, BEAM, BCH, DASH, LINK, XTZ andvarious insignificant other altcoin positions.

Excerpt from:
Contrary To Popular Belief, Bitcoin Isn't Consistently Correlated To Anything - Forbes

All hell seems to be breaking loose in the financial markets in light of the coronavirus pandemic. But if youve spent any time talking with a Bitcoin enthusiast, youve probably been told (perhaps many times) that moments like this are what the cryptocurrency was made for. Some of its most ardent fans have contended that since the digital asset is uncorrelated with traditional assets like stocks, it is a safe haven against market crashes like those we are seeing right now.

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Much to the disappointment of true believers, however, Bitcoinin fact, the whole cryptocurrency markethas cratered right along with the stock market. Though the price has jumped today, at publication time it was still down roughly 40% from a month ago. So is Bitcoin not actually a safe haven after all? Though it appears to have failed the biggest test of the idea yet, the debate will probably rage on, serving as a reminder that we are still figuring out exactly what Bitcoin is and is not.

Its also not clear that Bitcoin is supposed to be anything in particular. But Satoshi Nakamoto, its pseudonymous, still-unknown creator, did leave some clues. The title of Nakamotos Bitcoin white paper, which introduced the concept to the world, refers to peer-to-peer electronic cash. In the introduction, Nakamoto called for an alternative to the traditional system of online commerce, which relies too heavily on trusted third parties.

Then there is the mysterious message Bitcoins creator left in the very first record of transactions in the blockchain, known as the genesis block: The Times 03/Jan/2009 Chancellor on the brink of a second bailout for banks. Nakamoto never explained what this message meant. Still, its hard not to see Bitcoin as a reaction to the last global financial meltdown, which began in September of 2008. The Bitcoin white paper hit a popular cryptography email list on Halloween of that year, and the system was running by January.

In practice, Bitcoin is too slow and inefficient to act like electronic cash. Instead, many enthusiasts today view it as a form of digital gold. Real gold has long been considered a reliable store of value, and investors tend to see it as a form of insurance against an economic downturn.

Gold is also famously seen as a safe haven asset, which Investopedia defines as an investment that is expected to retain or increase in value during times of market turbulence. Other commodities like silver, corn, and livestock can also be safe havens. So are US Treasury bonds and cash. Many Bitcoin advocates have claimed that the digital asset belongs in this league too. Then last week happened.

Surprised were seeing the Bitcoin price fall in this environment, would have expected the opposite, Brian Armstrong, CEO of the popular US exchange Coinbase, tweeted on March 9, likely expressing what many Bitcoin fans were feeling. And that was before the carnage of March 12, when Bitcoin lost more than 40% of its value.

So what happened? One part of the explanation is somewhat ironic. In its earlier days, most of the people who invested in Bitcoin were committed to building an alternative financial system. They saw it as a long-term investment. Bitcoin used to be the asset of the future, writes Noelle Acheson, director of research at CoinDesk. It really was separate from the traditional financial system.

But as an industry has emerged around the currency in more recent years, it has made a major effort to foster adoption by institutional investors like hedge funds and other professional trading desks. The recent selloff is evidence that the effort has worked. Professional traders have been desperate to raise cash, writes Acheson: Bitcoin was just another financial asset getting trampled as investors headed for the exit.

So in its short life, Bitcoin has gone from an extremely obscure asset held mostly by true believers to just another financial asset. In light of the latest global financial crisis, it looks nothing like a safe haven. But in other contextssuch as in countries with high inflation, like Venezuelait has become a safe haven of sorts, at least compared with the national currency. And though it did crash alongside the stock market this time, Bitcoin can still be considered an alternative asset, in that like gold it doesnt depend on the cash flows of other institutions for its value, writes Acheson: The greater range of alternative assets, the better for investors, especially in troubling times like these.

A decade from now, how different will Bitcoin look as an asset? Will it still look more like digital gold than digital cash? Who will be investing in it, and why? What Bitcoin is is bound to keep changing along with those factors. So are ideas about the role it can play for investors and in society, safe haven or not.

See original here:
Coronavirus is forcing fans of Bitcoin to realize its not a safe haven after all - MIT Technology Review

Bitcoin has again begun moving lower, following broader financial markets down as investors count the cost of the spreading coronavirus.

The bitcoin price, which had found a temporary floor of just over $5,000 per bitcoin late last week, sunk to lows of $4,787 on the Luxembourg-based Bitstamp exchange early this morning.

Bitcoin's latest fall comes as the U.S. Federal Reserve, working with the U.K., Japan, the eurozone, Canada, and Switzerland, tried to shore up financial markets with massive stimulusbut many feel the central banks haven't gone far enough and some have warned the bitcoin price could crash even further.

Bitcoin prices had stabilized over the weekend but have now begun sliding again.

The bitcoin price surged higher when the Fed yesterday announced it would cut interest rates to a target range of 0% to 0.25% and said it would begin quantitative easing to pump $700 billion worth of cash directly into the economy.

Bitcoin briefly jumped to almost $6,000 per bitcoin before falling back almost immediatelylosing almost 10% over the last 24-hour trading period.

Elsewhere on crypto markets, other major digital tokens fell alongside bitcoin with the likes of ethereum, Ripple's XRP, litecoin and bitcoin cash all losing between 5% and 12% over the same period.

"Crypto-asset markets again seem to be mirroring the actions of the traditional markets," said Simon Peters, analyst and bitcoin expert at brokerage eToro.

"However, fear is arguably a more dominant emotion than greed at the moment, because even with this stimulus, investors are still very worried about global economies grinding to a halt due to COVID-19."

U.S. equity futures and global stocks tumbled after the Fed made its historic move, with the Dow Jones Industrial Average and S&P 500 futures each dropping to their out-of-hours trading limits of about 5% in out-of-hours trading.

"There can be no denying the Feds commitment to action but its dramatic move will initially stoke further debate as to whether the monetary medicine will work, on the economy or markets or both," said Russ Mould, investment director at stock broker AJ Bell.

Many senior figures in the bitcoin and cryptocurrency community have argued the Fed's bond-buying and interest rate cuts highlight bitcoin's superiority to traditional markets.

"The Fed just cut rates to zero and entered into QE again. Bitcoin was built for this moment," said Dan Held, U.S.-based bitcoin and crypto exchange Kraken's head of businesses development, via Twitter.

"Bitcoin is a hedge to this," cofounder of the U.S.-based Gemini bitcoin and crypto exchange, Tyler Winklevoss, said via Twitter.

The bitcoin price failed to be supported by the latest central bank measures to prop up the economy. ... [+]

"Bitcoin doesnt have a 'limit down' or 'circuit breakers' because it is a real market with a real clearing price," bitcoin and cryptocurrency expert and cofounder of the Satoshi Nakamoto Institute, Pierre Rochard, tweeted.

"Stocks and bonds are not real markets, they are Potemkin villages, their prices are highly manipulated and political."

See original here:
Bitcoin Is Back In Free Fall And Dropping FastHeres Why - Forbes

In Part One of this treatise, we examined the fundamental relationship between Bitcoin and privacy by going back to the beginning with the whitepaper. In spite of some excellent privacy preserving options that have been available to users since those early days, we seem to have taken a few wrong turns. But to fix it, in order to make Bitcoins privacy great again, we must be able to distinguish between real privacy and red herrings that can only lead us further off the path.

Bitcoin is an effective system to transfer and store wealth, but that wealth has first to "enter" the system somehow, very often coming from fiat money. (Of course, you can also earn satoshis directly in exchange for goods and services you provide, instead of buying them with fiat.)

Fiat-enabled bitcoin on-ramps (often known as "cryptocurrency exchanges"), acting as liquidity bridges, created huge privacy problems in Bitcoin. In order to manage fiat, exchanges will have to use traditional bank accounts. In order to get those, they have to meekly accept all the rules, conditions and limitations banks require. Traditional fiat banks, in turn, will pass over the extremely complex and heavy "compliance" burden they received from governments and regulatory agencies, including that concentration of economic illiteracy called "KYC/AML regulation."

So, fiat-to-bitcoin bridges will almost always end up demanding a scary amount of personal information from their user, linking that information to a few deposit and withdrawal addresses (often incentivizing continuous reuse) and then even hiring "chain-analysis" companies in order to follow, trace, tail and stalk all the previous and following economic activity on-chain.

The first and most important reason for doing so is because these on-ramps are scared to lose the privilege of having a fiat bank account. Bitcoin was, is and will always be considered a "borderline" reality by governments and government-sanctioned legal cartels like modern fiat banks. Thus, it's realistic to assume they would close down operative accounts to any exchange which couldn't guarantee the same level of financial surveillance that fiat banks routinely enact.

For this reason, fiat-enabled gateways not only keep promoting wrong and dangerous uses of the Bitcoin protocol, discouraging security best practices and hiring "chain-analysis" spy companies: They often even go to great lengths to publicly praise "KYC/AML" nonsense regulations and to push the narrative that "Bitcoin is completely traceable," marketing some probabilistic assumptions as "legal proofs" and ignoring even the existence of the fundamental privacy features of the protocol.

For a while now, these businesses have been freezing or confiscating users accounts because of what theoretical "chain-analysis" heuristics (dishonestly promoted as "facts") suggest these users may have been doing way before or way after their interaction with the exchange, basically trying to break fungibility in Bitcoin.

We often see this happening for activities that aren't even explicitly considered illegal in the specific jurisdiction under which they happened: online gaming, adult services, political campaigns, etc. Anything considered even remotely controversial has been depicted as forbidden, and any statistical guess about "on-chain" activity, based on common patterns and typical tools, has been depicted as "proven."

Of course, there's nothing really proven in "chain-analysis" heuristics, so the spy companies arbitrarily decide how many "on-chain hops" to look for, arbitrarily assuming who is doing what. Even assuming that such heuristics are correct (they have never been 100 percent reliable, and they are less and less so each day, while Bitcoin developers build better tools and Bitcoin users start employing best practices), this behavior is unacceptable. It is the digital equivalent of your physical bank sending private investigators to follow your every move for days after you withdraw cash at the ATM, and then freezing or confiscating your bank account entirely if that PI comes back with a report that says that "you may have," with some probability, engaged in controversial actions with that cash.

More recently, this shady behavior has extended beyond some generically controversial activities engaged by "somebody somehow connected with customers" to encompass even the very act of trying to use Bitcoin's security and privacy best practices!

In January 2020, a company that operates a regulated exchange froze a customers account once they discovered possible hints that somebody, possibly the customer himself (but after some "hops" following the withdrawal transaction, that is, not even directly), was using a wallet enabling privacy best practices. Again, imagine your physical bank sending a private investigator to follow your steps for days after you withdraw some cash at the ATM, and then freezing or confiscating your bank account if that PI reports that says that "you may have," with some probability, closed your shutters at home, or pulled your shower curtains while naked, or put a lock on your personal journal, or used HTTPS within your web browser!

Furthermore, the specific message to the customer was tragically hilarious: It said that the business "can't condone activities such as peer-to-peer (sic!) mixing or gambling." All this while talking about Bitcoin, which is literally a peer-to-peer protocol whose transactions can natively work as mixers, and coming from a business that operates in cryptocurrency trading, which some consider not that different from gambling!

There have been many reactions from Bitcoin users and analysts to these dodgy examples of behavior, many of which are based on logical fallacies or straight-on distortion of the facts. A classical example is the absurd notion that "Bitcoin users should not use privacy best practices, because that's dangerous."

The pseudo-argument goes something like this: Since some overzealous business may use unreliable heuristics to accuse you of adopting privacy and security best practices that they have arbitrarily defined as "unacceptable," possibly freezing or even confiscating your account, or flagging it as "suspicious," you should just stop using those security best practices and move to insecure alternatives instead. In other words, to use our physical bank example, since your bank might flag your account if the PI they sent after you comes back with a report that says that you may have, with some probability, used some privacy best practices a few days after a cash withdrawal, you should just stop closing your shutters while home, or pulling the shower curtains while naked, or putting a lock on your personal journal, or using HTTPS within your web browser.

This is nonsense, of course. If anything, it's not using privacy and security best practices that would turn out to be extremely dangerous not just for your financial safety but also for your physical safety. Reminder: Bitcoin's privacy is all-or-nothing! Once a business is able to attach your physical identities, not just to an on-chain address but also to all the future and past history connected with it, all it takes is a little leak (by the business itself, by its spy-contractors or by one of the countless government agencies which will receive and pass along that information) to direct very dangerous enemies to your doorstep.

Incidentally, the pseudo-argument is flawed more fundamentally as well: Even if you were so reckless as to decide to trust this third party with a complete account of your future and past transactions, in spite of the risk to your physical security (and that of your loved ones), you may achieve the very same result just by sending it the cryptographic proofs of all the inputs you ever signed (either on-chain or on upper layers), allowing the meddling gateway to read through each of your CoinJoin or Lightning Network routing all without giving up generic privacy best practices. You are still risking a leak, but at least you are not giving every random guy with an internet connection an easy way to deanonymize and stalk you (and others you interact with).

Usually this red herring comes with some distorted vision of Bitcoin's utility. "If users just want to invest in bitcoin as an uncorrelated financial asset with some disinflationary features," they say, "then they don't need privacy at all." This pseudo-argument is severely flawed.

Here's the bad news: Gold was, for many many centuries up until 1933, a typically "uncorrelated financial asset with some disinflationary features" that people in the United States and elsewhere could invest in. But then came Executive Order 6102. Gold was confiscated all across the nation, and all the investors who didn't protect their privacy (which was especially hard with "paper gold," kept in custody by trusted third parties eager to comply with the order, but also pretty hard with actual physical gold, difficult to hide in large amounts or to smuggle across a border) had to give it to the government.

A good general heuristic is this: If you are a privileged "first-world" investor, with a good KYC identity, and you are looking for some kind of investment that is politically uncontroversial now and likely to remain that way, then you will soon be able to access that type financial product from you favorite fiat bank. If that describes you, don't even concern yourself with complex stuff like private keys, blockchain fees, addresses: leave the real protocol to real users. Just call your good old bank over the phone and ask to buy some "bitcoin-flavored risk": certificates, futures, ETNs, ETFs, CFDs, etc.

If, on the other hand, you are not as privileged (like the majority of the world population today, which doesn't have a KYC-friendly identity), or if you think that the financial asset you seek is a bit controversial today already or likely to become so in the future, then you will eventually need some very strong privacy techniques to acquire it and to safely store it, since "legally compliant" exchanges, brokers and marketplaces will do everything they can to keep you out of it or take it from you.

A second typical reaction, even more absurd, is to suggest "privacy altcoins" as a "solution" to this problem. A regulated exchange will flag your account if you use best practices such as CoinJoin, or Lightning Network, or address-reuse-avoidance. Then, instead of bitcoin, just use some illiquid bitcoin-clone whose design has been altered in such a way that it's said to offer "more fungibility, right?

The superficial problem with this approach is that such "magic privacy coins" don't actually exist in the real world. On one hand, that's because most of the changes marketed as "privacy improvements" are either entirely fake or greatly exaggerated. They also tend to come with serious trade-offs which make these clones otherwise unusable at scale over the long run (usually including a completely centralized development process, trivial to compromise).

On the other hand, even if such a coin were to exist, from a technological point of view, it couldn't work in practice from an economical point of view. Remember: Privacy loves company. A huge chunk of the bitcoin economy and its users would have to move to the very same bitcoin-clone as you. Otherwise, your transactions will have a lower liquidity and a smaller anonymity set, regardless of how perfect and sci-fi-worthy the privacy tech you are using is.

There are variants of this red herring which are based on some kind of "bimetallic standard" idea: Those proponents will suggest that you use bitcoin as your fundamental store of value (which centralized illiquid clones can't be for obvious economic reasons), and then add a particular "privacy altcoin" for privacy in transactions.

Of course that can't work in most real-world scenarios. Assuming that the payer and the payee both use bitcoin as a long-term store of value, the payee would have to move satoshis from his personal storage solution to some kind of market (regulated or not, it doesn't really matter here) with the same privacy issues as any other bitcoin transaction; then exchange those satoshis for altcoins on some low-liquidity shared order book with very low privacy; and then move the altcoins over their native system with a low anonymity set to an address provided by the payee. Then the payee would have to repeat the same steps in reverse.

The privacy guarantees of the whole process would be, overall, way lower than a normal bitcoin transaction performed following the best practices. Of course, these guarantees can be increased if either the payee or the payer "batch" many transactions in one big altcoin reserve, exchanging satoshis only once, way before or way after the single individual transactions. But this would require the altcoin to be a reliable store of value for long periods of time which illiquid and centralized bitcoin-clones (often crippled by unbalanced trade-off choices between privacy features and other very delicate aspects) can't be.

The deeper problem with this approach is that, even if feasible, it would become completely useless pretty quickly. The very same reasons that convinced some regulated exchanges to actively discourage or even prevent their customers from adopting privacy best practices on Bitcoin, would readily convince the very same exchanges to just delist any "privacy-focused" bitcoin-clone. The "smaller" the altcoin, the weaker the incentive to list it. The "bigger" the altcoin, the stronger the regulatory pressure to delist it. It's as simple as that.

Some weak attempts at steel-manning this approach focus on the distinction between mandatory privacy and opt-in privacy. "With Bitcoin," the altcoin proponents say, "you are not forced to use the fungibility features at the protocol level, so it's easy for the exchange to ask you not to use them. But with my altcoin, you have no choice, so the regulated exchange will also have no choice but to allow you to use them."

Again, this is nonsense; it's not true that a privacy feature can ever be "mandatory at the protocol level."

As the history of Bitcoin teaches us, it's mostly about tools: Even when the base protocol includes strong fungibility capabilities, if the most widespread tools don't leverage them, then people will simply not use them. Theyll just resort to using whatever is easy and available, even if that mean adopting bad practices instead.

It doesnt matter which protocol you use: If the tools are inadequate, so is your privacy. Just as you can have a bitcoin wallet that is incompatible with CoinJoin and that forces address reuse, you can also have a monero wallet that leaks confidential information about amounts and always constructs "ring-signatures" between every single user and himself. If such a wallet is widespread, spy companies can assume such behavior as common and build de-anonymization heuristics.

Of course, altcoin proponents may just build and market tools that actually use the privacy features already present in their clone at the protocol level. But then again they would need just as much time, money and effort that is required for building and marketing tools that actually use the privacy features already present in Bitcoin at the protocol level.

A more useful distinction to examine is the one between privacy features that are economically convenient to use and privacy features that are costly to use. The perfect (bad) example would be that of "shielded transactions" in the altcoin Zcash: Since they take way more space inside blocks, and way more computation time to be verified and signed (making this last action almost impossible on a light client), economic incentives push the already-few users of the coin to "unshielded" transactions, which are just an outdated version of the traditional bitcoin ones.

As a direct effect, many users will think they have "more privacy" when this process, in fact, makes tracking and deanonymizing far easier. An indirect effect will be that the very few users who do decide to pay the extra cost for "shielded" transactions will find themselves within an even smaller anonymity set, ending up exposed instead of protected.

An opposite example would be the Lightning Network on Bitcoin: Since block space is expensive, users often have strong economic incentives to switch to payment channels to save fees, reducing the "timechain footprint" to just opening and closing channels.

Ultimately, it's not surprising at all that some of the most vocal proponents of the "CoinJoin is risky because your account will get flagged" narrative turn out to be also promoters of new, illiquid privacy altcoins, which they hope to push to profit from "pump-and-dump" schemes. Same old story: "Bitcoin's fees are too high: buy my low-fee altcoin!" or "Bitcoin signatures aren't quantum-proof: buy my quantum-ready altcoin!" or "Bitcoin's smart contracts aren't flexible enough: buy my Turing-complete altcoin!" or "Bitcoin is not fungible enough: buy my privacy altcoin!"

Are there real solutions and ways to mitigate the threat that regulated exchanges pose to the privacy and the security for Bitcoin users, beyond the red herrings? Yes: many.

The ultimate solution, albeit very slow, will eventually come from the evolution of the market. While more and more resources will leave the fiat world to enter Bitcoin over the years, more and more parts of the bitcoin economy will move from fiat gateways to satoshi-denominated trades among users. Gateways will still be important, but gradually less so, making their bargaining power lower and lower over time. Fiercer competition will also help: People will be happy to leave meddling PI-hiring banks who force them to keep shower curtains open if they have alternatives.

Another mitigation will come from the evolution of Bitcoin tools. While more and more modern wallets will make it harder to reuse addresses or merge inputs, and easier to coordinate CoinJoin rounds, regulated exchanges will have a harder time forcing their customers to use only old, outdated or inferior wallets instead.

Yet another mitigation will come from the adoption of the Lightning Network. Since block space in the base layer will become more expensive, users will be strongly incentivized to route transactions over payment channels instead. It will be harder for regulated exchanges to arbitrarily ban customers due to a probabilistic link between the satoshis they deposited or withdrew on the Lightning Network, especially when the latter will be ubiquitous, thanks to economic incentives.

Additional improvements may possibly come from the next protocol upgrades in Bitcoin, especially the one called "cross-input Schnorr signature aggregation." This upgrade will make coordinating with several different parties within CoinJoin rounds extremely convenient, from an economical perspective.

Another hope comes from the idea of decentralized exchanges (DEXes). So far, they suffer from liquidity limitations and their security remains tricky: While the Bitcoin "leg" of any trade can be easily trust-minimized, the fiat leg remains ultimately trust-based, making complex and expensive escrow mechanisms necessary. (In turn, escrow mechanisms tend to prove very difficult to decentralize effectively.)

Your privacy is in your hands just keep calm and be diligent. Don't submit to dangerous privacy violations. Don't reuse addresses. Use CoinJoin. Close your shutters when youre at home. Pull the shower curtains when youre naked. Put a lock on your personal journal. Use HTTPS when surfing the web.

In the end, Bitcoin fixes this.

This is an op ed contribution by Giacomo Zucco. Views expressed are his own and do not necessarily reflect those of Bitcoin Magazine or BTC Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Original post:
A Treatise on Bitcoin and Privacy Part 2: Dont Be Misled by Red Herrings - Nasdaq