1/36 LONG THREAD: Bitcoin, Privacy Coins, and the Important Paradigm Developing in the Crypto Ecosystem.

$BTC $XMR $XHV $xUSD $RUNE

TLDR- Bitcoin is not private. It is still important. Privacy coins are not replacing Bitcoin. They are still important.

2/36 Bitcoin transactions are inherently not private. That is a feature not a bug. It isn’t necessarily bad, but rather just defines a bound to its role in the greater system.

The beauty and power of the Bitcoin protocol lies in its simplicity, not in it's privacy.

3/36 It is the first realization of a digital form of money by use of a decentralized blockchain and proof of work consensus. The ledger of transactions is fully transparent and immutable.

4/36 What this means is that if you know one transaction made from a certain wallet, you can follow and trace every transaction made by that wallet throughout the entire blockchain’s history.

5/36 This allows for an easy demonstrable proof of concept and almost certainly served to enhance trust among its early adopters and new users. It is arguable whether the unproven concept would have taken off so fast without this level of auditability and ease of understanding.

6/36 The coin’s value proposition is based almost exactly like that of physical gold, with a high stock-to-flow model and programmed scarcity.

7/36 Essentially what this means is that the total stock increases relatively slowly when compared to the existing supply, and there is a limit to the total supply.

8/36 In Bitcoin's case, there is an algorithmic limit of 21 million programmed into the protocol, with gold there is a perceived limit that can be realistically mined from Earth.

(I'm leaving Elon mining asteroids out of this)

9/36 Now this digital scarcity value of Bitcoin, and what will likely attract many investors to it in the coming years, is not necessarily contingent on it being private.

10/36 In fact, this reality (whether for better or worse) may actually be responsible for its adoption by large institutions and governments going forward.

11/36 I predict a future where Bitcoin serves a similar role to gold, a reserve currency held in large part by major players and institutional money, being used predominantly for major transactions.

12/36 The current bull market has largely been driven by this trend, with many companies recently announcing major investments in the asset. A next leg to look out for will be sovereign wealth funds and even central banks announcing major stock-pilling of the currency.

13/36 Small players are not excluded from the system by any means, but its primary purpose will not be for daily transactions like buying coffee or goods at the store.

14/36 In this world, the asset will be used as a hedge against fiat currency devaluation, and even grow to be a primary form of collateral in debt issuance and credit markets.

15/36 Bitcoin transactions and major asset movements of this kind will be more or less transparent anyway, and most users in this function won’t care.
Transactions of this kind will be relatively rare, expensive, and heavily monitored.

16/36 In this kind of system, the crypto world will need different technologies to serve numerous other functions such as private wealth protection and small-scale transactions.

17/36 Enter privacy coins...

There are many different privacy coins out today or in development, and I can’t speak on who will eventually win out, that isn’t the focus of this discussion.

18/36 Monero is in my opinion the most active, advanced, and comparable system to Bitcoin, so I will use it as an example. Haven, which I mention later, is a completely different model, but based off Monero's privacy technology so grouped in with it.

19/36 Monero takes the same concept of digital scarcity that Bitcoin created, but adds another level of sophisticated cryptographic technology to allow for private transactions on the blockchain, while still preserving its integrity and auditability.

20/36 In a grossly simplified explanation, Monero uses what they call stealth addresses, ring signatures, and ring confidential transactions to hide the sender, receiver, and amount of any given transaction.

21/36 What this means is that one can freely use the blockchain without worrying about exposing their entire transaction history to the entire world.

22/36 Now it is likely that a technology like this may always be given a negative connotation and even met with hostility by governments, large institutions, and major crypto exchange platforms.

23/36 As already seen recently, many popular centralized exchanges will be pressured to delist these assets due to the regulatory burdens associated with hosting them.

24/36 Many will only associate them with their popularity in various illegal activities and DNM's, arguing that as their only utility, but that is in my opinion incredibly shortsighted.

25/36 Now i’m not here to argue for or condone any of those activities, I’m here to point out the inherent value in these currencies far beyond that scope and why they are important to the ecosystem and future of digital currency.

26/36 The key is fungibility...
On a broader scale, the key monetary element privacy coins introduce that Bitcoin lacks is fungibility.

Fungibility is by simple definition the property of a good that can be interchangeable with all other goods of its class.

27/36 One gold coin is equal in value to another gold coin, one dollar bill is equal in value to another dollar bill, ect. It doesn't matter where they come from or how they've been used in the past.

This is a crucial element of a successful cash system.

28/36 In contrast with bitcoin, if you make a purchase with your bitcoin, that specific coin or fraction of it will forever be associated with the purchase. This creates the potential for blacklisted bitcoins, or different values associated with coins from different sources.

29/36 In privacy coins such as Monero, this doesn’t matter. Every transaction is obscured, so all individual coins will always be equal in worth. Coins can't be blacklisted, wallets can't be tracked, and all individual transactions are inherently independent from each other.

30/36 Another more specific point, although maybe not experienced yet by many readers in the developed world, is that “illegal” is a very loose word, contingent on time, location in the world, and unfortunately even race, religion, gender, ect, of an individual.

31/36 Wealth preservation and private transaction capabilities can hold enormous value to targeted individuals in oppressive regimes around the world. Exchange across borders can be prohibitively difficult or even dangerous for many people with the current system in place.

32/36 The point is, it's safe to say there are many people in the world today that highly regard the ability to access a financial ecosystem that is independent of these factors or the risk associated with current or future government changes that may threaten their access.

33/36 What this all amounts to is that there are two very different roles in the greater crypto ecosystem for transparent coins such as Bitcoin and private coins such as Monero.

34/36 Bitcoin will likely thrive with institutional and governmental adoption, privacy coins will thrive despite their opposition. The key to privacy coins’ success may get more complicated in the face of more future oppositional forces and legislation, but that has solutions.

35/36 I plan on releasing more specific pieces soon on why decentralized exchange services such as ThorChain and private stable coin options such as The Haven Protocol are crucial to the private coin ecosystem’s resiliency and growth. Stay tuned.

36/36 Give @monero @HavenXHV @thorchain_org a follow for more information on these specific projects I mentioned. Let me know any interesting developments in the space I should check out as well.