It’s hard to picture the future of financial privacy without Bitcoin. From its inception, Bitcoin was meant to be disruptive. And for over a decade, it has made giant leaps as a decentralized currency despite concerted efforts to subvert it. The fact that bitcoin is still here means that it’s needed and has a role to play in the future.
Presently, using intermediaries in financial transactions always sacrifice privacy; as such, there’s a growing need for decentralized peer-to-peer technology to facilitate money transfers. Bitcoin comes with some drawbacks in terms of privacy. The application of distributed ledger technology is fundamental to allowing bitcoin to work without “middle-men,” but the transparency affects Bitcoin’s ability to be used as currency. Consequently, bitcoin has had to evolve to meet the advances in technology used in deanonymizing public ledgers and degrading privacy.
The advancement in Bitcoin privacy will be most visible on the following fronts:
4. The Lightning Network
5. Open Source Development
6. Awareness and public sentiment
The big question about wallets is, who keeps your private keys? If your wallet allows someone else to store your private keys, then the amount of privacy you have is controlled by the party trusted with your private keys. Giving away your private keys means that you trust the other party to always serve your interests over theirs, which is not always the case. A good wallet allows you to store your private keys. The wallets we use in the future will directly influence the amount of privacy we have while using bitcoin. The other feature of wallets that directly affects privacy is address generation. Working with a single unchangeable address is detrimental to a user’s privacy as it builds a strong association with one address. The future of privacy will have more wallets allowing users to generate addresses on the fly whenever needed.
There will also be a more significant shift in the number of users running full node wallets. A node in bitcoin is software that allows a computer to have its record of the public ledger that other computers on the network can read or write. A full node also provides computation power when it participates in validating transactions before transmitting them throughout the network. Running a full node may be technical, but it gives the user more security and privacy when they know what they are doing.
With a growing number of novice users joining bitcoin, it will be critical for future wallets to be straightforward to use for everyone. This will directly affect fast advancements in user interface design to improve usability and user experience. The simplicity of the wallet does a lot to protect users from avoidable mistakes that may affect users transacting with privacy in mind. The trend for future wallets will likely sway in the direction of wallets that preserve privacy while being easy to use all at the same time.
The least private wallets in the future will be wallets that lack network-level protection from network deanonymization attacks. Such wallets will always reveal more network information about the users transacting with the wallets rendering them porous. To counteract this, the future will see more and more bitcoin wallets using Tor. The most private wallets will likely be Desktop wallets since they allow users to run better software than mobile phones. Wallets are at the center of the mass adoption of Bitcoin and privacy. There will always be a direct correlation between the wallet used to transact and the privacy of the user.
Bitcoin may be the future financial system, but it’s unlikely that it can exist independent of the traditional financial system. The fact that bitcoin is a global currency means that users in different countries still need to convert their existing currencies into bitcoin and then back to local currencies. This is a role exchanges play. Centralized exchanges cannot exist outside the regulation that necessitates having all their customers fill KYC forms, degrading privacy. Central exchanges propagate the lack of privacy existing in the current financial system onto bitcoin. The biggest win for the future of privacy will be the growth of decentralized exchanges. Unlike centralized exchanges, decentralized exchanges enable Bitcoin transfer in exchange for other currencies without giving away private information. The development of decentralized exchanges is likely to grow further with the growing interest in Non-Fungible Tokens and other cryptocurrencies. Users will easily exchange Bitcoin for other valuable assets with decentralized exchanges without giving up privacy. The near future will also see a more significant rise in the acceptability of bitcoin as a mode of payment, resulting in less need for exchanging bitcoin on central exchanges for local currencies.
CoinJoins All the Way
Coinjoins are probably a magic pill in the quest for bitcoin privacy. In a coinjoin, multiple users combine their coins and the output to every user is the same value of coins they put in the transaction, except that all the coins cannot be distinguishable from each other. Soon, trustless coinjoins will be more common because apart from improving privacy, they allow for fungibility. It will be noticeable that coinjoins will be more and more popular and their frequency will increase. For future wallets, conjoins will be one of the main features that make a wallet attractive to new users. Coinjoins will also see a shift to the type of coinjoins that do not allow third-parties access to users’ wallet information. This is useful as it will enable users to preserve any private information they don’t wish to give away in a coinjoin. With the increase in the number of coinjoins, the public ledger will be more obscure enabling greater privacy.
The Lightning Network
The development of the lightning network has the potential to revolutionize Bitcoin privacy and payments. By performing transactions off the main ledger, the lightning network allows for more private transactions. Already there exist implementations of the lightning network on bitcoin wallets but they haven’t been widely adopted yet. Wallets incorporating the Lightning Network will come with more development and advancements.
Open Source Technologies
Truth has to be verifiable. Open-source software allows us to inspect the software we use so that there is no fishy business. Privacy concerns make it important that the software we use really does what it says it does and not anything else. To establish trust, the trend of open source privacy tools is likely to pick up pace.
Public Sentiment about Bitcoin Privacy
Bitcoin hasn’t been free from misconceptions. Probably the most pervasive relates to the usage of its privacy features in crime. Such claims have stopped others from leveraging bitcoin’s privacy features to protect their financial information. Regardless of any held opinions, bitcoin has kept going because it’s desirable that a decentralized currency should exist and like all inventions, it is a driving force for both good and bad. The privacy features on bitcoin give users power that other tools can’t afford, but we cannot assume that it is to be used entirely for bad. Future bitcoin users will understand that taking control of our financial privacy is necessary and that a future where our private worlds are constantly encroached upon isn’t worth living in.