It would appear, based on the news this week, that major world governments like the US and others are
cracking down on the notion of "government-proof privacy", and prosecuting companies and individuals who facilitate money transfer that cannot be potentially traced by a government. They are going after mixers and brokers who do not adequately engage in KYC.
Government policy in this regard is very clear - anonymity and confidentiality will be eliminated
In short, it would seem that governments are trying eliminate the very thing that Bitcoin--and blockchain generally--was originally designed to accomplish.
This is precisely what governments disliked most.
What does this mean for the long term prospects for cryptocurrencies? Will blockchain survive losing it's original purpose?
My own answer is: "yes", in the short term, and "maybe" for the longer term.
Blockchain as a technology will certainly survive, because this technology will become widespread due to its advantages. Governments are also attracted to the same benefits. In the future, blockchain as a technology cannot be eliminated, but in the future, it will undergo some changes to please governments.
If we talk about bitcoin, then it has never been completely anonymous (pseudo-anonymous) and with the imposition of KYC, this, of course, will deal a blow to confidentiality, but anonymity on the
BTC-network has never been 100%.
I have
written before about different kinds of "privacy" that people might want, and most want privacy from other citizens, from companies, and from criminals: privacy from a
targeted investigation from the government is a level that, in my estimation, a "nice to have" for most people, but not a dealbreaker.
In current realities, privacy is primarily needed from government banditry (imagine blockchain in the hands of totalitarian governments).
Hence in the short term, cryptos missing their original purpose is not something most consumers care about. Most holders of Bitcoin these days do so in a centralized way, e.g. with an app or a broker that keeps their account under their name, in a centralized database.
Most users have already voluntarily given up privacy for the sake of the convenience of centralized exchanges, which require verification and KYC.
As for the longer term, this brings up an important question: why use blockchain at all?
Blockchain is well suited in conditions where “transparency” of any activity between all market participants is valued and respected.
Blockchain is slow and expensive to transact in
on purpose because of proof-of-work and decentralization. No cryptocurrency will ever come even close to scaling to the billions of transactions each day by people worldwide.
But a
digital currency that is not blockchain-based can accomplish this
and provide the same mechanism for speculation and value store that blockchain-based currencies provide. In my opinion, the long-term future of the
actual blockchain architecture behind today's cryptocurrencies is... unclear.
Are you suggesting we abandon this and take a step back? You can't put the jinnee back in the bottle.