How can Nano succeed without privacy?
Quote from founder Colin Lemahieu Dec 2017:
I love the concept of privacy in the network and it’s a hard thing to do right. Any solution used would need to be compatible with our balance-weighted-voting method which means at least we’d have to know how much weight a representative has even if we’re hiding actual account balances. To be fully anonymous it would have to be hide accounts, amounts, endpoints, and also timing information; with advanced network analysis the timing is the hardest thing to hide. Hopefully some day we can figure out an efficient privacy solution though the immediate problem we can solve is making a transactional cryptocurrency so we’re focusing on that.
From a Dec 2018 follow up on the question the Nano Foundation’s standpoint is still clear:
If we have a good privacy solution we will use it. As the project grows and more eyes are on it, we think second layer privacy solutions will be developed at a minimum.
Privacy by default is a must if Nano wants to emulate cash. Being one of the main targets of this project, people in countries where access to financial service is artificially restricted should be protected if they choose to use Nano as a payment method.
Today a proof-of-concept privacy wallet, Nanonymous, has been made public. The current version of that wallet works by obfuscating the total amount of money held by a user by spreading it across many accounts.
There are some interesting protocols, like MimbleWimble, that could be adapted to provide some privacy. Nano has to try and innovate.
In the same way BTC could succeed without base layer privacy, namely through the help of second layers on what are likely to be centralised services.
It is anonymous already, if you will never show your IP, Name, etc. Quite hard anyway.
A redditor posted about the Nanonymous wallet that they made yesterday, and while this isn't true privacy its probably a good first step
Privacy functions not only bring benefits in the form of anonymity and confidentiality of balances and transactions, it also brings trouble when doing accounting, calculating taxes and being accepted by governments in general.
I'm fully aware why Bitcoin was created in the first place and I crave for a world in which a digital currency doesn't need approval by a government, or at least being let alone by it.
But a more realistic perspective for the next few years or even decades makes me doubt that having mandatory privacy would do Nano a favor to reach what it set out to reach - becoming a global digital currency. Privacy will likely shut it out from at least a few places.
Don't get me wrong - I really love privacy. I find e.g. Monero incredibly useful. But it's already provided me some pain filing tax reports. If there were to versions of Nano - one with privacy, one without - I'd go with the one without privacy for now.
...just wanted to share a different view.
I think privacy is great too, but I am not sure if the world is prepared for unbreakable privacy. How could you audit a privacy coin if you can't see transactions on the chain?
Maybe it is not impossible to audit privacy coins, but it makes the task way more difficult.
@Bill Zcash has witness keys which allows a third party to audit.
Mira como funciona el protector de anonimato de DAPS, creo que es la primera moneda que desde su nacimiento es anonima. Yo si prefiero ser un topo en el sistema
Governments have created banknotes and coins, which are untraceable and have been the most common form of money since very recently.
Nano needs to add some privacy because the benefits are greater that the problems. Usage of transparent ledgers has led to confiscation of funds, identity linkage, and the existence of companies which entire revenue depends on studying and selling transaction data in various blockchains.
Maybe the community and developers could figure out a way to add some privacy in the protocol and allowing users to be selectively transparent if they want.
Until currencies such as Nano are recognized and treated as digital currencies they are are treated as assets and that is a different animal with a different set of requirements.
Built in privacy is a terrible idea for Nano adoption. Look at the number of exchanges that have stopped supporting Monero recently because of government regulation tightening around privacy tokens. LocalBitcoins, OKEx, Changelly, Shapeshift, UpBit, BitOasis, Coincheck, and many more.
Japan has imposed a ban on all privacy tokens: https://www.investopedia.com/news/japans-fsa-bans-private-cryptocurrencies/
This is only going to get worse as time goes on. It's already hard enough for us to convince exchanges to support Nano due to the different integration requirements compared to Bitcoin, so I think giving them an added reason to doubt whether they should add it is a bad idea.
I understand your point. If Nano isn’t going to have built-in privacy (something which developers aren’t against) at least there should be a way to obfuscate how many nanos a user has or the transaction history of some coin.
For example, Bitcoin Cash has implemented CashShuffle and CashFusion, which allows users to mix trustlessly their coins with other users. This improves privacy without the need to add a privacy solution in the very blockchain.
I'd be really happy to be able to opt in for privacy, if it's not the standard or to opt out from it, if it's the standard.
I understand why people argument that only mandatory privacy works to keep things private.
For some optional privacy is yet better.
In my opinion Bitcoin Cash has found a good solution.
Yes privacy is a must eventually. For now its most important to improve the current protocol to be as efficient as possible and to allow the entire world to use Nano.
Then the question becomes protocol level privacy or wallet privacy?
Imo Nano should not implement it on a protocol basis for now since it will hinder adoption in the early years.
I don’t want to be that Monero guy, but there should be a small amount of protocol privacy―even if it’s not directly implemented it would be nice to see some features that at least let wallet developers and third parties to provide some degree of privacy. That’s my position.
I know that there are cryptocurrencies specifically designed to be as private as possible with untraceable ledgers, and I like Nano as a single-purpose cryptocurrency: being true digital cash. However, cash-like transactions have a decent level of privacy that Nano currently lacks.
Why would one tell the government they bought cryptocurrencies? They can't know if don't tell them.
Because cryptocurrency transactions can be taxable events.
As long as you use only foreign exchanges you might get away with it unnoticed, although even this can be tax evasion. It highly depends on where you file your taxes. Some countries might make more allowances than others.
But as soon as you want to convert some of your cryptocurrencies to cash or buy with it at shops that reside in the same tax system as you do, you're better off declaring your transactions, because your business partner does so.
It is a widespread misconception that a payment with crypto automatically represents a reportable event.
It is not the individual process of a payment that is tax relevant, but the question of whether a profit was made over the year:
Example: In January I exchange 100 EUR for 100 Nano (nano rate 1 EUR) Then buy something in July for 50 Nano at a Nano rate of 0.8 EUR. Then I make a second purchase with 50 Nano in November at a price of 1.3 EUR.
So I lost 10 EUR in July (against EUR) and 15 EUR profit in November. What I have to report to my tax office: 15-10=5 EUR profit that I have to pay tax. At 50% personal tax rate i would have to pay 2.5 EUR from the profit to the tax office. But in most countries you have a tax allowance. (In germany e.g. 440 EUR)
If I make a loss or come to +/- zero or stay below the exemption limit at the end of the tax year, I don't have to report anything.
In short: the authorities in democratic countries don't care if and what you do with crypto. They just want their tax share when you make a profit. Just as on any other profit from work and business activities.