Bitcoin is a terrible money for criminals. The asset’s loose pseudonymity makes it relatively easy to identify someone’s address and transactions. But it’s not just criminals that should want privacy. Privacy is important beyond its direct implications.
Fungibility is one of the key properties of sound money. This refers to the property whereby all coins appear identical in an economy and are therefore interchangeable. Without fungibility, it’s possible to trace coins back to their previous owners. If you happen to have bitcoin that was previously owned by a criminal, then an exchange may refuse to accept your deposit, essentially making it worth less than untainted coins, such as freshly minted coinbase bitcoins.
Bitcoin’s lack of privacy and fungibility has long been a source of frustration for users and developers. Due to the size of the Bitcoin ecosystem and the slow passage of Bitcoin Improvement Proposals (BIPs), we are still a long way from achieving anything resembling full privacy. However, instead, Bitcoin…