Submitted by Taps Coogan on the 28th of December 2017 to The Sounding Line.

Multiple news sources are reporting that: “South Korea will require people who trade Bitcoin and other virtual currencies to do so under their real names.” The South Korean government has stated:

“Cryptocurrency speculation has been irrationally overheated in Korea… The government can’t let this abnormal situation of speculation go on any longer.”

Notice how the South Korean government links removing anonymity and addressing speculation in cryptocurrencies? We warned of something like this happening just a few weeks ago:

“The idea that the established financial powers are going to tolerate the sort of anonymous financial system that Bitcoin reputes to offer, after spending decades doggedly snuffing out banking secrecy around the world, is a joke. Because the financial establishment has waited this long to begin to move on Bitcoin, it has allowed an enormous number of casual investors and trend followers to pour money into Bitcoin. When it becomes clear that: trading in and out of Bitcoin is not actually anonymous, that the IRS wants the taxes its owed, and that Bitcoin miners will be pursued by the courts if they don’t turn over transaction data, the prevailing casual interest in Bitcoin will be greatly damaged. That may not be the end of Bitcoin, but it will likely be the end of its meteoric rise.”

Lest one think that the impulse to remove anonymity from Bitcoin is restricted to South Korea, legislation has been working its way through the US Congress to do essentially the same thing: require Bitcoin exchanges and Bitcoin miners to record the personal identities of those involved in all transactions and to criminalize deliberate concealment of property or the control of a financial account.

The not well understood truth about Bitcoin is that Bitcoin doesn’t provide the total anonymity many users think that it does. Yes, if done properly, transactions within the Bitcoin universe are completely encrypted and anonymous. However, and this is a big however, in order to buy (or sell) Bitcoin in the first place, in nearly all cases, a Bitcoin exchange needs to link your bank account or credit card to a public key. The exchange therefore knows your personal identifying information and a public key. Since Bitcoin is essentially just a shared ledger of transactions, if someone knows the owner of a public key, they also know the transactions made by that person using that public key. Theoretically, the information linking actual personal IDs to public keys is guarded by the Bitcoin exchange, but if an exchange is required to turn over the information linking bank accounts to public keys by the government, or if a Bitcoin wallet is corrupted, the government can begin to piece together when you bought and sold Bitcoin and what transactions you made with that public key. In practice, because it is possible to create endless public keys and have multiple wallets, figuring out exactly who is who will be very difficult but not impossible in all cases. What percentage of the casual speculators driving up Bitcoin’s price rise are really doing their homework and taking appropriate precautions? Governments will make the effort to connect as many dots as they can. Far worse would be if Bitcoin miners are required to record the personal identities involved in transactions. In that case, the anonymity of the whole system starts to break down.

Bitcoin exchanges and miners could try to avoid these intrusions by domiciling in countries that don’t impose these requirements and so a game of cat and mouse is likely to emerge. This means that Bitcoin probably isn’t going to cease to exist anytime soon. However, it does mean that the days of an average Joe logging onto the internet via their personal computer and their personal ISP, giving their bank account bank account and/or credit card info to a reputable exchange, and expecting complete anonymity are over. They never really existed. Using Bitcoin and other cryptocurrencies in a way that actually provides anonymity is likely to get much more complicated, legally and practically, and for better or for worse, casual and speculative interest will suffer accordingly.

Bitcoin offers an odd dichotomy. It offers unmatched levels of encryption and anonymity when you are within the Bitcoin universe, but because it is a public shared ledger, if the anonymity between public keys and actual bank accounts or credit cards is broken, the shared ledger reveals every transaction that has ever been made. Governments are starting to try to do just that.

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