All Financial Wisdom

Bitcoin and the Need For Transparency in the Markets

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It is known by the general public that the characteristics of anonymity inherent in the nature and design of Bitcoin have been one of the great advances that cryptoeconomics has brought. It is undoubtedly true that privacy and anonymity is of increasing value in the era of a global internet in which any online data is susceptible to being stolen.

But this anonymity, like everything else, also has another side to it that may not be as obvious. We explore how the anonymity brought by the cryptosystem may end up implying a lack of transparency that would deteriorate the publicly available information currently in the markets, particularly affecting mainly small investors and the general public at large.

The anonymity of Bitcoin is also for powerful users

The truth is that the cyberpunk “return the power of the internet to users” maxim is both for the case of users in general, as well as for powerful users. And as powerful as they are, the portion of power they receive back is far superior to that of ordinary users.

As proof of this, we have a story that has recently appeared, which reported that an unknown investor has executed a purchase order for Bitcoins worth 400 million dollars. As you may have read, everything is opacity and speculation regarding the large and influential Bitcoin trade of a large investor. They do not know who he is, nor his motivations, his interests, nor does he have to answer to any agencies or regulators …

Undoubtedly, strong hands will be chomping at the bits, realizing that they can finally do and undo the market at will, counting on their great influence on prices and training, without having to answer to anyone. They can manipulate prices, create bubbles, artificially break resistance to paper the small investors etc…

From the anonymity of Bitcoin to the deterioration of transparency in the markets

And when we talk about the anonymity of strong hands, with all the potential consequences mentioned above, we inevitably have to talk about the lack of transparency and the detriment of the socioeconomy as a whole. But, paradoxically, this damage is especially potentially hurtful for small investors, much more vulnerable to this type of manipulation of the market. No major Bitcoin investor or any manager has to account for their trades to the regulators or other market participants.

The problem is the human nature of some unethical investors, for whom everything is justified if it yields revenues. The problem is that there are many more profiles of this kind than we think, but they take great care to act in their fullest capacity for fear of legal consequences. Consequences that will now be nonexistent with Bitcoin.

The truth is that there is a solution that could be used in part to alleviate these problems. 100% transparent management. But this option also has its disadvantages.

In any case, this solution is partial because it only serves us for the part of the problem that affects collective investment and transparency with the participants. But let’s not forget that, even in today’s highly regulated financial world, so-called financial “chiringuitos” often proliferate, causing havoc among small investors. That will not happen under the shield of anonymity in which the unethical managers can be protected with Bitcoin.

Regarding the second problem (among the main ones) of the manipulation of values ​​and markets in general, there is no possible solution with the current design of the Bitcoin architecture, nor with the current configuration of financial and data flows between the old markets and the new cryptocurrency based ones. The real problem is the nature of some individuals. It is a nature that will always accompany socioeconomies wherever they goes.

What this opacity can truly mean socioeconomically

No doubt our world today, and especially that of the markets, is an ocean with lots of sharks, crossed by rafts on board which unprotected small investors navigate. Bitcoin and crypto economics always tell you that they have brought great advantages, but another of its inevitable disadvantages is that, with its free bar of “anonymity for all”, it has removed the GPS tracking of some sharks.

It is urgent and necessary to start working on a cryptosystem design that combines both privacy and anonymity with certain traceability, which at least allows one  to pursue financial crimes in the markets (and other crimes as well). It has been like this since the dark side began to take hold of cryptocurrencies as a new playground, but it is even more prevalent now that Bitcoin and its cousins ​​make it easier for the light side to walk in the shadows. I do not have solutions to this problem, but the debate is always open to all kinds of (constructive) contributions.

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