Privacy coins are often hailed by their supporters as the only way to have true freedom in the digital age. Unfortunately, privacy coins have not become popular with the general public. This article will cover some of the reasons that privacy coins have failed to catch on with the general public and even most of the cryptocurrency-focused public.
People Don’t Care About Privacy That Much
The first, and in our opinion, the biggest reason that privacy coins have not become popular is that people just don’t care about privacy. Sure, most people would prefer remaining private rather than having all their information publicly available, but they will not put in the extra work that privacy coins like Monero and ZCash require of users to ensure privacy.
For those that don’t know, purchasing privacy coins is moderately more difficult as most exchanges do not buy or sell privacy coins. Binance and Kraken both offer Monero (XMR), so there are some big exchanges that offer it.
The bigger problem with Monero is spending it. Users must set up their own wallet or use a hardware wallet like a Ledger to send transactions. And then the issue becomes that few vendors actually accept Monero (XMR).
Even on dark web marketplaces the majority of vendors accept Bitcoin simply because it’s more convenient and can be made private easily with a mixer, which brings us to our next point.
Cryptocurrency Tumblers Work Fine
Cryptocurrency tumblers are services that mix “dirty” cryptocurrency coins with “clean” cryptocurrency coins to create “clean” cryptocurrency that can be sent to exchanges and sold without arousing suspicion. These service can either be decentralized (ie. Tornado Cash) or centralized. The centralized cryptocurrency tumblers are obviously more risky as the custodian can simply steal the funds.
However, decentralized, autonomous cryptocurrency tumblers like Tornado Cash have proven themselves capable of providing privacy. The United States government sanctioned Tornado Cash and arrested a developer of the protocol in August 2022. Despite this, the protocol still remains a popular option for those wishing to remain anonymous on the Ethereum blockchain.
And this relates to our previous point – people may want privacy, but they want privacy on something that is actually usable. People use Ethereum for all kinds of purposes with the many decentralized finance protocols on it.
Privacy coins have a singular focus of providing privacy, which appeals to a small segment of the population. Users would rather use what they are comfortable with (ie. Ethereum and Bitcoin) and make it private than switch over to a privacy coin.
Lack of Institutional Support
Another problem that privacy coins have is that they lack institutional support. Plenty of large, publicly traded companies that have plenty of influence in Washington hold Ethereum and Bitcoin as an investment.
No publicly traded company holds any privacy coins. It’s simply too risky from a regulatory perspective to hold it. Regulators would view a company holding a privacy coin as extremely suspicious.
This might not sound like a major impact. But large institutions wield great power over regulators and can use their influence to stifle any attempts at regulation of the major cryptocurrencies. They also can shape public opinion due to their outsized influence in the public space.
Privacy coins have none of those protections. The only people regularly using privacy coins are those that use dark net markets and people wishing to stay anonymous (not many people). This means regulators can target privacy coins without much backlash from the public.
We have already seen regulators target privacy coins by disallowing exchanges from selling them for fiat currency. Most US-based cryptocurrency exchanges avoid selling Monero because of regulatory concerns and anti-money laundering conflicts.
Target for Regulators
Finally, privacy coins have not caught on because they are a big target for regulators. This is partly due to the lack of institutional support for privacy coins.
Now, you might wonder, what do regulators targeting Monero have to do with making it less popular?
The reason is actually simple and we have touched on it in a few points – it’s difficult to use privacy coins. The United States government has not explicitly banned privacy coins as that would be difficult and unenforceable.
Banning a decentralized currency (or protocol) does not work.
However, regulators can target the fiat on-ramps and off-ramps to the cryptocurrency. A cryptocurrency will not become popular if purchasing it with fiat currency is incredibly difficult. Only the most devoted would bother going through the process of buying it in that case.
Are Privacy Coins Doomed?
Yes, privacy coins are doomed for failure in our opinion. They have a singular purpose (privacy), but privacy can be obtained on blockchains that have a more varied use case like Ethreum. These blockchains also offer layer 2 cryptocurrencies that see plenty of real world usage and these layer 2 cryptocurrencies can also be privatized.
Why Privacy Coins Like Monero Aren’t Popular
This leaves privacy coins with little actual use – they can’t really be spent as practically no legal vendor nor business accepts them while plenty of businesses accept Ethereum and Bitcoin.
We can add to this that users do not particularly care about privacy. People much prefer convenience and privacy coins just are not that convenient.
Privacy coins will likely continue to exist as a small niche, but they will likely never see the success of the more popular cryptocurrencies due to these reasons.
Are Privacy Coins a Good Investment?
We are fairly bearish on the long-term viability of privacy coins. As a result of researched information from WCS, we discover that the only one we view with any esteem is Monero. The current all-time high of Monero is only 3% higher than its all-time high from the 2018 bull market.
That’s pretty terrible. The coin simply has not caught on and no other privacy coin really comes close to Monero (XMR) in terms of popularity.
With that in mind, we would avoid Monero as an investment. The popularity will likely continue to wane as protocols like Tornado Cash make remaining private on smart-contract enabled blockchains a viable option.
To summarize, privacy coins have not become popular because users do not care enough about privacy to jump through all the hoops that privacy coins require of users that wish to use the transaction. There are also regulatory issues that prevent potential buyers from easily buying and selling privacy coins, which further compound the issue. Not to mention that few legitimate businesses accept privacy coins because of regulatory issues.
The end result is that the vast majority of use for privacy coins is transacting on dark web marketplaces. It’s a somewhat popular use case, but not one that will turn privacy coins into market leaders in cryptocurrency markets.
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