Privacy tokens such as Monero (XMR +0.52%) are gaining traction right now relative to other top tokens as a way to hedge concerns around a central bank digital currency disrupting the crypto world. This discussion between Fool.com contributors Chris MacDonald and Jon Quast on this topic took place on the Jan. 19 episode of "The Crypto Show" on Backstage Pass.
Jon Quast: That's a good segue to point out, so many people point out that Bitcoin (BTC +0.41%), well, it's anonymous or Ethereum (ETH +1.13%), it's anonymous, yes, but at the same time, there is some trackability with this, and they can actually figure out who you are with enough motivation.
That brings us to the next news here on why Monero was actually up on the news that the central bank was talking about a digital currency because of how it's actually fundamentally different than the others and more private.
Chris MacDonald: That's a really good segue. It's important to remember with Bitcoin that your name might not necessarily be on a transaction. But the transaction size, the wallet ID, it's all easily viewable by anybody on the blockchain.
Essentially, there have been a number of cases where large accounts have been doxed because when a press release goes out that we bought X number of Bitcoins on this day, people will scour and find that transaction and link that account to said person. I know people like Michael Saylor and others have had various wallets, docs that this is this person and what have you.
For the future of crypto, if you think about it as where the economy will go to transact. If you're a business and you're doing large transactions and you're transacting with suppliers and buying things with Bitcoin and selling things with Bitcoin. If someone can find out what your wallet id is or have a reasonably good educated guess as to what that is, basically you're giving away your price sheet to your suppliers and you're telling your customers what you're selling your goods at to other customers. You lose a lot of your pricing power in the market.
What Monero does differently is it's a privacy coin. It's essentially a network where you can make a transaction and it's completely untraceable. How it does it is rather complex, but essentially, pieces of the transaction are broken up and processed by different nodes on the network. Each transaction is basically impossible to trace.
With the rise of this central bank digital currency news, privacy coins jumped on that announcement because there's still regulation risk with all of these networks. But where money might flow in an environment where the government might be looking to peek into your digital wallet. Money might want to flow into some of these privacy points that have maybe a different utility argument for users.
