Bitcoin is under serious threat from government regulation, according to a new analysis from Frost & Sullivan. Entitled “Dark Markets: Anonymity in Bitcoin”, the report from Frost & Sullivan Digital Transformation Research Analyst Vijay Michalik points to the benefits of the cryptocurrency’s system, and how increasing scrutiny and regulation related to security concerns could derail them.
While Bitcoin’s value proposition rests on the concept of anonymous transactions using a purely digital, unregulated currency, actual “anonymity in Bitcoin is only a myth, currently,” according to Michalik. He argues that despite being linked only a pseudonym, transaction history is fully visible via blockchain analysis – a means of looking at transaction metadata to determine who purchased what, and when. Going forward, this “should be a serious concern,” according to a report synopsis, because as the means of blockchain analysis improve, Bitcoin could eventually become “a worse option than traditional finance channels,” says Michalik.
Meanwhile, another issue stems from government interest in limiting encryption and anonymity. While end-to-end encryption is important for user anonymity and a major part of the value proposition offered by products from the likes of Apple, governments are increasingly seeking to limit its use – and to counter anonymity more generally – in order to better surveil terrorist threats. Such efforts could prove disastrous for Bitcoin if they succeed.
Thus Bitcoin appears to be at a critical juncture. Unhindered, it could be “a tool for transformation of business and finance,” according to Frost & Sullivan, but excessive “regulation or de-anonymization would stunt its growth irrevocably.”