Our lives have become less and less private since we entered the age of social media, smartphones, and photo tagging. We could argue that society has become better thanks to this additional transparency, or that it has ruined our personal privacy.

Should this openness extend to our finances as well? In this post we are going to examine the advantages and disadvantages of open finance, and how we could adopt it in a way that benefits both society and individuals moving forward.

Bitcoin was designed by Satoshi Nakamoto to be completely transparent. This means that every single Bitcoin wallet, and all of its transactions, are completely open for anybody to examine via a public block explorer. Although several privacy coins have been created since Bitcoin's inception, their questionable legal status has left the majority of capital invested in transparent ledgers for now.

Crypto is considerably more open when compared to traditional banks, which keep their customer's account balances and transactions shielded from public view. That said, we must trust these banks to accurately report their assets and liabilities, and we have seen time and time again how these centralized entities cannot be depended on to do so. If organizations were required to keep their assets on public ledgers, accounting fraud would be impossible.

Disadvantages of Transparency

Due to their transparent nature, many investors are reluctant to diversify into crypto assets. After all, the idea of anyone being able to view your balance and transaction history is not very appealing. In the case of public blockchains like Bitcoin or Ethereum, the reality is that your wallet can be doxxed (linked to a real-world identity) and tracked.

For example, wallets that belong to early members of the Ethereum foundation have been doxxed in the past. When a large amount of ETH moved from the individual's wallet, crypto Twitter demanded an explanation. Imagine if a social media alert was sent out whenever you transferred a large sum of money or purchased a big ticket item.

https://twitter.com/ricburton/status/1210225704962383874

- ricburton

The vast majority of people are not accustomed to this type of finance, and would rather have the benefits of account privacy. That's why there are now privacy coins and private exchanges which allow individuals to shield their balances and transactions from public view.

While financial privacy makes sense for individuals, the same cannot be said for governments or charities who should be held accountable for the public funds they collect. These organizations should make their revenues and expenses transparent for the public to scrutinize.

Advantages of Transparency

Although it's great that banks are keeping their customers' accounts private, it also means they can secretly move your funds. For example, they could transfer money from your account, leave an IOU, and you wouldn't even know what happened. From this perspective, we would prefer a bank to transparently prove that they have access to their customer's funds.

We can also look at it from the angle of charities too. Mike Novogratz recently tweeted that there was an investigation into charities, revealing how little of the donated money actually went to those in need. Given the opaque nature of traditional charities, its nearly impossible to verify this data. Needless to say, these charitable operations are not very efficient, and have a lot of room for improvement.

https://x.com/novogratz/status/1777047138368720986

If charities were to receive their donations via public blockchains like Bitcoin or Ethereum, everyone would be able to verify how much money they have received, and where it has been spent. Open source projects like Linux Mint are already accepting cryptocurrency donations, and revolutionizing the way we donate.

This need for transparency also applies to public institutions like governments, which receive tax dollars and spend them on public goods. The people deserve to know how much revenue their government is taking in, and what their money is being spent on.

Finding Middle Ground

Individuals have a right to privacy when it comes to their financial balances and transactions. On the other hand, public charities and institutions should be held accountable for their revenues and expenses.

Transparent cryptocurrencies can be used to verify the collection and spending of public funds, while the privacy tech behind Monero and zCash can enable privacy for the funds of an individual.

If you learned something from this post, be sure to check out my other articles on crypto and finance here on the HIVE blockchain. You can also follow me in InLeo for more frequent updates.

Until next time...

Resources

Bitcoin under Magnifying Glass [1]
Mike Novogratz Tweet [2]
Ethereum Foundation Member Doxxed [3]