Blockchain - Anonymous vs Traceable

The concept behind the cashy is as old as the concept of tax.

I’m not sure if the slang word ‘cashy’ is just an Australian colloquialism, but I’m sure the concept is global.

One definition of the cashy is-

To pay for a service with cash (cold hard cash – the paper or coin type) with the purpose of avoiding any record of the transaction.

I love a good cashy as much as the next person. $100 to fix the crack in the roof? bloody oath.

Cashys make the job of the tax man much harder, who short of interrogating each taxpayer annually, is unable to track all ‘cashy’ transactions that should be treated as taxable events under legislation.

Of late, it has seemed that cashys may be becoming a thing of the past. With card or phone pay becoming the most common form of payment, the mainstream media has already started to tell us how much better the world will be once this filthy cash is removed from our lives.

Removing cash from the system would provide enormous benefit to some of the world most powerful companies and also governments but would have to be done with caution in order to avoid economic disaster. India recently trialed one approach to remove cash - touted as 'an attempt to eradicate corruption and black money' when Prime Minister Narendra Modi suddenly banned most of India's cash on 8 November 2016:

source - http://money.cnn.com/2017/01/04/news/india/india-cash-crisis-rupee/index.html

Without cash, no longer would you be able to ask the council worker who happens to be fixing the verge out the front of your house – ‘hey mate, you’re not interested in doing a cashy are ya?’ And no longer will the tradie quote you two prices – either $1500 or $1200 cash.

Will blockchain technology save us from this fate?

The answer – potentially.

The two diagrams below give a very basic illustration of how transactions occur under widely used card or phone payment methods currently, and under blockchain technology:

As illustrated above, blockchain allows a transaction to occur without the need for a middle man.

Traditionally, having a middle man (banks) keeping records of transactions assists the tax office when they need to verify transactions. The alternative is to verify records maintained by the buyer and seller, which can be much less reliable.

Great so this solves it right? The cashy will live on for another century at least.

One high level variable can be identified which will impact on whether or not this is true – which blockchain technology is used.

Traceable blockchain technology

This is the form of blockchain that the banks will want to implement as soon as possible if they decide that blockchain is in fact the future of financial transactions (yes this is an investment opportunity if you can identify the company which will design and implement the system/s the banks end up using).

This will allow taxation of transactions over the network almost perfectly. The tax office will be able to identify each transaction that occurs, who were the participants and maybe even what the transaction was for.

Anonymous blockchain technology

There’s plenty of these technologies out there already. Monero is just one of many (I would use Bitcoin as an example but I can think of an instance where a Bitcoin transaction was traced back to a party involved in a transaction - Silk Road). Using this technology, it’s either just as good or nearly as good as cold hard cash. No one can trace the transaction back to the participants.

Which one will become most common?

There is every chance that both of these blockchain types will become commonly used in the future. Government’s and banks will push as hard as they can to ensure that people are using traceable methods. Will they go so far as to declare untraceable methods illegal? We will see, with different countries governments likely making different choices on this.

Completely outlawing them will surely be another example of artificial creation of underground black markets.

The transition from use of the current technologies to blockchain won't happen over night. Keep in mind that blockchain has been around for about 10 years already. Vested interests will ensure that things are rolled out slowly, and we may find that both old and new technologies are operating in parallel for a while. I think we only just finished phasing out the old analog television broadcasts here in Australia after a decade long process. Those vested interests will do their best to ensure they get their full slice this fresh pie coming out of the oven, with as little impact on their profit margins as possible during the process.

This is put very well by andreas antonopoulos while addressing an Australian Senate Economics Reference Committee - just skip to timestamp 31.13 on the following YouTube video:

This will be a very interesting space to watch over the next few years, as banks no longer require the bulk of their staff to process and audit transactions. Will there be any use for banks at all? What competitive advantage will current banks have over new entrants into the market? I am sure these and many more questions are being considered by some very wealthy people at the same time as this article is being written.

No matter which way this one goes, get ready for a big shake up (and of course, never pass up a good cashy!)

Cheers and decentralise

strapped