Why does digital currency need privacy?

How does Bitcoin protect privacy? Why does digital currency need privacy? How does Bitcoin protect privacy? In life, we usually use legal tender in two forms: paper currency and electronic currency. When we use electronic money (bank card, Alipay, WeChat payment), etc., there is no privacy, because all transaction records about your account are stored in the corresponding centralized company. When we use banknotes, it’s privacy, because when we go to the supermarket to shop, we pay for it with one hand and deliver it with one hand. Regarding whether you spend 5 yuan for a toothbrush or 10 yuan for a towel, these cannot be taken by anyone other than the merchant. Know.

Why does currency need privacy (anonymity)?

First of all, we need to think about one thing: Why don’t businesses charge different prices for everyone?

Suppose that merchant X wants to sell a commodity with a price of 200.

1. Where A did not buy, B and C both bought.

2. A is willing to pay 100. B is willing to pay 200. C is willing to pay 300.

3. As far as C is concerned, C is willing to pay 300. But it only costs 200 to buy it, so C gets a net surplus of 100.

The net surplus is because C’s private information is willing to bid 300 and is not known by the merchant. It can be called C’s information rent, which is the surplus obtained because C has his own private information.

The merchant does not know how much the buyer is willing to spend on this item. Therefore, the merchant can only estimate a distribution, and then charge a uniform price of 200.

We assume that the merchant knows exactly how much the ABC trio are willing to spend on this product. Can it be sold to different people at different prices? Yes.

How do you know how much you are willing to spend on this product?…

This is why privacy is so important to us.

How does Bitcoin protect privacy (anonymity)?

Bitcoin's anonymity is based on the separation of addresses (network identity) and individuals (real identity).

Just like you download and install an imToken, then take your phone offline and create a BTC wallet. As long as you don’t say anything, no one knows who the wallet address belongs to. This process does not require your personal information (mobile phone number, email address, KYC, etc.) to fill in and bind.

The anonymity of Bitcoin is based on the UTXO model, which separates the relationship between BTC addresses.

Due to the particularity of UTXO (Unspent Transaction Output), anyone viewing a transaction with multiple inputs and multiple outputs cannot distinguish between the change address and the payment address unless the party involved in the transfer.

Since BTC transactions are public on the entire network, for a transfer transaction, the following two points can be viewed and monitored by anyone:

1. The amount of the transaction

2. The addresses of both parties to the transaction

This means that once the BTC in your wallet passes through a centralized exchange, everything can be connected, and there is no longer "privacy" at all. In a decentralized world, centralized exchanges are places where personal privacy is exposed the most.