Cryptocurrency can sometimes create the ultimate oxymoron of digital privacy. Bitcoin and ether transactions are completely transparent, showing anyone who knows how to look exactly where and how many tokens changed hands. On the other hand, blockchain wallets use identification codes, not names. So until someone turns their cryptocurrency into fiat currency like dollars, it’s almost impossible to unveil who actually owns the digital wallet.
Many people could theoretically be using the same digital wallet, like several raccoons standing on each other’s shoulders under a man-sized raincoat. Now that the value of bitcoin and Ethereum are skyrocketing, an ecosystem some experts estimate is now worth $75 billion, this concept of anonymous wealth is raising questions about the right to anonymous identity.
Bloomberg reported that an anonymous ether trader recently posted evidence on Instagram of turning $55 in old school paper money into $283 million in cryptocurrency in just one month. The Instagram, which has since been deleted, reportedly included photos of Ethereum mining hardware alongside text in the Indonesian language Bahasa.
“One of the cool things about Ethereum is that all wallets around the world are transparent and open for everyone to see. And this is my wallet’s savings,” the now defunct Instagram post said, according to Bloomberg. The Instagram user claimed to own a digital wallet matching the identification code 0x00A651D43B6e209F5Ada45A35F92EFC0De3A5184, which now holds ether tokens worth around $133 million.
Cryptocurrency experts are extremely skeptical about the entire report. This viral Instagram post is kind of like someone taking a picture of a pile of gold and claiming they not only own it, but got it all in the past month. Even the Bloomberg report itself speculated that the photos of mining equipment looked like they were taken from another site instead of original snapshots.
One Twitter user joked that the ID number was actually connected to his digital wallet, but that he doesn’t use Instagram like that. Cryptographic signing, aka the private key associated with that long ID number, doesn’t prove ownership. It only proves access, the same way multiple people might have a Netflix password but only one person owns the account.
I am still not sophisticated enough to do ANYTHING on Instagram.
— Carlos Ledezma (@Charlie_Ledezma) July 10, 2017
“If I had made $200mm on ETH, I would not be posting it on Instagram,” securities broker and blockchain enthusiast Carlos Ledezma told International Business Times in a direct message on Twitter.
Regardless of who this mysterious Instagram user really is, he or she isn’t the only cryptocurrency aficionado boasting about newfound wealth on social media. In June, an anonymous Reddit user posted images from his digital wallet about how he earned his first million dollars worth of cryptocurrency by switching his investments from bitcoin to ether tokens while the latter was still selling below $13 each.
It looks like the blockchain industry will soon produce the first crop of certified cryptocurrency billionaires. According to Bloomberg, hedge fund manager Michael Novogratz said at least 10 percent of his $925 million net worth is now invested in virtual money. The financial outlet also reported that Ethereum co-founders Vitalik Buterin and Joseph Lubin are both believed to have hundreds of millions of dollars worth of ether.
Many government entities around the world are worried about anonymous cryptocurrency accounts. There are issues with law enforcement and taxation, just to name a few, when digital assets aren’t tied to traditional regulations. But before people jump to conclusions about the dangers of anonymous wealth, it’s important to remember governments can subpoena account information on third-party platforms and cryptocurrency exchanges like Coinbase.
“It’s not a perfectly anonymous system,” Victor Wong, CEO of the enterprise blockchain solutions company BlockApps, told IBT. “There are ways to de-anonymize things over time. That’s through things like data analysis.”
Even without a subpoena, law enforcement is already using software tools like Chainalysis to track bitcoin transactions. Cryptocurrencies like Zcash have more shields to protect user identities. Ethereum, on the other hand, and more secretive tokens like Monero are still reportedly traceable if needed for legal reasons.
“There’s always going to be a knee jerk reaction. Oh, somebody made a million dollars and they didn’t get taxed and they are getting away with murder, right?” Andrea Tinianow, director of the government blockchain initiative Global Delaware, told IBT. “But at the same time, I know there are many, many benefits to digital currency. The unbanked, the ability to move currency quickly and with little friction. That could potentially save a lot of money for a lot of people. My philosophy is to let the technology evolve until we have a better understanding. And then as we see problems, we adapt.”
Tinianow, a former attorney, said it is too early to know precisely how lawmakers should navigate anonymous cryptocurrency accounts. She emphasized that anonymous identities don’t necessarily need to be associated with black market dealings like former Silk Road operator Ross Ulbricht, who used bitcoin to run an illicit drug market. “When people are known to each other, they act differently,” she said. “People often hide their identities for business deals. If there’s a wealthy person behind the deal, the price goes up.”
Some experts think anonymous transactions and assets could actually reduce financial inequality for the most vulnerable. Imagine a crisis like the Holocaust, where people fleeing persecution had to find ways to transfer valuables without alerting vindictive authorities. Even a less extreme example, like a sex worker who faced discrimination at a bank, shows the potential benefits of anonymous digital wallets.
“You are not forced to reveal information until you decide to do that. …This is something that the ultra-wealthy have had access to for a long time, but not regular citizens,” Wong said. “We focus on the people who have extremely high net worth, or are making millions. But they can find ways to move money around, across borders, already. What cryptocurrency has allowed for is the ability to move money around, and across borders, even for normal people.”