Is privacy, or specifically the ability to earn income while concealing it, a core function?
(It's an unfortunate feature of the weightlessness of modern money, crypto or otherwise, that proportionate privacy is now hard. In the old days, if you wanted to move a lot of money, especially internationally, you had to go to a lot of physical trouble: https://www.rte.ie/news/newslens/2019/1204/1096878-poland/ ; this was hard to hide and easy to intercept. Nowadays you could theoretically move billions with a brainwallet. The binance cold wallet is twice as much as the Polish wartime gold: https://bitinfocharts.com/top-100-richest-bitcoin-addresses....
So we end up with a situation in which in order to track the large transactions a system is built which tracks all transactions.)
Contrary to popular belief, privacy is not a core function of most cryptocurrencies. Every transaction is on an open ledger viewable by anyone. If you fund an address from a regulated exchange, it's simple for the government to know who you are.
Mining is a core function. None of it works without that (or staking, which is equivalent). A miner is not able to know who you are, since the regulated exchanges are not reporting their KYC to all the miners. Making miners responsible for sending 1099s would effectively make it illegal to run public blockchains.
A miner could know who you are, though such functionality is not implemented in any of the current currencies I know of. There is no technical reason that a transaction cannot contain a cryptographically signed identifier of the sender.
A very rough sketch of such a system:
- Any exchange that wishes to offer crypto services to US citizens must do KYC according to the existing regulations.
- Those exchanges make available each day a file with all the KYC-ed wallet adresses.
- Miners can theoretically choose which transactions to include and which to reject, but at the moment the main (only?) criterion is how much fees are attached to the transaction. You could mandate that they also do a lookup into the KYC data and only accept the transaction if the sending address is present in the list.
- I could even see the SEC or some other central body (perhaps one per country) maintaining such a list, exchanges submit their lists and miner can download it. This is already done in several other sectors of the economy.
In that case, every transaction would not only be visible to everyone on a public ledger, but come with complete identification of all participants. It'd be like having your credit card and bank statements posted on a website. Any embarrassing purchases would be public, and anyone with a large balance would be a target.
And why would you do this? The KYC you're making public is already available to the government, and the on-chain transactions are already public.
(It's an unfortunate feature of the weightlessness of modern money, crypto or otherwise, that proportionate privacy is now hard. In the old days, if you wanted to move a lot of money, especially internationally, you had to go to a lot of physical trouble: https://www.rte.ie/news/newslens/2019/1204/1096878-poland/ ; this was hard to hide and easy to intercept. Nowadays you could theoretically move billions with a brainwallet. The binance cold wallet is twice as much as the Polish wartime gold: https://bitinfocharts.com/top-100-richest-bitcoin-addresses....
So we end up with a situation in which in order to track the large transactions a system is built which tracks all transactions.)