Five Main Principles Behind Blockchain Technology Part 5

Preudoanonimity based on fungibility of money.


It is critically important for money, be it cryptocurrencies or regular money, to be fungible and here’s why.

Suppose a cashier at a regular store where you buy food with cash were to give you change and you absolutely knew that three days ago one of the bills that you are getting was stolen from a bank during an armed robbery and the robbers actually killed someone while stealing the money.

There may even be a tiny particle of blood of the dead person on the bill that the cashier at the grocery store is giving you. If you were to know all this information, you’d understandably have a lot of negative feelings about the change that you received. You probably would prefer to not touch that bill and you would ask for a different bill.

If other people knew about the history of the bill, they most likely would also prefer not to touch it. Eventually, it would lead to the bill not being functional money because no person would want to touch it. Therefore, the issuer of the bill would have two options left. The first option is to destroy the bill and print new money, which would make the monetary system extremely complex and expensive to run. The second option would be to discount the face value of the bill, but the problem here is that if the issuer were to do it with one bill, people would figure out reasons why other bills should have discounted value, too. The bank robbery in the description above is just one example. Someone could claim that a person with flu touched a bill and therefore this bill now poses a health risk and because of that it needs to be discounted. Another person may not want to touch money that people who eat meat are touching. Yet someone else, someone who doesn’t smoke, could prefer not to have any bills that have spent a lot of time in an environment such as bar where patrons are allowed to smoke. The list of reasons could be endless.

Proceeding like this, the entire monetary system would collapse with bills going out of circulation and getting discounted value.

It is much easier, simpler and convenient to have fungible money with no history. This way, a bill is a bill is a bill.


Fungibility of digital money

It works in the same way with digital money. Having no “from” field is even more important with digital money than it is with regular money because on a blockchain network the “from” field would stay a part of the network forever, meaning that it is virtually certain that at some point someone would figure out some reason to not accept some of the coins as payments.

With digital money, the number of potential problems and issues could be even bigger because digital money travels globally all the time.

For example, some people may prefer for their digital money to not have a history of being used by countries such as Syria, Iran or North Korea. However, without a “from” field not only is the data about transactions smaller in size, but also the problem does not exist at all.

Not having a “from” field also adds a level of privacy to the activities of users who have done nothing wrong and have committed no illegal or morally ambiguous actions.

Because all the information on public blockchains becomes a part of a blockchain and anybody can access it at any time and will be able to do so at all times in the foreseeable future, it just makes sense to not tie fund transfers to identities. Technologically, it would be extremely easy to launch a blockchain network were users have profiles with their identification information and spending history. It is just that it is impossible to predict ways in which criminals in the future will try and steal money or use the information about somebody participating in certain financial transactions, so keeping networks semi-private similarly to how the Bitcoin network does it makes a lot of sense.