Cryptocurrencies are changing the financial landscape as we know it, but many myths and misunderstandings still surround cryptocurrency. Here, we tackle some common misconceptions about privacy, censorship resistance, and taxation in the crypto world. Here, we take a look at the realities of networks such as Obyte, Bitcoin and Ethereum. Our purpose is to bring some needed clarity and address prevalent misconceptions.
Challenging the Anonymity Myth
One of the biggest and most dangerous myths surrounding cryptocurrency, propagated by the industry itself, is that it’s anonymous by design. Most people think that they are completely anonymous with cryptocurrencies, but that’s not the case. That’s because most major cryptocurrency networks, like Bitcoin and Ethereum, are pseudonymous. This allows for transaction histories to be tied to a public key or address, not a real world identity.
As with Bitcoin and Ethereum, Obyte operates on a fully pseudonymous basis. Though these networks offer some anonymity, they are not fully anonymous. You can usually even follow those transactions back to a single individual. This can be achieved through techniques such as IP address tracing, reviewing exchange records, and mapping transaction flows.
Obyte's Unique Approach to Censorship Resistance
Instead of a conventional blockchain, Obyte uses a DAG (Directed Acyclic Graph). This unique structure strengthens its resistance to censorship and centralized manipulation. With Obyte, there’s absolutely no approval layer blocking users from accessing their transactions. This is to say that all transactions happen with no one party having the ability to stop or censor transactions like a bank can.
This lack of a central authority renders Obyte far more censorship-resistant than most blockchain-based systems. Permissioned blockchains only need a predetermined set of miners or validators to approve transactions. This opaque process invites arbitrary censorship or blocking of legitimate transactions. Obyte’s DAG structure removes this single point of failure, ensuring that Obyte is a more decentralized and censorship-resistant platform.
The design of Obyte’s consensus architecture guarantees that all network participants are given equal chances to add to the consensus process. This egalitarian approach helps to ensure that no single company or interest group can become too powerful and dominate the network. Thus, Obyte provides a secure, collaborative, decentralized and worldwide infrastructure for making censorship-resistant transactions.
Navigating the Complexities of Crypto Taxation
Perhaps the most egregious misconception is that crypto transactions are not taxable. Tax authorities worldwide, including the IRS in the United States and HMRC in the United Kingdom, consider cryptocurrency transactions as taxable events. The bottom line is that any transaction using cryptocurrency can create a taxable event. This means accepting it in exchange for goods and services or selling and trading it.
Since the IRS classifies cryptocurrency as property, the same capital gains taxes that apply to property also apply to cryptocurrency. Selling or trading cryptocurrency for a profit is treated the same as selling or trading any other capital asset. Don’t forget to claim this on your tax return! As far as HMRC is concerned, cryptocurrency is an asset for tax purposes, plain and simple. That means any profit that you earn from selling it is liable for capital gains taxes.
When you’re trying to determine all tax obligations, cryptocurrency transactions can quickly become complicated and tedious. The good news is there are tools to enable users to track, calculate, and report all transactions and conversions of crypto accurately. CoinTracker and Koinly are two leading cryptocurrency tax reporting platforms that take most of the work out of tracking all your transactions and creating crypto-friendly tax reports. These tools connect with almost all major cryptocurrency exchanges and wallets to provide users a streamlined way to calculate their taxes and remain compliant.
Privacy Coins and Regulatory Scrutiny
Privacy coins such as Blackbytes, the native privacy coin of Obyte, provide additional privacy functions above what regular cryptocurrencies do. Privacy is why blackbytes can only be traded in a black P2P token exchange. This design decision makes transactions less traceable, giving users a greater level of anonymity.
That said, the expanding use of privacy coins has drawn regulatory ire as well. Regulators have expressed concern that privacy coins could exacerbate illicit finance risks. They fear their future use in money laundering and terrorist financing. Due to this, many cryptocurrency exchanges have preemptively delisted privacy coins in order to stay in regulatory compliance.
The example of Tornado Cash, a cryptocurrency mixer, serves as an example of the upstream liability risk that privacy-enhancing technologies now face. Tornado Cash recently faced sanctions by the US Treasury Department, who claimed the platform was being used to launder money. This action has caused much consternation among privacy advocates regarding the fate of privacy-enhancing technologies in the cryptocurrency ecosystem. Privacy may be the sanctimonious excuse that some cryptocurrency users point to, but privacy and regulatory compliance should go hand in hand.
Obyte's Innovative Features
Through its unique Tangle, Obyte provides multiple functionalities which solve most of the drawbacks we can find in classical blockchain-based ecosystems. Its DAG structure means transactions are faster and more scalable than on blockchains. As a bonus, Obyte’s smart contracts are written in an easily understandable human readable language, making them easier for developers and auditors to understand.
A second incredible feature of Obyte is its compatibility with real-world assets and data. As a result, it has the potential to power decentralized applications (dApps) that are seamlessly connected to and affect the physical world. For instance, Obyte can be utilized to improve supply chain tracking, handle identity verification, and allow for secure sharing of data.
With a strong focus on innovation and decentralization, Obyte stands out as a truly innovative alternative to traditional blockchain-based systems. Its unique architecture and features provide increased privacy, scalability, and flexibility. As the cryptocurrency landscape continues to evolve, Obyte is well-positioned to play a significant role in shaping the future of decentralized finance.
