Will Wall Street's interest in Bitcoin scare off cypherpunks?

Written by: Mat Di Salvo, Decrypt Compiled by: hiiro, SevenUp DAO

Institutional investors are more interested than ever in the crypto world, and now they are putting their money into it. However, some are wondering whether Bitcoin will lose its raison d’être as a result.

BlackRock, the largest asset manager in the world, couldn’t have been more mainstream. The Wall Street firm, which manages $9 trillion in assets, is the epitome of “institution.”

However, last month it filed with the SEC for a spot bitcoin exchange-traded fund (ETF), pushing the price of one of the largest cryptocurrencies to a one-year high. Its billionaire CEO Larry Fink later praised the cryptocurrency as “digital gold.”

Bitcoin began as an anti-establishment move. Favored by government-skeptical cypherpunks and initially slammed by every major institution, including the European Central Bank and JPMorgan, cryptocurrencies appear poised to free finance from the shackles of centralization.

“Bitcoin was created because the traditional system had huge problems, and making Bitcoin like itself defeats the purpose of Bitcoin.” A long-term contributor to the Bitcoin privacy wallet Wasabi, named Rafe The person named told Decrypt. He added that the difference in priorities between cyberpunks and regulated agencies “was to be expected.”

Cyberpunks are generally those who advocate for privacy rights, want social change, and see Bitcoin as a tool to hide from the surveillance eyes of oppressive governments. Institutional investors are focused on making money — and bitcoin is something they can put a portion of their large funds into to realize a return.

Privacy-conscious bitcoin users who have spoken to Decrypt expressed concern that institutional interests could eventually push governments to impose restrictions, penalties or taxes on crypto users.

Major cryptocurrency exchanges such as Coinbase and Binance have implemented KYC measures and widely restricted access to their platforms based on political boundaries. Lawmakers are also increasingly concerned about anti-money laundering (AML) procedures. But the emergence of such compliance measures in the encryption space has drawn criticism from longtime privacy advocates.

Rafe said that “instant riches and mainstream adoption anyway” could force crypto users to abide by “totalitarian rules.”

He added that since every transaction is publicly recorded on the blockchain, the combination of strict KYC rules and a lack of emphasis on privacy could create “the largest system of global financial surveillance the world has ever seen.”

Harry Halpin, CEO and co-founder of Nym Technologies, said: “The fundamental innovation of cryptocurrency comes from the philosophy of crypto anarchism, if you abandon this spirit, then innovation in the field of encryption will die .”

However, Bitcoin users continue to develop privacy solutions for Bitcoin because the asset is not inherently private. Rafe told Decrypt that having a private wallet prevents big governments and institutions from hacking users.

Some say Wall Street is approaching cryptocurrencies, whether people like it or not. David Schwed, chief operating officer of blockchain security firm Halborn, previously told Decrypt that anti-establishment elements in the crypto space who hate middlemen will eventually turn to privacy coins.

For others, when Wall Street centralizes things more, the problem isn’t Wall Street – it’s Silicon Valley.

Bitcoin Design contributor Christoph Ono said: “Meta demonstrated again last week when they released Threads, View Privacy Statement in the App Store — they are ruthless about collecting personal data of all kinds.”

Meta’s new social media platform, Threads, launched this month as a Twitter competitor. It allows Instagram users to share text updates, but is more aggressive than Meta’s other apps in terms of data collection, especially location-related information, even when location sharing is disabled on the device.

Deleting the Threads account is also not possible without deleting the Instagram account at the same time.

Ono added that “data is too much of a lure for the tech industry” and that “there’s no way around well-established privacy tools that are impossible to break.”

So what’s the solution today? While Rafe’s creation, Wasabi, may be too complex for the average bitcoin user, Karo Zagorus, who once worked at zkSNACKs, the company behind Wasabi, told Decrypt that self-custody is sufficient.

Self-custody of bitcoin or cryptocurrency means that the user has full control over their own private keys, such as with a hardware wallet. However, custodial wallets are more popular because investors do not have to worry about seed phrases and keys. Instead, their cryptocurrency is given to a third party, such as an exchange.

“As long as individuals hold bitcoin non-custodially, we don’t have to worry about alternative bitcoin products on Wall Street, like ETFs,” he said, adding that “the problem is only when ‘institutions’ start manipulating the books and start inflating the supply” , which can be checked with an on-chain audit.

Scott Norris, co-founder of independent bitcoin miner LSJ Ops, added that KYC is becoming an increasing issue for regulators — so those who want to keep their holdings private may soon have few options.

Craig Raw, developer of Bitcoin Sparrow Wallet, said:

Enforcing KYC for all crypto users “on a permissionless network” would require centralized control over all of our computing devices, which is ultimately difficult to achieve.

But while there are some differences among bitcoin users, one view they share is that Wall Street’s entry into the space is inevitable.