Facilitating Confidential and Anonymous Transactions for Broad Public Utilization
Cashing Out Chaos: North Korean hackers have cashed out a whopping $300 million from the unprecedented $1.5 billion crypto heist at ByBit Exchange, marking their proficiency in exploiting anonymous transactions. Since 2017, these cybercrooks have swiped over $6 billion in digital assets, with the stolen funds presumably funding the nation's ballistic missile program [1]. Elliptic claims this sensational theft constitutes the largest known heist in history, eclipsing Saddam Hussein's $1 billion theft from the Iraqi Central Bank on the eve of the 2003 Iraq War [2].
Navigating the Gray Area
The shroud of anonymity surrounding digital assets makes them irresistible to rogue elements, posing a grand quandary for the crypto community. They're torn between the Scylla of crime and Charybdis of censorship. Do they accept anonymity, paradoxically leading to societal harm, or do they opt for censorship, crushing the desire for individual privacy? Few topics spark more passion than privacy and anonymity, especially when it comes to money [3].
The privacy-first and anonymity-first views appear to be radically opposed, but striking a harmonious balance might elevate overall welfare. Current focus centers on Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for centralized exchanges and custodial services, while preserving some level of anonymity for peer-to-peer transactions [3]. Let's delve into this middle-ground perspective and weigh its practical implications.
J.P. Koning's thought-provoking paper [4] on Central Bank Digital Currency (CBDC) for Brazil piqued my interest. Narayana Kocherlakota, former CEO of the Federal Reserve Bank of Minneapolis, wrote in 2016 that economists know little about the topic of anonymity, and the profession "models it more systematically." Here are some new data points to fuel that analysis:
CBDC Privacy Premium
When it comes to CBDC, central banks might be better equipped than traditional intermediaries to safeguard data due to their lack of profit motives. Hypothetically, placing transaction data in a data trust would enable data sharing benefits, pooling personal data for the greater good [4].
Citizen Preference for Privacy
Interestingly, Australian consumers express a willingness to pay A$5 extra for an account that shares transaction data with the central bank instead of commercial banks, assuming that the Financial Crime Authority, the Australian Transaction Reports and Analysis Centre (AUSTRAC), can access the transaction data in either case [5].
Now, let's zoom out and examine the general payments landscape. Anonymity in payments has long been a hot topic, and it's crucial to appreciate its intricacies:
The Limits of Cash
Cash, a historically anonymous medium, enjoys favor among some due to its privacy, albeit with limitations in financing illicit activities because it's impractical and risky to store large quantities of banknotes [6].
The Rise of Anonymous Digital Cash
Meanwhile, anonymous digital cash is a dream for tax evaders and criminals, as they can effortlessly whisk massive sums across the globe with minimal traceability [6]. This unrestricted anonymity poses a grave threat to democratic control and enables unchecked criminal enterprise [6].
So, how can we strike a balance between privacy and security? allow me to present an idea that might captivate you:
Embracing the Light and Dark
J.P. has delved into the concept of a permanently negative interest rate on anonymous CBDC. The underlying principle is that criminality and tax evasion impose costs on society, and it might be worthwhile to design anonymous payment systems that recoup some of these costs [4].
In an artistically conceived system called the "Crime Pays System" (CPS), payments would be either "light" or "dark." The default transaction type would be light and free to users, while dark transactions would attract a tariff, with the revenue going to the government to offset the loss of taxes and expenses related to the criminal underworld [7].
As of March 2025, Bitcoin was trading around $88,000 on exchanges, but in the peer-to-peer (P2P) markets, it was trading at around a third higher, indicating the existence of a strong demand for anonymous transactions [8]. This premium should bolster societal coffers instead of enriching offshore crypto mixers, tumblers, or launderers [8].
In the realm of digital assets, the allure of anonymity attracts black-market actors, creating a dilemma for the crypto community: either accept anonymity, which could lead to societal harm, or enforce censorship, potentially curtailing individual privacy [3]. Currently, the focus is on balancing Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations for exchanges and custodial services, while maintaining some level of anonymity for peer-to-peer transactions [3].
In the context of Central Bank Digital Currency (CBDC), the potential exists for central banks to safeguard data more effectively than traditional intermediaries, due to their lack of profit motives [4]. The Australian public shows a preference for privacy when it comes to transactions, willing to pay more for accounts that share data with the central bank rather than commercial banks [5].
However, the unchecked anonymity offered by digital cash poses a significant threat to democratic control and enables criminal enterprise [6]. To strike a balance between privacy and security, an innovative idea called the "Crime Pays System" (CPS) has been proposed, where transactions could be either "light" or "dark." In this system, "dark" transactions would incur a fee, with the revenue used to offset the costs of criminal activity and lost taxes [7]. The demand for anonymous transactions was evident in 2025, with Bitcoin trading at a premium on peer-to-peer markets compared to exchanges [8].
