DeutschPrivacy coins have a decisive competitive advantage compared to the rest of the crypto market, according to Ali Yahya of A16z. Having become a trend within the crypto scene over the last few months, encrypted blockchains will likely dominate the majority of the crypto market in the long term, he says.
Bitvavo, one of the leading exchanges from Europe (Netherlands) with a large selection of cryptocurrencies. PayPal deposit possible. For a limited time only: 10 Euro bonus when you sign up via CoinPro.ch
A16z: Privacy coins have a decisive competitive advantage
According to venture capitalist Andreessen Horowitz (A16z for short), privacy coins have a decisive competitive advantage among all cryptocurrencies – the company announced via X yesterday.
“Data protection will be the most important competitive advantage in the crypto space,” Ali Yahya was quoted as saying, and his assessment was published.
Yahya is convinced that the blockchain will only have a significant impact on the payment industry when users gain sufficient privacy. Data protection is the central building block for this and is currently only available on a few blockchains.
Bitcoin, Ethereum and most other crypto networks are currently transparent. All transactions and blockchain addresses can then be viewed by the public. Although addresses are pseudonymous, the evaluation of the data often allows conclusions to be drawn about the identity of the respective user, so that even real names can be identified.
Ethereum announced a departure from transparency in September. The encryption of the blockchain is therefore one of the most important priorities. The Ethereum Foundation founded PSE, a separate working group with a staff of 47 people, specifically to take care of this task.
Ethereum is to support native encryption in the future. The second-largest cryptocurrency would then itself be one of the privacy coins. Its largest representatives are Zcash and Monero. Litecoin is a transparent blockchain that introduced optional privacy in 2022 by adding MWEB.
“Data protection is a critical component for shifting the world’s finances to the blockchain. At the same time, it is a feature that most blockchains lack,” Yahya summarizes.
Why Yahya sees huge potential in privacy coins
In his analysis, Yahya initially picks up on points that have already been circulating widely in the crypto scene over the last few months. For example, Ethereum inventor Vitalik Buterin publicly emphasized the importance of privacy for user security a few months ago.
According to Yahya, however, encrypted blockchains have further advantages. Their network effect is stronger than usual, as switching to transparent blockchains carries the risk of unintentionally disclosing sensitive data to the public.
“Privacy alone is a sufficient unique selling point to distinguish a blockchain from the rest. It creates something even more important: a privacy network effect.”
Yahya explains why this effect is of particular importance. “If everything is public, switching between blockchains is irrelevant. Once the information is encrypted, it’s a completely different story.”
His argument: If funds move from an encrypted blockchain to a transparent blockchain, previously private information can suddenly become public and potentially exposed.
“People watching the blockchain could then determine your identity,” he writes.
Once users use privacy coins, it is therefore much more obvious for them to keep their funds within this network forever, explains Yahya.
“If a standard blockchain doesn’t yet have a vibrant ecosystem, an outstanding application, or a distribution advantage, then there’s little reason to use it or stay loyal to it,” says Yahya. This is different for encrypted blockchains.
Why Zcash, Monero and Co. will dominate the crypto market
Yahya even goes one step further in his analysis. The growth of privacy coins is not only favored compared to the rest of the market. Rather, projects like Zcash or Monero will even dominate the crypto market in the future.
“If people choose a transparent blockchain, it is very easy for them to interact with people on other blockchains. It doesn’t matter which blockchain they choose. Among encrypted blockchains, the exact choice has an important meaning.”
If an encrypted blockchain is chosen, the risk of revealing sensitive data when switching to another blockchain – the so-called chain hop – is much greater.
“Because privacy is essential for real-world application, a handful of privacy coins could dominate the crypto market,” says Yahya.
