Crypto may be less anonymous and more centralized than you think, expert says

One of the major draws for cryptocurrencies and bitcoin (BTC-USD) was its anonymity — being able to exchange payments directly with another party without involving a commercial bank or the government.

But one expert says the opposite is happening and we’re actually seeing some degree of centralization.

“We could end up rather than having decentralization and more anonymity somewhat paradoxically being led to a world where big corporations, and perhaps central banks have even more visibility into our financial transactions,” Eswar Prasad, economics professor for Cornell University and author of "The Future of Money: How the Digital Revolution is Transforming Currencies and Finance," told Yahoo Finance Live (video above).

Prasad said crypto could become more centralized with central banks looking at issuing their own digital currencies. He said central bank digital currencies could undercut the case for many other private cryptocurrencies, including digital payment platforms.

“Central bank digital currencies might end up giving governments or central banks acting as their agents, tools through which to monitor economic as well as financial lives,” Prasad said.

Cryptocurrency could provide more visibility into our financial transactions. Image: Getty
Cryptocurrency could provide more visibility into our financial transactions. Image: Getty (Jasmin Merdan via Getty Images)

And it’s not just the prospect of the government coming in. Prasad said stablecoins are being issued less on decentralized platforms and more by specific issuers.

“One can certainly envision a world in which stablecoins that are the fiat currencies that have stable value because they are backed by fiat currencies, gaining a lot of traction if they're built on top of existing social media platforms or a commercial platform, such as Amazon or PayPal,” he said.

He also said while setting up your own account and digital wallet on a trading platform gives you a little more anonymity than trading on a centralized exchange, it’s still very difficult to keep your identity hidden if you use these cryptocurrencies extensively.

“Anonymity is no longer the big selling point of these digital currencies anymore,” he said.

Crypto's relative lack of anonymity has a plus side, according to Prasad. He maintained it means bitcoin is being used less for illegal transactions than it was earlier. Prasad pointed to the FBI being able to uncover transactions and connect digital identities to real identities if bitcoin is used extensively or to acquire real goods.

“If you're a really malicious actor trying to use this, say for instance, at a country level to evade sanctions or trying to get your money out of the country, if your country's currency is collapsing, it's possible, but just a lot harder than people might think,” he said.

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Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. She has been a financial journalist for over 14 years covering markets, the economy and investing. Follow her at @Jenniferisms.

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