The Underlying Reasons Run Deeper than Portfolio Diversification

A common misconception afflicting our beloved cryptosphere is the secrecy of bitcoin transactions. And among other features, transactional privacy is what makes CloakCoin an exemplary bitcoin alternative.

One of the most embarrassing examples of privacy delusion occurred during the 2016 U.S. elections. Assuming their activities would remain unseen by prying eyes, a group of 12 Russian hackers used bitcoin to finance a portion of their shady operation.

Now, don’t get us wrong — the CloakCoin team does not condone hacking. Well, at least not the black hat variety.

Ethical, white hat hackers are often invited to poke and prod blockchain platforms in search of vulnerabilities that may expose networks to malicious attacks.

Using Star Wars terminology to reinforce the concept, the light side anticipates dark side invasions and mimics the enemy’s tactics within a safe environment — hackathons.

Perhaps if Imperial Forces hosted hackathons of their own, they might have discovered the Womp rat-sized tunnel enabling the Death Star’s destruction.

Intergalactic hacking aside, the world’s original cryptocurrency — although secure enough to be (almost) hack-proof — can lead to an invasion of privacy.

Sharing your bitcoin address is the equivalent of handing over read-only access to the current balance and entire transactional history of your checking account.

We don’t know about you, but that’s not information we feel comfortable broadcasting to the world!

On public blockchains, it’s far too easy for anyone to fire up a block explorer and see exactly where your account’s funds have been.

And we all know what happens when enough people get hold of info you’d rather not share — it eventually falls into the wrong hands. Data hacks and leaks from giant, centralized corporations are, sadly, almost standard these days.

In the cryptocurrency space, exchanges are under continuous attack because everyone knows they contain untold millions in coins and tokens. Very tempting for unethical hackers.

For the sake of your security as well as your crypto’s, it’s best to keep your account balances, transactions — and private keys! — under wraps. Don’t tempt the dirtballs dwelling in crypto’s quagmire of scammers.

Which brings us full circle to the overarching theme powering CloakCoin — personal privacy. CloakCoin transactions are not only quick and secure but also entirely untraceable to you.

Now, we realize that transparency is the beating heart of cryptocurrencies in general. The industry’s mission is to eliminate the intermediaries, often with no product of their own, from taking an oversized cut of exchanges in value.

However, while disintermediation — shaking out the potentially shady middlemen — was bitcoin’s original intent, it’s no longer enough to use cryptocurrencies as mere facilitators of trustless payments.

Although privacy is undoubtedly important, there’s more at stake. You see, privacy-focused cryptos like CloakCoin add another layer of value to the industry — reliable interchangeability.

A Secondary Threat

Here’s a fun word you may not yet know: fungibility.

Now, before we explain why this phrase — or lack thereof — can become problematic in the blockchain space, let’s agree on what it means to be fungible in the first place.

Fungible coins and tokens share common properties:

Equality

In the world of fiat, a $5 bill is a $5 bill regardless of its history. If Alex borrows $5 from Gladys, Alex is free to use any legitimate, same-currency $5 bill on the planet as repayment.

No matter if Alex’s money spent time in a drug lord’s briefcase or 10 years in prison as barter for cigarettes, that $5 provides the same purchasing power in relation to all other $5 bills of its kind.

Divisibility

Alex may choose to repay Gladys with a $5 bill, or he may use 5x $1 bills.

And in the land of crypto, the concept is no different. If you loan me 5 $BTC, I’m free to send you 2.3, 1.5, 1.01058, and 0.18942 $BTC in return.

Fungibility means a currency — crypto or not — is divisible and capable of mutual substitution. And we can’t afford to lose either of those traits within the cryptocurrency space.

Ironically, the very same transparency behind bitcoin opens the door to uncertainty.

To illustrate a real-life example of why non-fungibility can harm cryptocurrencies, let’s go back to the Coincheck heist of early 2018.

After learning that over $500,000,000 in $XEM coins disappeared from the Coincheck exchange, the NEM foundation decided to join the hunt for the plundering hackers.

The NEM project’s automated tagging system attempted to verify whether or not stolen coins had entered centralized trading platforms.

Timing is everything here, but pretend you were the unwitting recipient of stolen $XEM after trading them for $BTC on your favorite exchange. Now imagine waiting a week and trying to trade the $XEM — that you didn’t steal — for $ETH, only to have your trade rejected.

When anyone and everyone can see where a coin or token has been, it’s possible to place currencies and transactions into ‘clean’ or ‘illicit’ categories.

And if the legitimacy of your rightfully-purchased cryptocurrency comes into question, even though poor timing is your only association with pillaging, that crypto is virtually useless — which defeats the whole purpose of trustless transactions in the first place!

Nobody wants to play a game of crypto hot potato in which the last holder of a coin or token possesses a worthless digital asset. And if the practice persists and becomes widespread, specific cryptocurrencies lose their fungibility altogether.

So, what’s a useful preventative measure? You may have already guessed: CloakCoin’s end-to-end encrypted, untraceable payment system.

Private transactions vastly diminish the danger of non-fungibility in the crypto space. After all, you can’t label a coin as good or bad unless you know its history.

Wrapping Up

Despite 1,000s of altcoins trading throughout the cryptocurrency market, bitcoin maximalists will tell you there’s only one digital asset worthy of your portfolio.

But we know better than that.

By reducing your exposure to any one particular asset, you mitigate the inherent risks involved with being an active participant within the blockchain industry.

Since we’re still in the early, pre-flight phase of our collective mission to the moon, the crypto industry is mostly unregulated. And that lack of regulation attracts a host of bad actors with the intent to steal your crypto.

However, by using CloakCoin, those bad actors don’t have a target to shoot for— invisible transactions won’t ever appear on their radar.

CloakCoin preserves bitcoin’s spirit of economic freedom. Our platform’s native cryptocurrency is global, decentralized, and open to anyone.

But when you consider our first-class privacy features — not to mention 6% annual staking rewards — we think you’ll agree that CloakCoin is a remarkable bitcoin alternative.