Privacy is a critical aspect of money, as it preserves fungibility between tokens and makes it more attractive to end-consumers, and is therefore a high priority of the Bitcoin Cash community in its quest to become the global reserve currency. However, the BCH blockchain is completely accessible to anyone, with no privacy solutions built directly into the chain. This is a point most frequently highlighted by competing Monero advocates.
The BCH community attacks privacy in the following ways:
- Focus on peer-to-peer adoption: The best form of privacy is being able to hide in a crowd. The BCH community is heavily focussed on spreading to as many people as possible while creating real commerce links and retail merchant adoption. This reduces the need to interact with centralised exchanges or other privacy-reducing identity checkpoints. The more BCH is earnt directly peer-to-peer, and the more places it can be spent peer-to-peer, the more private the entire chain becomes and the more difficult chain analysis is. Note that creating this adoption is a community mentality more than a technical issue, and that building more privacy into the protocol itself may make this effort more difficult by raising the technical and user experience barriers to providing and supporting simple end user tools at global scale.
- Low-fee UTXO design: As a UTXO chain, BCH is more private by default than account model chains like Ethereum. Because of its committment to low fees, it is trivial for BCH users to use fresh addresses & spread out their wallets - helping to protect their privacy as well as other BCH users. This is not true on high-fee BTC, where users prefer to consolidate their UTXOs to reduce fee burden (but sacrificing their own & other BTC users' privacy).
- CashFusion: Instead of building privacy into the protocol, BCH has built it on top with a technology called CashFusion. This lets users mix their coins together in batches that obfuscates the coin history and restores privacy and fungibility if coin tracking would be an issue. It is available today with Electron Cash wallet.
- SmartBCH: Because of SmartBCH, The Bitcoin Cash community can replicate privacy tools built for EVM compatible chains. For example Tornado.cash on Ethereum can be replicated on SmartBCH. As SmartBCH is still young these projects have not appeared yet but they should soon. In addition, the ability to trade some coins from BCH to SmartBCH and receive others when transferring back creates another form of coin delinking.
Note that none of these three points are replicated by the Bitcoin (BTC) community, who are far less aware of the need for privacy and fungibility.
This strategy also accomodates the following properties:
- Easily auditable supply: Scarcity/known supply is a critical property of money, and the chance of undetected supply inflation is reduced to almost nothing by having a transparent blockchain. Not only is this technically simple, it is also very straightforward to explain and convince new adopters of.
- Possibility for transparent financing: Although financial privacy is important in many cases, so is financial transparency in some cases. Financial transparency can be very useful, such as for cryptocurrency-based charities or for public funding of node infrastructure (for example, BCHN releases public reports of their donation-income spending). BCH allows for both transparency or privacy where suited.
- Avoids regulatory attack: The simplicity of a transparent blockchain allows BCH (and many other cryptocurrencies) to avoid intense attack from regulators. Coins with protocol-level privacy strategies like Monero, ZCash and others frequently suffer from being delisted from exchanges, banned for usage by governments or other issues that slow down their ability to attract new end users.
Monero or other privacy-focussed chains may compromise on any/all of those aspects in their own chain design, deficits that they tend to undervalue or overlook without appropriately considering the balance of factors needed to be the best money in the world and reach global adoption.
See also: What about Monero (XMR)?
See also: What if governments ban/regulate crypto?