XRP and Ethereum Are Both Pivoting to Privacy. Is That a Reason to Buy Either?

When you buy something with cash, you can usually assume, at least in theory, that the transaction is mostly private. In crypto, the opposite is true. Blockchains are, in a sense, public databases, which means that every time you buy, sell, or transfer crypto, it's typically quite easy for anyone to see which wallet address sent what to whom.

That's not exactly an ideal state of affairs, which is why many leading cryptocurrencies, including XRP (CRYPTO: XRP) and Ethereum (CRYPTO: ETH), are now adding privacy features to their development roadmaps. But will the new privacy features be enough of a bullish driver to be a new reason to buy either?

Image source: Getty Images.

XRP's privacy push is designed to satisfy institutions

XRP wants to be a place for regulated financial operators to do business. That means, when it processes trade settlements or facilitates tokenized asset transfers for its target users in financial institutions, it must do so in a way that meets the highest regulatory compliance standards. In that particular niche, privacy is an important but somewhat complex capability, as banks and hedge funds don't want any of their competitors to detect their financial positioning or expose their stored crypto to potential attackers, but they're still beholden to allowing regulators to see what's going on at any point in time.

Ripple, which issues XRP, aims to roll out a confidential transactions feature to the XRP Ledger (XRPL) in the next few months, satisfying both constraints. An important point here is how privacy fits with everything else the network is already shipping for regulated users. The XRPL already has on-ledger tooling for verifying identity, as well as streamlined know-your-customer (KYC) and anti-money-laundering (AML) checks.

This pairing of pre-existing features with a new capability that makes them even more useful is why privacy supports XRP's investment thesis a fair bit. So in XRP's case, the new confidential transaction feature, assuming it launches and works as planned, is indeed a new reason to buy the coin.

Ethereum's privacy push doesn't fit into a larger strategy

As it's the home of decentralized finance (DeFi) in the crypto sector, Ethereum has at least some need to care about privacy, and its development roadmap calls for a handful of different privacy-preserving capabilities to be added to the chain over the next couple of years or so.

One example of an already-implemented privacy feature is stealth addresses, which aim to make receiving funds less linkable to a known identity by letting senders generate one-time recipient addresses.

That effort (and others planned) is meaningful, and it'll make the chain a more appealing place to manage capital if launched as planned. But in the context of its ongoing efforts to scale up the chain's throughput to reduce transaction costs and make it easier to use, privacy seems like a nice-to-have rather than something integrated into a grand plan to win a target user base, as XRP's privacy features are.

And that means privacy is not a new reason to buy Ethereum.

Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum and XRP. The Motley Fool has a disclosure policy.