The crypto industry royally screwed up privacy

Privacy is a complicated topic. Few would argue that privacy is not important. It’s generally more interesting to talk about things that are disputable. So, the limited arguments against privacy actually make it somewhat boring to discuss and easy to take for granted. As Edward Snowden famously said: “Arguing that you don't care about privacy because you have nothing to hide is like arguing that you don't care about free speech because you have nothing to say.”

However, what if your privacy is not a priority? What if your privacy is not guaranteed? What if everything you do is under constant surveillance?

You might fight back.

Unfortunately, this actually is the state of the cryptocurrency industry, and not enough people are in the fight to defend privacy.

Transparency vs. privacy

When I first read the Bitcoin (BTC) white paper in 2011, I fell in love with the vision for a peer-to-peer electronic cash system. Most societies have physical cash — legal tender — so, in a digital society, what is the physical cash equivalent? Satoshi Nakamoto seemed to come up with an elegant answer to that question, and a multi-trillion dollar market has emerged around it. Sadly, Satoshi’s original idea has fallen short in at least one area, and that’s privacy.

Legal tender is private. When someone exchanges coins or banknotes (aka “bills” in the U.S. and Canada) for a good or service, that transaction is only known to the two parties involved. Identification is requested if the good or service is restricted to certain age groups (beer runs aren't for everyone). Further, if you hand a $10 bill to the lady at the local farmer's market, she can't look up how much you have left in your bank account.

However, transactions on the Bitcoin blockchain are radically transparent. This means transaction amounts, frequency and balances are all open for the entire public to see. The Bitcoin white paper only dedicates a half-page to the topic of privacy with suggested workarounds that don’t always work as intended, especially for second generation account-based blockchains such as Ethereum.

There are user guides on how to achieve more privacy using Bitcoin, but they are extremely complicated and generally recommend using tools that can be dangerous for users. There are also a few blockchain networks that have been designed with privacy as the default, but most do not support more complex programmability such as smart contracts, which enable new use cases involving business logic in decentralized finance (DeFi).

Related: DPN vs. VPN: The dawn of decentralized web privacy

Leaving privacy behind

Why has the blockchain community fallen short in making privacy a tier-one priority? For one, privacy has taken a back seat to three other priorities: security, decentralization and scalability. Nobody will argue that these three components aren’t important either. But do they have to be mutually exclusive to privacy?

Another reason privacy has not been prioritized is that it’s very hard to guarantee. Historically, privacy tools such as zero-knowledge proofs have been slow and inefficient, and making them more scalable is hard work. But, just because privacy is hard, does that mean it should not be a priority?

The last reason is probably the most concerning. There’s a myth in the media that crypto transactions are completely anonymous. They are not. This means that many people have been actively using crypto under the fallacy that their transactions are private. As blockchain network analysis tools become more sophisticated, the lack of anonymity increases. So, when does privacy become important enough to make it a priority?

Related: Bitcoin can't be viewed as an untraceable 'crime coin' anymore

Privacy Finance

A friend of mine who has worked in the crypto industry full-time since 2015 recently asked me, “WTF is PriFi?” PriFi, or “Privacy Finance,” is the crypto industry’s admission that we royally screwed up with privacy. We screwed up so badly that, 12 years into this industry’s evolution, we are just now getting to the point where privacy is important enough to have its own hashtag.

So, where do we go from here to build more privacy that protects everyday crypto users and achieves the digital privacy equivalent of cash?

The first step is more education. As society becomes increasingly digital, privacy is becoming harder to achieve. This starts with educating the media on the differences between secrecy and privacy. Secrecy is not wanting anyone to know something. Privacy is not wanting the whole world to know something. Secrecy is a privilege. Privacy is a right.

The next step is to make privacy simpler. Achieving privacy in crypto should not require clunky workarounds, shady tools or a deep expertise of complex cryptography. Blockchain networks, including smart contract platforms, should support optional privacy that works as easily as clicking a button.

The final step is to defend privacy. Privacy is a timely issue. The recent U.S. infrastructure bill includes a clause to extend section 6050I of the tax code, which requires individual counterparties to collect personal information on each other for cash transactions over $10,000, and applies it to cryptocurrencies. Coin Center, a pro-crypto nonprofit advocacy and research group, is preparing to challenge the constitutionality of this change for crypto. You can too, here.

Armed with proper education, an intuitive user experience, and motivation to make privacy a priority for crypto, we can defend our rights without being reckless and maintain sensible privacy on our own terms.

Title: The crypto industry royally screwed up privacy
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Published Date: Sun, 17 Oct 2021 08:11:00 +0100