Tuesday, June 16, 2020

On Privacy, Bitcoin and Brown Paper Bags

In response to my post, Gold vs. Bitcoin: Should We Cheer Bitcoin?, Manoj D. emails:
Hi Bob,

I enjoy the EPJ alert and eagerly wait for the alert every day. I want to add a few comments regarding your recent post on Gold vs Bitcoin.

I am a Stanford educated engineer and have been developing wallets/applications in the bitcoin space for a few years now. Currently, Bitcoin privacy is in a state where it can be totally private or completely open depending on the settings and wallets you use. Coinjoin is a new feature implemented in wallets like Wasabi, which makes it impossible to link txs. Most of the chain analysis firms that work with IRS are already having hard time linking txs to a known user and with next gen improvements to bitcoin protocol, it will be next to impossible. But if a user is lazy, and uses custodians, like exchanges, then all the information can be tracked. Just like how gold custodians can be linked.

I think you can criticize Bitcoin as not money, it is still a speculative asset and a collectible. It also has real threats from the Government, where they can co-opt the miners and minimize trust in transaction propagation. They can outlaw it and freeze bank accounts of crypto exchange users. But compromising privacy (for a well informed user) is not a real concern at this stage.

RW response:

Well, I do have some technical concerns but let's cut right to the chase.

Suppose the government makes Coinjoin illegal based on the argument that "It is only used by tax evaders, criminals and terrorists," who are you going to be exchanging Coinjoined mixed Bitcoin with under these conditions?

Maybe there are some extremely limited situations but in most cases, I think a brown paper bag works better.


1 comment:

  1. First the author says Bitcoin can be "totally private", then he backs off to "having a hard time linking txs", then ramps back up to "next to impossible". For me the bottom line is that the actual transactions are public, since being a non-falsifiable public record is what the Blockchain is all about. All kinds of analytical methods can be applied to connect the public Blockchain with the people initiating those transactions. Some methods are already in use; others are bound to come online as time progresses. No matter how much I successfully scramble the identity of the Bitcoins I use when I make a purchase, there's no way I'd feel secure that a spying government could not make the connection.

    In addition, the often-heard assertion that a Blockchain can never be faked is not correct. To alter an earlier transaction, the checksums of that block and all subsequent blocks must be modified, but that's not any harder than calculating the original checksums. Only the consensus of many miners prevents this from happening, and if a consortium of criminals succeeded in fielding large numbers of miners, anything could happen.

    In addition, the electricity used to verify Bitcoin transactions must be paid for by someone, and once the maximum number of Bitcoins is reached, that someone will be the people spending Bitcoins. Surely there's a better way to hold anonymous wealth. Something tangible, maybe like a metal?