Defending Privacy in Crypto
blog.coinbase.com
blog.coinbase.com
Privacy in crypto is basically reallowing tax havens in the "digital" world where we spent years to try to curtain them in the "real" world.
A good friend of us happens to be working at a high level at the EU commission. Discussing about Bitcoin/Crypto, his answer was simple: "We will ban all crypto as soon as we consider it to create problems with taxes".
Coinbase would win the case, it would be one more step in the direction of a ban in the EU.
Surely you were not discussing those things with the Great Dictator of EU, not accountable in their decisions to citizens and courts?
The only questionable thing here is that you cannot vote for politicians of other EU nations and that there is literally only one EU wide party called Volt.
You should not have knife at home, because you could kill somebody with one. <-> We should allow full privacy on crypto, because the government could kill cash.
https://www.service-public.fr/particuliers/vosdroits/F10999#...).
(French government source)
But in an increasingly computational world it seems useful, probably inevitable, that digital programmable money will play a bigger part in the future.
So do we want p2p borderless networks, built on a history of foss and the internet, with varying mixtures of privacy and transparency? or do we want government digital coins that will likely be fully surveilled and centrally controlled?
which is more resilient? which is harder to corrupt? which provides everyday people with liberty and control? which removes power from rulers and pushes it to participants?
"We should keep cash" doesn't seem like a reasonable stance to take at this point. We need to defend our rights to publish free open source code, to freely associate over networks with other individuals and organisations, and to maintain/develop our privacy in our private interactions.
I dont see the version made by the government respecting those concerns, it is too easy to throw up a patriot act, to say "what about the paedophiles/terrorists/drugdealers" and suddenly law abiding citizens have their rights restricted and power becomes ever more centralised and hierarchical.
It is surprising to me to come to a site called hackernews, and see such little hacker spirit. It really feels that "crypto is icky" idea has taken hold so strongly that people are happy to give up their rights because the people they dont like will be less profitable. That is incredibly sad.
It seems if you post a SAAS website for finding rare sneakers you get HN praise as though that is peak culture, but if you choose to hack on money, ownership, provision of public goods, voting, borderless systems, and anonymous organisations, to actually address what power and democracy looks like in our future you are too close the dirty people. No we must stay as we are, we must trust the institutions, because everyone was happy before bitcoin, right?...
This is the real reason people get so irrationally mad about crypto. There's no difference between the importance of encrypted communication and encrypted transactions, except that there's money involved. There's many people using web3 hype and bullshit as a grift, and many (most) people who see crypto as a speculative bubble they can get in on but neither of these things change the fact that it's the only trustless form of digitial payment we have. Terrorists can kill thousands of people, governments can kill millions, so I'm much more worried about one than the other.
And this is why it's important not to build a system which will allow sanctions evasion by Russia or North Korea. One crypto advocate already forgot that and ended up jailed for complicity in North Korean sanctions breaking.
Note I used "would" not "should", the latter is ideology, the former acknowledgement of reality.
There's consequences in both instances. It's just how rule of law is.
Cash can and is used to buy/sell on the black market and also to buy/sell privately without leaving traces. But it is very difficult to move large amounts of money with cash. It means, it provides privacy with an acceptable level of freedom to do illegal stuff.
Privacy in crypto enables the same but it also allows bad actors to move extreme large amounts of money. The risks for the government are here so big, they cannot accept it.
Well they sanctioned the use of that software.
I don't really see why this is seen as such a problem. Banks that are used primarily for criminal activity get sanctioned frequently.
It's pretty clear judging by the amount of money going though Tornado cash and the amount that was from publicly known hacks known to be flowing through it that the majority of the money was from illegal activity.
> Imagine if they sanctioned Tor Browser or Signal, both of which are used for privacy and can be used for illegal activity.
But they didn't.
But forums that are focused on illegal activities get shutdown all the time.
Singapore and Hong Kong have all been tax havens for virtually the entire history of their existence as nations. Nevis has corporate secrecy protected as a right in its Constitution. There has been no attempt to address any of these jurisdictions. Being low empathy for crypto is being low empathy for the middle class, which thanks to RingCT and zk-Snarks has the ability to have the same level of financial privacy as megamillionaires who can afford to spend a thousand dollars or more setting up a trust in Nevis. Ten percent of all the world's wealth is run out of tax havens -- an amount that has gone up, not down, the opposite of curtains.
Common people should be allowed the same level of financial privacy as the rich -- that is to say complete and total. It is a basic human right. If governments ban crypto, we should start banning governments.
'Banning all crypto' is just as realistic as banning all use of end-to-end-encryption (E2EE) in apps, tools, etc because it allows criminals, terrorists and scammers to hide their communications for doing illegal activities.
The fact is, a total 100% ban on either of them is an unrealistic and hopelessly utopian request beyond delusional.
There's also a coincenter lawsuit on purely constitutional grounds (https://www.coincenter.org/analysis-what-is-and-what-is-not-...).
Infinite public money will be spent to bat down these lawsuits until it’s set in stone.
Widespread privacy in crypto == end of civilisation. This sounds ridiculous but logically one has to follow the other in a few very short steps.
That does sound ridiculous. What are the steps?
Without taxation you can't have:
Law enforcement, schools, hospitals, fire departments, roads, road servicing, running water, public transport, welfare, electricity or sanitation.
More directly, you can't have drugs laws, child protection laws or prevent human trafficking, as there's no way to stop the money supply to the perpetrators.
I mean you can probably still get Starlink access for even more astronomical rates, but that's OK because Cryptbros love them some Elon and think all forms of government are encroaching on dem derr freedums.
Crypto and digital assets should be free from regulation, even if it brings side effects (e.g. laundering). The moment we centralize crypto by state, we lose the war against corrupted states and centralization.
While I don't support bad actors that use crypto in any way, I still believe having them is a side effect that we need to accept for a better world without government survelliance.
The upside still outweighs the downsides.
It's far from clear to me why on earth crypto should be free from regulation at all.
The regulators are supposed to be protecting who from what exactly? And at whose expense?
So far I've seen two lines of reasoning:
1) Regulators are needed to protect me from myself. I can't assess if these dog-coins have long-term investment potential or not, so I want the government in the loop somehow. If I can purchase something on the internet, I assume it's safe, or the government wouldn't let it be sold.
2) Regulators need to protect the government from the effects of money laundering. I must give up privacy for the greater good, as the money laundered by North Korean hackers will be used against my country. Giving up all privacy in exchange for a small reduction in the funding of our enemies is always a good trade.
Even if I buy one of these arguments wholeheartedly, the practical matter is that we're trying to prevent math from being done here, and it's just not going to work. It's sort of like preventing piracy.
But public sentiment has become very anti-crypto, so I suspect we'll land in a war-on-drugs type situation where the crypto never really goes away and you can still transact it anonymously, but we mostly just don't talk about it except for the occasional bust to ensure more enforcement budget next year.
What was Abe's killer motivation? A cult brainwashed his mother into giving all her money and pension to them. Abe was one of the most public and prominent supporter of this cult amongst japanese officials. He killed him.
Do you think that can happen in the US? I mean, i know that while AR-15 are authorized, most sniper rifles aren't (which makes it very clear what's the NRA is really about), but you have hunting rifles with a great range and cheap, really good optics nowadays. If the scam industry aimed towards young isolated (but with wealthy enough parents) middle class kids keep up, if one of them snap and instead of a school shooting choose to kill bitboy or any other rugpuller, what happens?
He won't be as vilified as Abe's killer from the start. Now looks what's happening in Japan with the killer and Abe's reputation. Do you think that kind of mood can encourage copycats, especially if we enter a small depression?
The influencer+scam industry, in an economically constrained period, can lead to an evolution of our belief system, from the liberal 'i get what i deserve, mostly' to the fascist 'if I'm not as (good/well of/...) as I can be, it's because of this outgroup, and particularly him'. Both are fondamental attribution error fallacy, but one is really, really more violent than the other.
A heckler's veto, even a potentially fatal one, isn't an acceptable reason to curtail rights. In justifying such bad reasoning on the grounds of the violence that may ensue, you're arguing that one must preemptively surrender to terrorism.
You're also making an error of you're own: a slippery slope. By what method would this liberal society you speak of descend into fascism? And why a fascist state? Why not an monarchial empire? Mass violence isn't particularly limited to any one kind of government.
This is sort of a 'leftward' evolution of the old monarchist belief system where your success is based on your bloodline, whereas the 'rightward' evolution is fascism, where your failure are because the outgroup is cheating, empowered by traitors in your ingroup (thus all methods to reinforce your ingroup are good).
I'm afraid than right now, our belief system (i call it belief system, but the author i stole it from talked about the foundational myth of our ideologies) is shifting from one to the other.
And btw, i just realized that this can be misinterpreted (it's also the first time I've presented the thought like this), but I'm sure I've done this political commentary way before 2021, as I've found this definition in 2018.
First, it's not the main cause.
Second, the main job of the government is to ensure stable society. I'm pretty sure the consensus on crypto isn't 'lets make everything more stable', rather the opposite. I'm not saying that they're right, and in an utopia without bad actors, they would be absolutely wrong. It's more complicated than that though.
If you want to build private financial transactions make it so you don't enable money laundering.
Also, Ethereum could adopt privacy by default some day, via their proposal process.
It's fascinating to watch regulators talk about "bitcoin" and "ethereum" as if they're "gold" and "oil", unchanging commodities that just need to be categorized and dealt with appropriately.
Ethereum is totally publicly visible today, but it does not need to be that way tomorrow. These are living projects.
But kudos where kudos are due! I hope this goes the way
Liberty or death: it is not death of the individual but death of society. The resilience of our social structure is dependent on our freedoms.
I cant say how saddening it is to have lived through the crypto wars in the 90s that were so well defended by tech workers, to now see HACKER news commentators fine with massive government overreach in the name of "safety". lol.
Basically, the case you're making is: they might have actively aided and abetted nuclear proliferation - but they're technologists, so their actions are sacrosanct and cannot be subject to the usual penalities because we've been ultra smart and managed to create an industry where free speech and money laundering can be switched out at will like in a shell game.
The solution must be to ban all banks and cash as they are the instruments that facilitated these transactions.
The large majority users of tornado weren't criminals. Tornado devs had worked on compliance tools to aid governments, doesnt matter they get locked up anyway. The treasury has historically only sanctioned people, doesnt matter apparently they can make themselves new powers and sanction the use of code too.
Username checkout, is your brother Pinochet?
So the argument that we should never use "the terrorists" or "the children" to make policy decisions is overly simplistic. I believe the sort of reasoning is actually counterproductive. Even here on HN many believe a restriction on crypto currencies is justified if it curbs tax evasion, in other words they believe the trade-off between right restriction and societal benefit is worth it. So arguing that we should never use "the terrorists" to argue for restricting rights is very obviously contradicting how we are implementing laws, so it is not convincing. Instead we should argue why the trade-off is such that the argument does not hold in this case.
This is not really about crypto, or tornado cash. I think it's more about ownership and surveillance. The only solution is to innovate in the area of evasion. Since there is no middle ground amenable to the ones who make the laws in their own interests.
We can just look at wikileaks, panama papers and so on. Money laundering and embezzlement is much more pervasive and rapaciously damaging in the highest levels of "power". Wealth "inequality" is an oligopoly of concentrated power and wealth.
I’m genuinely unsure what your point is?
Are you saying that because the rich and powerful are destroying society by evading taxes and weakening the fundamental infrastructure of our civilization, the rest of us should have crypto so we can be in on the loot?
Big claim there.
The reason we don't have privacy is because technology has been centralized and it's easy to pressure providers to give up user's privacy.
The idea that parties have financial privacy between each other is actually the default. I can hand you physical cash. This is normal.
That's not because of some special provision that "allows" for cash to be private. That's just how it's always been done.
If you do work for me, and I hand you a gold coin, you don't have to do something special to make sure the government can track the item of value. You just mark it down on your taxes as income.
This is how things had been done until maybe the last 20 years or so, when 9/11 greatly expanded the government surveillance requirements on financial businesses.
There's a mountain of law to support private property transfer.
However, I am much more hesitant with privacy in money transfers. It is not obvious to me at all that we should have unlimited unregulated money transfers. In fact, I fear that unreflected support for the latter might erode the (already tenuous) support for the former:
Currently, we might still be in a position to regulate and disrupt cryptocurrencies (for example, Bitcoin needs on- and off-ramps tied to tradFi, and Bitcoin traffic is unencrypted and can be detected (and censored), AFAIK). If that whole ecosystem were to succeed in ensuring encryption and anonymity in money transfers, we might get to a point where there is overwhelming political pressure to prohibit any encrypted communication, even more so than already.
TL;DR: Cryptocurrencies might jeopardise Signal et al. Yet another reason to oppose Crypto: to protect encryption.
Also despite crypto allowing for pure privacy already with coins like Monero, this hasn't stopped tax revenue. It's not a black-or-white issue, because only a tiny fraction of people will utilise this privacy due to technical hurdles and other limitations compared to paying with cash or card.
There is always room for “good honest police work”, though.
There are many roadblocks governments could use to slow progress, but I’m not sure this is truly preventable any more than PGP or BitTorrent could have been.
If income tax becomes logistically problematic, there are many other types of taxes that may then need to fill the void.
This way, I would have guaranteed and auditable privacy that the government cannot surreptitiously break, but there is an route to find identifying information with a noisy and court approved process. This would involve both a technological side and an organizational one - brokers would have to setup some type of clearing house that processes legal documents and requests for unblinding, approve new brokers and terminate those that do not follow relevant KYC practices, etc. A middle option between banks (no privacy, 100% agents of the government) and crypto (anonymous brokers, untraceable in competent hands, excellent for money laundry).
We cannot continue to pretend that the current crypto crop "is just like cash". I most certainly cannot teleport 1 billion dollars in cash across borders, completely untraceable. If you cannot see a problem with this feature of crypto and the bad types of people it would attract and enable, then you might be suffering from a case of sociopathy.
Law enforcement is subject to laws too, there is no problem with having laws and enforcing them, unless you live in North Korea. What we should object to is extra-legal surveillance, not court orders.
https://tornado-cash.medium.com/tornado-cash-compliance-9abb...
That's just a digital timestamp service, only a small part of what I'm talking about.
Mind you, I don't claim any novelty in the process I sketched above - just professing the need to have it implemented before we can treat crypto-assets as anything other than a money laundry tool.
What you have proposed is technically infeasible to implement if you want to preserve properties of blockchain. It would be no different than a bank because KYC will add inherent centralization and fragmentation in the entire system.
So we need a compromise here because either way you cannot retroactively enforce KYC approved wallet to participate on-chain. If you do, it will be optional in that case the solution implemented by tornado is decent and does not require giving data to brokers who often sell it without permission.
Government can directly subpoena data from individuals when investigating them.
Any crypto to fiat ramp is already KYCed and businesses dealing with payments require KYC beyond a certain value transaction so in practice, the impact of KYC at on-boarding will be negligible. Not to mention, KYC can be easily faked by actors with significant stake in a globalised system.
Furthermore, the data does not support that money laundering is a bigger problem as percentage of transactions in crypto than traditional finance. The AML laws have been largely ineffective in practice in traditional finance with huge cost of compliance and degradation in experience for consumers & businesses.
So we need to think of a better solution to discourage money laundering than mass surveillance.
There is no logical compromise between a KYC value transfer system and a non-KYC system, you either have auditable customer identity or you don't, in which case all is lost due to the Sybil attack: the money launderer can create a limitless number of pseudonymous identities (for example in Bitcoin, wallets) and transfer value both om chain, and off chain, by selling those funded identities (see for example the method used by Chipmixer, where the actual value transfer happens after the "clean" coins have been injected into the blockchain, sometimes months after).
That fiat converters are obliged to follow KYC is irrelevant to the issue being discussed here: blockchains as money laundering machines. The police will never ask a successful criminal for their tornado proof because police will most often be unable to follow the proceeds of crime through the pseudonymous value mixer that is the blockchain.
> the data does not support that money laundering is a bigger problem as percentage of transactions in crypto than traditional finance. The AML laws have been largely ineffective in practice in traditional finance
Anti-money laundry coverage is spotty in the traditional financial system. Where it is employed, it's very effective in exposing criminals, curbing their profits, thus motivation for crime, or pushing them into risky and noisy beheaviours (ex. truckloads of cash). Current blockchains are by design unable to comply with the most basic AML requirements and it's sheer lunacy to brush that problem aside or claim that crypt is in way comparable to physical cash; it's crack cocaine vs weed.
They have to do that and it is a good thing, like standing up against overreaching regulations in this case.
If it would not be "crypto", HN would stand unanimously with the privacy fight. Banning open source software which has legitimate use cases, such as anonimizing donations to Ukraine in fear of retaliations, paying for abortion in States in the US where it is legally restricted, etc. is a no brainer to me as it sets a grave precedent.