Is privacy dead or dying in crypto?

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I have been thinking about privacy a lot as of late. Pretty hard to not given the recent news surrounding crypto mixers and whatnot. I thought I would take the time to discuss privacy in crypto in the post.

Blockchains and their duality

Blockchains and crypto are in a, I would argue, very unique situation. And that is they offer both total transparency and privacy for its users. Well, privacy at least in theory.

On one hand, you can check any blockchain and see where every coin minted is at all times. This is something that is totally unique in the finance world. I would like you to try and contact any central bank and ask them if they could show you where every coin they have minted is. My best bet is that they would either just start laughing or they would have you institutionalized because you surely have to be a crazy person.

But with crypto, anyone and everyone can do this at all times. And this is one of the truly great features of crypto and the blockchain. But, and there is a but. Just because you know "where" a coin is, this does not mean you know "who" has it. Or does it?

Privacy in crypto

The second feature of crypto is that anyone can create a wallet and move funds to it. There is no identification tied to a wallet. This means that the user, in theory at least, can remain totally anonymous.

And is this privacy a good thing? It depends on who you ask. On the one hand, there are the anty government people. They generally think the more the government keeps to itself and leave them alone the better it is. In the other camp are the control "freaks", for a lack of a better word. These want to be able to see and react to anything citizens do. This usually tends to be either government themselves or part of them.

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But there are also "normal" nongovernment people here. Usually, they are pro surveillance as well. For similar reasons, they are against privacy with crypto. The "bad" people can use it to commit crimes.

And of course, there are the whole spectra in between these as well. Les, you forget.

But with crypto's promise of privacy, there is a clear device between these two camps. And I think you can compute which camp is using crypto and is pro and which camp generally is against crypto and not using it.

Crypto mixers

There is also a second line of privacy for people who use crypto. If they want to add an extra layer of privacy. And these are the so-called crypto mixers. In general, you send your crypto here. They put it all in a big pile and then give everyone random new crypto from the pile.

This work because each coin in crypto is nice on the blockchain and traceable. So what they do is swap them for another coin at random.

This is a feature that normal everyday coins already have built-in. While the bills have the ability to be traced. As they have a serial number. And the way you can anonymize your bills works the exact way as with a crypto mixer. You deposit the bill into a mixer, I mean bank. then you can withdraw it. And you get a new bill with a new serial number.

The death of privacy

But is privacy really tenable? With the wider adoption of crypto, it is inevitable that the borders between the world of crypto and the "real world" get more and more blurry and they seem to fuse together. Why is this you might ask?

Think of crypto and the real world as the two spheres in a ven diagram. And the shared part is adoption.

 "8e565d6a0a43abd942d7658fae1c4177ee72999f0265d053169382164591b611.png"

The ven diagram in question shows how the crypto world and the real world merge the more the adoption grows

The question then becomes with the two ever merge. Probably not 100%, as there usually is someone who is likely to be a holdout. And there is also the part where we need to bring the developing nations up to par with the rest of the countries before we truly can talk about the two merging. Maybe after that, we can be able to achieve a really high % of merger.

But back to my point. The bigger the adoption grows the more exposition to the real-world crypto gets. And if we look at how nonchalant people are with their personal information on social media. I find it very likely that this will undermine the promise of privacy.

If you want to get a feel for the extent that this is already doable today. Then I recommend you watch Last Week Tonight. The episode about Data brokers.

How the web of privacy will unravel

As I see it a very likely way this will happen and play out, is as follows. All it really takes is one person who shares their wallet address somewhere. Or if you are able to see who accesses what sites, and then correlate that to some information about a purchase.

 "fb90fe24c6620ea0dc75a94c9b79c47914a691b603dc2c9854736724fc9969a9.jpg"
Just bought some sick new exclusive convers, they cost me 2.451356 Bitcoins bro. -Unsuspecting tweet or Facebook post

And with a post like that, you are very likely to be able to find the transaction. And with that know that person's wallet. But I am not that stupid, you're probably thinking. Well, the problem is that person is, most likely, all it could take to foil all persons they interact with.

If crypto adoption becomes widely adopted then ponder this. You are out with your friend who is flexing with his new convers. You just paid for food and drinks. He insists to pay you back and transfers some crypto, because everyone uses crypto in the future...

At the same time, a convers fan walks by and asks to take a picture of your friend's new convers. And of course, he can do that. And you're caught in the background. This then makes it to Instagram. And earlier your friend tweeted he was out with his bro grabbing a bite to eat.

Then they just have to take your face from the covers picture. And then add that to your friend's post about being out earlier with a friend eating. Then just find your face among his friends. Now they know who you are. And sure there is some uncertainty it was you who received the funds from your friends. But the time stamp correlates to his post. And with one or two more data points like this, they can be very sure.

And that is how you can unravel and eliminate privacy one step at a time.

But that surely will take a crap load of time and computing power right? And where are they supposed to get all that data to begin with? Well, the data is already there. So that is no problem.

MIT researchers have just shown that it only requires four data points (the dates and times of purchases) from a 30 day database of credit card purchases by 1.1 million people to identify 90 percent of them.

And if you want a more recent example of how it can be done in the crypto world today. Then all we need to do is take a look at the Arkham report that came out earlier this year. In it, they were able to tie wallets to Alex Machinky, showing he withdrew $44M while telling the customers to HODL their crypto. And this was done by connecting an NFT he used as a profile picture to a wallet. One of the ways at least.

Is privacy dead or dying

I would argue that for the vast majority of us. We only have privacy for as long as no one is looking. If MIT is able to do that just from one type of datapoints back in 2015. Then we can kiss any type of privacy goodbye along with adoption rates increasing. That is if privacy is not already dead.

And with the recent arrest of Tornado Cash´s developer. And the sanctions put on accounts associated with the site. I would argue that it is as close to a death sentence for crypto mixers as we can get.

But there might be a light on the horizon. As long as there is mining in crypto there are ways for you to acquire coins to wallets and keep them isolated. You just probably need to take some kind of measure when interacting with the wallet. So it has no connection to you. But other than that I do not see any chance for what little privacy remains to survive in this new world with widespread crypto adoption.

What are your thoughts on this whole thing? Am I just over-pessimistic, or did you perhaps never really like the privacy aspects of crypto to begin with? Please share your thoughts in the comment section down below.

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See you on the interwebs!

Picture provided by: https://pixabay.com/

Resources

  1. https://www.networkworld.com/article/2878394/mit-researchers-show-you-can-be-identified-by-a-just-few-data-points.html
  2. https://assets.website-files.com/6296255d9030be506dc09bb7/62c820d0462fcea49347bdac_Arkham%20Report%20on%20the%20Celsius%20Network.pdf


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I think privacy is dead since we use mobile phones.

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I think you can buy "private" phones. It was a few years since I checked tho. And not sure what features they have on them.

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If I want Privacy I go off the grid, did that once for several years and it works very well. Further in modern life IDC to much as long as I am aware.

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Sure, but then you have enough info to be able to make a conscious decision. There are a lot of people who don't get to make that decision for themselves.

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