Wendy McElroy: Privacy – Do Not Come Late to the Revolution

The Satoshi Revolution: A Revolution of Rising Expectations
Section 2: The Moral Imperative of Privacy
Chapter 6: Privacy is a Prerequisite of Human Rights
Segment 4: Privacy: Do Not Come Late to the Revolution

“I think the Mailman is taking us on one at a time, starting with the weakest, drawing us in far enough to learn our True Names—and then destroying us.” ― Vernor Vinge, True Names

Privacy is not dead, as many court intellectuals pronounce it to be, usually in preparation for its burial. Privacy is being renewed. Cryptocurrency is transforming it into a far stronger tool for human freedom. People with a fondness for the old version of privacy need not be concerned, however. Curtains can still be pulled over windows at night; financial transactions can still be encrypted. The new form of privacy is a compatible alternative. But much of it may seem counter-intuitive.

True Names provides a point of reference for science fiction fans. The 1981 novella by Vernor Vinge is sometimes credited with launching the cyberpunk movement because it explores so many of the themes that were later developed in great detail. One theme: the protection of a true identity is vitally important to the freedom and the survival of an individual. A true identity is the name or other identifying information that can lead people directly to someone else’s front door, whether the journey is to shake the person’s hand or to arrest him. True Names has special relevance to the new privacy being created by cryptocurrency because it highlights the shift in the focus of privacy away from transactions to identities. Transactions and identities are no longer irrevocably connected. Indeed, they can be totally separated. And there are great advantages to doing so.

People will stumble over the issue of transparency when they consider crypto privacy. Because transactions on the blockchain are 100% transparent and available to everyone, cryptocurrency is said to be the death of privacy. This is not death; it is a necessary redefinition. The nexus of privacy is shifting from the record of transactions to the identity of the transactors. An intimate connection between the two can exist, to be sure. Transactions can reveal identity in several ways. The user may not go through a mixer or tumbler, or he may not use a currency designed to protect privacy. It may seem like too much trouble to use a unique digital address for each transfer, as Satoshi Nakamoto suggested. Or he may make the cardinal error of all privacy mistakes; that is, open an account with a centralized exchange. A careless user can disclose a True Name.

A careful user has a greater ability to preserve privacy today than ever before. Consider just one question: Who is Satoshi Nakamoto? The identity of a public figure who had an immense impact and a definite computer presence may never be known because he used his own privacy tools.

The shift in the nexus of privacy should not be underestimated.

Relocating the Nexus of Privacy 

The nexus of privacy used to be located in the transaction itself.

For centuries, the focus of governments and financial institutions has been to track transactions in order to tax and to control them. The full disclosure and monitoring of the flow of wealth is the government’s “business model,” so to speak. Authorities demand transparency as a way to identify the individuals who are exchanging or amassing wealth. Information on transactions is tantamount to control of the transactions themselves, as well as of the individuals making them. With such information, taxes can be collected, fees can be deducted, scofflaws can be imprisoned, social control can be imposed, and outright confiscation can occur.

Governments have devoted incredible effort, time, and expense toward the acquisition of data on the movement of currency. Every bank account must be documented by government-issued ID, with every transaction being reported to tax authorities and other agencies. This is true, at least, of the institutions that wish the privileges of being legal. On a more individual level, major investors must be “accredited” by governments. Employees have every cent of their wages reported through tax forms that include social security numbers (True Names), as well as location information, such as street addresses. Governments have used the unlimited data paradigm to control individuals and society for many decades.

In reaction, individuals have sought to make their transactions as private as possible, especially through the use of cash, which is currently being threatened. Businessmen keep two sets of books. People neglect to report income on tax forms. Investors send their money abroad to countries that are less likely to file reports. People keep their wealth in precious metals that are secreted under the floor boards. With justification, privacy and the secrecy of transactions have become entangled.

No more. The blockchain is transparent to all.

Bitcoin.com explains the transparency in its analysis of Satoshi’s White Paper,

“Nakamoto’s concept of an electronic ‘coin’ is a chronological series of verified digital signatures. To illustrate, think of Nakamoto’s virtual coin as a UPS or FedEx package that you sign at your doorstep before sending it to a forwarding address. But the difference is that a publicly-available ledger is placed right on the packing slip which shows the entire history of all prior deliveries of the same package. The information includes all originating addresses as well as timestamps detailing where and when exactly each delivery took place. Such a comprehensive audit trail, he argues, would provide assurance to both recipient and the entire network that the chain of deliveries/transactions is accurate and secure.”

For individuals and the free market, the blockchain offers commercially valuable data that assists in accuracy and security. For governments, the blockchain is an incredibly thorough and accessible record of wealth transfers. The foregoing should be a statist’s wet dream. Why, then, are governments scrambling to maintain the economic reins rather than popping champagne corks?

Because the nexus of privacy has shifted. It is no longer vested in the transactions that governments have so assiduously recorded. Those transactions are transparent and freely offered to all. This means the “ledger” has lost much of their value as instruments of social control.

The nexus of privacy is now vested in the identities, in the True Names of who is involved in the transactions; it is vested in the digital signatures, which technology increasingly places under individual control. Call it anonymity—the assumption of a non-identified persona. Call it pseudonymity—the adoption of a secondary persona. Call it polynymity—the use of multiple personas to achieve different purposes. It has never been more difficult to uncover an individual’s True Name in financial dealings. Having a record of transactions is becoming a dead-end strategy for governments.

A real-world example may be helpful. The best parallel to cryptocurrency in the traditional world of finance may be a Swiss bank account that is identified only by a number, not by a name. Even if the transactions for the account are published in the New York Times, the disclosure does not imperil a careful account holder. It is always upsetting to have personal data released without consent. But, as long as anonymity of the owner is maintained, privacy has not been seriously jeopardized.

There is a happy difference between numbered bank accounts and digital signatures, however. Such bank accounts were and are a privilege of the rich, if only because there were minimum balances and other costs to doing business with foreign institutions. With digital signatures, however, financial privacy is available to anyone who can afford a computer connection. Financial privacy has been democratized.

The Trusted Third Party Question

In the most literal sense of the word, Satoshi’s recasting of privacy is “revolutionary.” That is, it changes the world in a fundamental way.

Revolutions usually invoke images of angry mobs who rage in the streets against intolerable oppression. Revolutions are the stuff of legend because most people want to believe that average people can reclaim liberty for themselves and for their children. But, as with many legends, not much truth underlies the image. Revolutions usually dissolve into societies that are no better than their totalitarian predecessors. Often, they are worse.

Revolutions fail because of “the trusted third party” problem. The phrase is deceptively simple, and it is easy to skim over its pivotal importance. The problem describes a situation in which people give power over their lives to parties who say, “Trust me.” The parties are usually strangers who have been given positions of authority due to government privileges rather than due to market merit. Central banks are a notorious example. They derive power from government, which means government is the “customer” to whom they are loyal, not individuals.

Why do people play a game that is rigged against them? Even revolutionaries, who barricade streets and risk death to defy authority, will bow to a committee, or a revolutionary government, or a strong-man leader. The new ruling authority may be called a Committee of Public Safety (the French Revolution, 1793-94) or a Military Revolutionary Committee (the Russian Revolution, 1918). The new names and faces provide an illusion of change, but their purpose is much the same as the old names and faces–to exert power over others.

People surrender power for many reasons. A key one is simply because they see no viable alternative. They deal with central banks or affiliates because it is almost impossible to navigate ordinary life without a bank account. People comply because they need to function economically. The social cost is the surrender personal information at every point of every transaction. The price tag is privacy.

Or it was. Enter the crypto anarchists and Satoshi. They replaced the need for trusted third parties through a protocol that provided the same services as central banks without taking control from individuals. The control is retained because the nexus of privacy is no longer within transactions, which are easily traced, but within the iTrue Name of users, which can be retained. To draw again on the parallel of a numbered account, the concealment of transfers is not the nexus of privacy. The anonymity offered by the number is.

In the old-world view (pre-2008) of central banking and government data banks, a meticulous record of transactions was the most reliable way to track down and identify who owned what. It was the means by which government controlled the flow of the world’s wealth. No more.

Satoshi pointed to the blockchain. “Go ahead; examine every cent that moves around the globe,” he told governments. Perhaps he even smiled, because the blockchain’s transparency provides little of value to government, as long users are cautious. “No need to demand or subpoena documents,” he informed authorities. “just log in and access a public record that sits in the open.” If Satoshi smiled, then it was because the transparency did not damage privacy.

Conclusion

It seems paradoxical, but transparency is the new privacy for those who preserve their True Names. The open blockchain also strips government of what has been its most powerful weapon against individual freedom: usable and monopolized information.

The cryptocurrency revolution will work because it does not cede authority to a trusted third party. It is also bloodless, as a revolution must be to cause positive change: the printing press, the telephone, the computer, the Internet, cryptocurrency. Technology triumphs over social control.

[To be continued next week.]

Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters

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Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.

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