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đŞ The cost/benefit analysis of privacy: E2EE vs stablecoins
Stablecoins may need to become as useful and popular as encryption
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âPrivacy comes at a cost.â
â Justice John Roberts
The cost/benefit analysis of privacy: E2EE vs stablecoins
This weekendâs arrest of Telegram founder Pavel Durov has made me wonder something.
If Durov can be arrested because Telegram has failed to sufficiently cooperate with law enforcement, why is it legal for Signal, WhatsApp and iMessage to be designed so that itâs impossible for them to cooperate with law enforcement?
Unlike its biggest competitors, Telegram does not default to end-to-end encrypted messaging (E2EE) â you have to opt-in, which hardly anyone does â so it has access to a mountain of messages that law enforcement occasionally asks to look at.
Because they default to E2EE, WhatsApp and others donât have access to their users' messages, so law enforcement doesnât bother asking to see them.
End-to-end encryption provides full privacy for users of messaging apps and full immunity for the companies that offer them.
In one sense then, Pavel Durov has been arrested because his messaging app offers less privacy than its competitors.
But if law enforcement wants to see our messages, as they clearly do, why is E2EE allowed by governments at all?
In the US, you might think itâs because of a principled stand on freedom of speech â but, as discussed yesterday, the USâ commitment to the First Amendment is half-hearted at best.
In Europe, you might think legislators just havenât gotten around to banning it yet â but the EU has been threatening to ban E2EE for years and nothing has come of it (so far â itâs still trying).
The longer lawmakers wait, the harder it might get, because encryption is useful and increasingly popular.
Encrypted data reduces the risk that your data will be leaked in a hack; a growing minority of even law-abiding people donât want tech companies seeing their data; and stories are abound of journalists, activists and dissidents using encrypted apps to communicate safely.
In short, E2EE remains legal in most places because it's useful enough, popular enough and ubiquitous enough to give lawmakers pause before accommodating law enforcement requests to ban it.
There are lessons in this beyond messaging. To remain legal, stablecoins may need to become at least as useful and popular as encryption.
Digital cash
Much as WhatsApp is unaware of what its users are messaging each other, stablecoin issuers are unaware of who most of their users even are.
Only the identity of the large accounts that create and redeem stablecoins are known to the issuers â most of the people using them in payments and DeFi remain anonymous.
This gives stablecoins the same privacy as physical cash, which, to pro-privacy types like myself, is one of their most redeeming features.
To many others, however, itâs an unredeemable flaw.
In a recent blog post, JP Koning makes the case for why stablecoins, like bank deposits, should be KYCâd.
Among other fair points, Koning invokes the principle of âtechnological neutrality,â which asserts financial products should be regulated according to their function, not their underlying technology: âSame function, same regulations.â
Stablecoins have the same function as bank deposits, so by Koningâs logic, they should be subject to the same KYC regulations â which is to say, issuers should know the identity of every holder of their stablecoin in the same way that banks know the identity of every holder of their bank deposits.
To do so, stablecoin issuers would have to replace their current practice of blacklisting addresses suspected of holding illicit funds with a practice of whitelisting (ie, pre-approving) addresses before they are able to hold any funds.
This would most likely make stablecoins (and much of DeFi) unusable.
If you think stablecoins and the decentralized financial system that depend on them are useless, that would be no great loss.
But if (like me) you think stablecoins expand financial inclusion, modernize payments and enable new financial primitives, you might think those benefits will outweigh the cost of the financial privacy they provide.
You might also think that financial privacy is not a cost, but a benefit to the world.
Lots of people do.
The most recent policy platform of the Republican Party, for example, includes the statement that âevery American has the right toâŚtransact free from Government Surveillance and Control.â
If so, stablecoins do us a service by extending cash-like privacy to bank-like savings accounts.
I donât know if that will be enough of a benefit to keep governments from imposing bank-like KYC requirements on stablecoins, as Switzerland recently did.
Stablecoins are estimated to have 27.5 million monthly active users vs nearly three billion for just WhatsApp.
Big Tech has successfully preserved its usersâ messaging privacy by arguing that the societal benefits of end-to-end encryption outweigh the costs identified by law enforcement.
Will stablecoins be able to do the same for their usersâ financial privacy?
It may be a race to get similarly popular before governments decide theyâre not popular enough.
â Byron Gilliam
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@BanklessHQ@KyleSamani@multicoincap Excellent post.
I've talked to a bunch of L2s and there is a lot of will to work together to improve on ethereum ecosystem-wide interoperability.
One thing I would add, is that Ethereum L1 is gaining in robustness. Over the last year we've seen censorship and centralization⌠x.com/i/web/status/1âŚ
â vitalik.eth (@VitalikButerin)
6:28 AM ⢠Aug 27, 2024
Here's some #Bitcoin ETF News. @BitwiseInvest is acquiring the Osprey Bitcoin Trust ( $OBTC) which has the same structure as $GBTC. There's about $120 mln of Bitcoin there. $OBTC holders will get $BITB shares of equivalent value. h/t @erikmuller8
â James Seyffart (@JSeyff)
2:04 PM ⢠Aug 27, 2024
people joke that the utility in crypto is 'the friends we made along the way' but for real I've made life long friends here
very thankful for the edge of the internet
â Ben Roy (@benroy__)
5:59 PM ⢠Aug 27, 2024