This issue is brought to you by:

“Privacy is not secrecy. A private matter is something one doesn't want the whole world to know, but a secret matter is something one doesn't want anybody to know. Privacy is the power to selectively reveal oneself to the world.”

- Eric Hughes, A Cypherpunk’s Manifesto

Should Crypto be Anonymous? Or Just Private?

My first reaction to last week’s dumbfounding account of a finance writer being scammed into withdrawing $50,000 from the bank and putting it in a box to hand to a stranger was not, “How could someone be so stupid?” — it’s impossible to know how your brain might work in that situation until you’re in it.

Instead, my reaction was, “Why did the bank let her take out so much cash???”

This is of course not very cypherpunk of me — the whole point of crypto is that we don’t want banks telling us what we can and cannot do with our money.

So I’d like to be forgiven for my boomer instincts: Of course banks should give us our money upon request, no questions asked.

But then I had a similarly blasphemous reaction to the week’s other big story about cash money.

When I read that the fate of the Republic may hinge upon District Attorney Fani Willis’ inability to produce receipts proving that she used cash to reimburse her colleague and ex-boyfriend for travel expenses, I thought, “You’re a lawyer, you should know to keep receipts!!!”

This is also unacceptably boomer of me because any good cypherpunk will tell you that our right to privacy is unalienable — financial privacy included — so no one should be faulted for conducting their financial affairs (no pun intended) in private.

I agree with that sentiment as a matter of law: Our legal system is based on the presumption of innocence, so you shouldn’t have to provide receipts for financial transactions.

But wouldn’t it be nice if you could?

So, I have mixed feelings about these things: I want unfettered access to my money, but I also want my bank to stop me from getting scammed; I want my finances to be private, but I also want to be able to provide receipts when necessary.

In short, I want money to be private but not secret.

In practical terms, this means it should be much harder to take $50k cash out of a bank when it’s a bad idea and it should be much easier to reimburse someone privately when it’s for legitimate purposes.

Crypto could soon do this!

But it probably won't want to.

Decision time?

Anonymity was a selling point for Bitcoin until people realized that what Bitcoin offered was only pseudo-anonymity — the transparency of blockchains means that owners of pseudonymous addresses can be doxxed as soon as they off-ramp to fiat.

But now it’s transparency that’s become a selling point for Bitcoin, with crypto proponents (somewhat ironically) touting traceable cryptocurrency as law enforcement’s friend.

This is mostly an argument of convenience, however, to be used in instances of bad press (like the Hamas situation) — our heart isn’t really in it.

Crypto remains spiritually and ideologically aligned with The Cypherpunk Manifesto, as evidenced by the industry’s universal support for Tornado Cash when it was sanctioned by OFAC in 2022.

We’re having it both ways: We tout crypto’s transparency when it suits us, but we retain the right to be censorship-resistant, too.

We won’t be able to both have and eat our cake for much longer: The increasing complexity of blockchains already makes crypto transactions semi-opaque and advancing privacy tech could soon make it fully so.

This means the industry will soon have to decide just how cypherpunk it really wants to be.

It’s not an easy decision!

Even Vitalik, crypto’s deepest thinker, appears to struggle with it, proposing both privacy pools that would allow for KYC and stealth addresses that would allow for full anonymity.

Ultimately, he seems to be hoping we strike a middle ground by reconciling these seemingly contradictory aims with zero-knowledge tech:

“The programmability of zero knowledge proofs means that we can get past the false binary of ‘anonymous but risky’ vs ‘KYC'd therefore safe’, and get privacy and many kinds of authentication and verification at the same time.”

In principle, this would make regulatory compliance compatible with privacy.

In practice, it might have solved both of last week’s high-profile issues with cash transactions: Privacy pools would stop from you sending money to scammers (who can’t KYC) and stealth addresses would allow us to show receipts for otherwise private transactions when we absolutely have to.

This would not, however, be transparent enough for US regulators — they want someone to call when they have questions about a DeFi transaction and someone to send a subpoena to when they want to sue.

For crypto people, by contrast, it might be too transparent — they will want to use ZK proofs to finally realize the cypherpunk dream of totally anonymous financial transactions.

Whether it happens or not will ultimately be a design choice.

Silent Protocol, for example, offers “complete anonymity” for smart-contract transactions, but also has a “compliance committee” that cooperates with regulators. 

But what happens when someone copies Silent Protocol and deploys it without the compliance committee? 

Are we for or against that?

True cypherpunks will be against, of course, but it’s not necessarily up to them. 

In his manifesto, Eric Hughes concedes that “For privacy to be widespread it must be part of a social contract.”

If so, the industry will soon have a decision to make.

― Byron Gilliam

This issue is brought to you by:

Vertex is a leading DEX on Arbitrum offering spot, perpetuals & money markets with unified cross-margin. Trade with lightning-fast speeds and super-low fees across 30+ markets.

Unleash your trading with Vertex Edge – multiple chains, one layer of synchronous orderbook liquidity.”.

We're Watching

We're back! On today's episode of 1000x, Jonah and Avi discuss recent market price action as Bitcoin rips above $50,000 & ETF flows continue.

Watch or listen to 1000x on Youtube, Spotify or Apple.

Daily Insights