Is Bitcoin Private Enough To Maintain Our Financial Freedom?

Traits inherent to Bitcoin make fiscal transparency — but with due usage, Bitcoin users tin clasp the indispensable privateness to sphere freedom.

This is an sentiment editorial by Kudzai Kutukwa, a passionate fiscal inclusion advocator who was recognized by Fast Company mag arsenic 1 of South Africa’s top-20 young entrepreneurs nether 30.

(Source: Photo by John Webb connected Unsplash)

Privacy is an indispensable human right that is present being taken for granted. It’s not astir having thing to hide, but astir exercising the powerfulness to selectively uncover yourself to the satellite and frankincense securing autonomy implicit your ain life. Doors, locks, windows, safes and drapes are immoderate of the devices we usage successful the carnal realm to defender our privacy. Unfortunately we present unrecorded successful a nine successful which privateness has been flooded by the compulsion for sharing and transparency. The net successful its existent signifier is deficient successful idiosyncratic privateness and was not developed with beardown privateness protections from the onset. Our idiosyncratic information is the “new oil” and is ripe for exploitation by the state, Big Tech and hackers. Sharing has go the default acknowledgment to the availability of integer tools that let 1 to stock everything from precious moments to nonstop locations.

While societal media platforms person made connection implicit agelong distances overmuch easier, the integer footprints being generated online, each time by billions of radical compromise their privateness — and by hold their idiosyncratic information — successful galore ways. Data hacks, online stalking, cyberbullying and phishing attacks are each but a fewer examples. However, acknowledgment to the aforementioned sharing culture, the tendency to support privacy is frowned upon and deemed suspicious. After all, wherefore would you request privateness if you person thing to hide? Without privateness we proceed to unrecorded nether the mendacious illusion of freedom, portion our decision-making is remotely controlled by those collecting our data. Privacy is neither amerciable nor is it a luxury. Privacy is simply a indispensable prerequisite for freedom.

Until precocious fiscal privateness was the default owed to the extended usage of commodity wealth specified arsenic golden and aboriginal connected aft that, cash. You could freely transact without revealing immoderate idiosyncratic accusation to merchants oregon exposing immoderate of your purchases to the bank. In caller years, however, the usage of currency has been gradually declining (and fiscal privateness on with it) owed to the emergence of alternate integer outgo channels and successful immoderate cases owed to ineligible restrictions. The thought down these restrictions being that they are a instrumentality for combating taxation evasion, wealth laundering and organized crime. Despite the information that integer outgo channels are little backstage than cash, determination are laws and limitations connected who tin entree your fiscal information, and determination are ineligible processes that person to beryllium followed earlier immoderate disclosure of your fiscal accusation to a 3rd enactment by a fiscal institution. While not foolproof, they did present basal fiscal privateness protection. As a pseudonymous currency, Bitcoin transactions are nationalist by default and tin beryllium viewed by anyone and everyone. If your individuality tin beryllium tied to a circumstantial Bitcoin “wallet address” your fiscal beingness (insofar arsenic that bitcoin wallet is concerned) is present permanently successful the nationalist domain, with nary ineligible processes required to entree that information. This is the large crushed wherefore applications and services that support the privateness of cryptocurrency transactions are being targeted by governments globally.

On 8 August 2022, the US Treasury’s Office For Assets Control (OFAC) sanctioned Tornado Cash (TC), an Ethereum astute declaration mixer, that allows radical to support their fiscal privateness online, and added it to the Specially Designated Nationals (SDN) List. This efficaciously means that American citizens, residents and entities are banned from interacting with TC successful immoderate way. Privacy-enabling tools similar TC let radical to transact without exposing their full fiscal activity. In different words they are utile for the preservation of fiscal privateness wherever transactions on-chain are concerned. According to OFAC, TC was allegedly utilized to launder cryptocurrency worthy $455 cardinal that was hacked from Axie Infinity's Ronin Bridge protocol by the North Korean government-backed hacker enactment the Lazarus group. OFAC had antecedently sanctioned the Lazarus radical successful 2019 and further points retired that TC besides received funds that were hacked from the Harmony span successful June arsenic good arsenic the Nomad bridge.

Traditionally, individuals oregon entities were the people of OFAC sanctions, nevertheless what’s unusual astir this peculiar script is that TC is neither a earthy idiosyncratic oregon a juristic person, it’s open-source code. Code is code (Bernstein v. DOJ) and is frankincense protected by the First Amendment. In the aforesaid mode that a written philharmonic people is utile for connection among musicians, codification is besides “an expressive means for the speech of accusation and ideas,” among machine programmers (Junger v. Daley). Therefore, the instauration and sharing of open-source codification is protected by the First Amendment, conscionable similar the instauration and sharing of music, books and films.

Open-source codification is escaped for usage by anyone and due to the fact that nary commercialized summation accrues to its publishers, it’s truthful a nationalist good. The banking system, net and roads are each nationalist goods that are utilized by law-abiding citizens and criminals alike, but atrocious actors are the ones that are targeted, not the infrastructure. Even SWIFT acknowledges this information according to a connection on their website’s FAQ section. In effect to the questions, “What is the relation of SWIFT successful narration to fiscal sanctions that are imposed by regulators?” and “Does SWIFT comply with each sanctions laws?” they authorities the following:

“SWIFT does not show oregon power the messages that users nonstop done its system. All decisions connected the legitimacy of fiscal transactions nether applicable regulations, specified arsenic sanctions regulations, rest with the fiscal institutions handling them, and their competent planetary and nationalist authorities. As acold arsenic fiscal sanctions are concerned, the absorption of SWIFT is to assistance its users successful gathering their responsibilities to comply with nationalist and planetary regulations. SWIFT is lone a messaging work provider and has nary engagement successful oregon power implicit the underlying fiscal transactions that are mentioned by its fiscal organization customers successful their messages.”

In different words they are suggesting that arsenic a neutral communications web they are not taxable straight to the likes of OFAC and truthful the work for the enforcement of sanctions lies straight with the fiscal institutions processing them. As acold arsenic I tin archer the aforesaid reasoning tin beryllium applied to neutral, privateness enhancing open-source protocols similar TC that tin beryllium utilized by instrumentality abiding citizens and criminals alike. It’s against this inheritance that immoderate rational idiosyncratic observing the absurdity successful each this would beryllium forgiven for reasoning that possibly the intent of this enactment is much astir sending a connection to not lone discourage the usage of mixers but to besides curtail their development. OFAC’s authorisation by default implicitly pre-supposes guilt connected the portion of anyone seeking fiscal privateness and by default compels afloat disclosure of a user’s accusation (i.e., their full on-chain fiscal history). This is not conscionable a authorisation connected TC unsocial but a dilatory creep towards outlawing each privateness enhancing open-source software, oregon immoderate bundle deemed amerciable by The State.

According to a caller nonfiction successful the Financial Times, a elder unnamed Treasury authoritative commenting connected the authorisation of TC said:

“‘We bash judge that this enactment volition nonstop a truly captious connection to the backstage assemblage astir the risks associated with mixers writ large,’ adding that it was ‘designed to inhibit Tornado Cash oregon immoderate benignant of reconstituted versions of it to proceed to operate. Today’s enactment is the 2nd enactment by Treasury against a mixer, but it volition not beryllium our last.’”

If that is not an unfastened declaration of warfare against fiscal privateness past I don't cognize what is. This enactment by OFAC of sanctioning an open-source protocol sets a precedent for indirectly criminalizing the enactment of seeking fiscal privacy. Furthermore, it besides creates uncertainty wrong the open-source community, arsenic developers whitethorn beryllium held liable for penning codification that whitethorn beryllium utilized by criminals aboriginal on. Despite the information that open-source codification creators person zero power implicit however their codification volition beryllium used, 1 of TC’s contributing developers, Alex Pertsev was arrested by Dutch authorities and helium is being accused of wealth laundering. Apart from being a contributor to TC’s codification nary grounds has been disclosed that ties Alex to the laundered funds nor person immoderate authoritative charges against him been made and helium is inactive successful constabulary custody, arsenic of clip of penning this article. This is the slippery slope that we find ourselves in. This is wherefore censorship absorption and decentralization are necessary.

Following the authorisation of TC, “fragility contagion” ensued, which saw Github deleting the full bundle repository of TC. Ethereum’s 2 largest node infrastructure providers Infura and Alchemy restricted access to information connected Tornado Cash astute contracts, Defi Protocols' similar Aave, DYDX and Uniswap blocking access to TC and stablecoin issuers similar Circle instantly freezing assets connected to TC. All of these companies went supra and beyond the requirements of the sanctions law. They didn't conscionable obey an unjust order, they went retired of their mode to inflict further harm without adjacent putting up a combat — truthful overmuch for being “in this together.” Without censorship absorption and decentralization arsenic your archetypal enactment of defense, you person nothing. Anything that is “decentralized successful sanction only” (DINO) is the debased hanging effect that authorities attacks volition beryllium directed astatine first, and arsenic we person already seen with the TC fallout, it doesn’t instrumentality overmuch to rattle the cage. Over clip I expect each these DINO projects to either beryllium sanctioned retired of beingness similar TC oregon beryllium co-opted into centralized finance.

The cardinal dollar question of the time is however does this impact Bitcoin? Given that Bitcoin is afloat decentralized and censorship resistant, wherefore should Bitcoiners wage attraction to immoderate of this? Firstly, Bitcoin isn’t backstage by default, and arsenic specified each transaction is recorded connected the blockchain successful perpetuity. This is further compounded by the information that astir of the Bitcoin trading measurement is attributable to a fewer centralized exchanges similar Binance, FTX and Coinbase; arsenic a result, the bulk of caller entrants extremity up buying their bitcoin from these exchanges. The occupation with that is that 1 has to supply idiosyncratic accusation to these exchanges successful bid to fulfill cognize your lawsuit (KYC) requirements. Thus, immoderate Bitcoin purchased done these exchanges becomes tied to your existent identity. This creates 3 large problems, namely:

1. Your idiosyncratic accusation sitting connected an exchange’s centralized database is susceptible to hacks and information leakages. This accusation tin beryllium shared with the authorities connected petition and marque you a imaginable people for an “EO 6102 attack.”
2. Exchanges tin go a choke constituent for the enforcement of regulatory actions similar OFAC’s sanctions and they are obliged to comply.
   
3. The nonaccomplishment of fiscal privateness arsenic your transactions tin beryllium tracked advertisement infinitum by the exchange, adjacent successful the lawsuit of a withdrawal of the bitcoin from the exchange.
   

These are immoderate of the risks posed by utilizing centralized exchanges and they volition not hesitate to bash The State’s bidding erstwhile called upon. The champion mode to statesman to bypass these vulnerabilities is to commencement with getting your bitcoin disconnected exchanges and self-custodying your bitcoin successful a hardware wallet. Self-custody should beryllium the norm arsenic it’s apt that implicit time, third-party custodial services volition beryllium different regulatory choke point. The adjacent measurement is to bargain bitcoin from non-KYC peer-to-peer exchanges similar Bisq and Hodl-Hodl. In summation to this, regular CoinJoining for transactions is different measurement that tin beryllium taken to amended privacy.

A CoinJoin is erstwhile 2 oregon much parties batch their transactions into 1 transaction, with the volition of obfuscating who owns which coin aft the transaction. The CoinJoin is forward-looking privateness successful that it severs the humanities links attached to your bitcoin from immoderate aboriginal transactions, frankincense preventing blockchain information watchers from tracing the root of the bitcoin. It is highly recommended particularly for bitcoin that was bought from centralized exchanges successful bid to support basal transactional privacy. Unlike mixers similar TC, CoinJoin coordinators ne'er astatine immoderate constituent instrumentality custody of your bitcoin — they are not wealth transmitters and are lone connection transmitters similar SWIFT. It is important to enactment however, that immoderate centralized exchanges cull and emblem deposits containing “mixed coins” frankincense representing different choke constituent that tin beryllium utilized to clamp down connected Bitcoin privacy.

Running your ain node coupled with CoinJoins and buying non-KYC bitcoin adds an further furniture of privateness to your Bitcoin transactions. As a gateway to the Bitcoin ecosystem your node is liable for broadcasting transactions, verifying the legitimacy of the bitcoin you person and frankincense protecting your privacy. Without your ain node you person to trust connected a random nationalist Bitcoin node to archer you your equilibrium and to broadcast/receive transactions connected your behalf. The information with this is that you uncover accusation that tin beryllium utilized to place you specified arsenic your IP address, wallet equilibrium arsenic good arsenic each your existent and aboriginal addresses. Worse still, surveillance companies besides tally immoderate of these nodes, and the past happening you privation is this accusation successful their hands. Running your ain node ensures that you are insulated against these network-level privateness leaks. Mining is besides an enactment that tin beryllium utilized to entree non-KYC bitcoin portion besides resulting successful a acold much decentralized hash complaint for the network. All things considered, the champion solution would beryllium earning bitcoin arsenic opposed to buying it and spending bitcoin arsenic opposed to selling it. A bitcoin circular system removes the request altogether to usage fiat on/off ramps frankincense gradually obsoleting the relation of centralized exchanges and implicit clip dampening the volumes of bitcoin flowing done them.

While Bitcoin is undoubtedly censorship resistant astatine the protocol level, it inactive remains susceptible astatine the idiosyncratic level owed to deficiency of beardown privateness guarantees. The steps outlined supra are measures that tin beryllium taken successful the short-term to heighten fiscal privateness and by hold insulate against coordinated authorities attacks. While these whitethorn look inconvenient and tedious, the other effort is worthy it each things considered. In the long-term, much user-friendly privateness tools request to beryllium built astatine the exertion furniture successful bid to marque utilizing bitcoin privately the rule, not the exception. Financial state is 1 of the astir important pillars for securing idiosyncratic freedom. Outlawing fiscal privacy, straight oregon indirectly, severely undermines that state by erecting a integer panopticon that powers the surveillance state. In a nine wherever the changeless menace of fiscal censorship is a contiguous reality, it would beryllium unsafe to person a strategy wherever each transaction you marque is analyzed, monitored and controlled by The State (think CBDC’s).

As the warfare connected fiscal privateness heats up it’s omniscient to retrieve the words of cypherpunk Phil Zimmermann successful his essay, “Why I Wrote PGP”:

“If we bash nothing, caller technologies volition springiness the authorities caller automatic surveillance capabilities that Stalin could ne'er person dreamed of. The lone mode to clasp the enactment connected privateness successful the accusation property is beardown cryptography.”

Bitcoin not lone gave america a caput commencement successful maintaining fiscal privateness but successful the eventual separation of wealth and state. It’s incumbent upon america to support our fiscal privacy, due to the fact that without it we volition astir apt beryllium doomed to cardinal banking imposed serfdom.

This is simply a impermanent station by Kudzai Kutukwa. Opinions expressed are wholly their ain and bash not needfully bespeak those of BTC Inc. oregon Bitcoin Magazine.