Privacy on the blockchain is a philosophical question as much it is an economic one. The technology is innately unalterable and public – conditions that are unavoidable in a decentralised system.
There are a number of ideological differences, though, in the level of privacy that can exist while legitimately maintaining the core features of blockchain technology. Some argue that private, permissioned models are not really blockchains at all, they’re just distributed ledgers.
In response, a variety of cryptocurrencies have emerged offering different solutions to the privacy question.
Some see payment channels as the way forward, though there are still privacy issues given that the aggregate payment flow is still publicly visible. Payment networks with a central hub avoid the issue fairly well – people can see how much an individual has spent with them, but they won’t see where the money goes afterwards. This central third-party has access to the information though, and this is not privacy as we would wish.
Onion routing has also been posited as a solution, in which transactions go through layers of users before they are finalised. This too has potential problems if the on-ramps are in collusion though, and ensuring that these on-ramps are agnostic to what occurs in the middle is difficult. Essentially, no silver bullet has emerged that can guarantee privacy while maintaining the core tenets of blockchain technology.
Ian Miers is a postdoctoral researcher at Cornell Tech, focusing on applied cryptography and computer security. His research led him to co-found Zcash, a cryptocurrency introduced in October 2016 that is firmly rooted in ensuring privacy.
BDJ spoke to Ian at ‘Off the Chain’, our master workshop held in Berlin this June, to discuss Zcash and the importance of upholding privacy and confidentiality on the blockchain.
The importance of Privacy on the Blockchain
“The inspiration of my work in blockchain privacy was, when I first started looking at Bitcoin in 2011, I wasn’t sure if it would succeed as a payment system,” Ian told us. “But, I realised that if it did, there was going to be a massive set of privacy issues in that it exposes all of your transactions to everybody.”
“If [Bitcoin succeeded as a payment system], there was going to be a massive set of privacy issues in that it exposes all of your transactions to everybody”
“This is not a way we can do business. You can have a debate about whether governments need access to things or not, governments do these days so maybe it seems like it’s not that big a problem.”
Despite a culture of oversharing online, people do care about their privacy when it comes to digital products. Often though, they simply don’t know how to make their information more secure. In a recent IBM survey, for example, 78% of U.S. respondents rated a company's ability to keep their data private as "extremely important".
Furthermore, 73% of people see their personal banking information as their most sensitive online data. This would suggest an innate reluctance to have any financial data broadcasted publicly, be it sensitive access data or, more simply, data detailing where your money went. In his talk at the event, Ian used the analogy of someone paying money to a psychiatrist.
In many current models, though people would not necessarily be able to see the frequency with which transactions were made or the dates on which they were made, they would be able to see that after, say, a year, that payment channel closed at a certain value. Anyone and everyone would be able to see that you paid a significant amount of money to address psychological issues that year – not an ideal situation.
“You can’t have a world in which everybody can find out about your payments… the things that’ll happen are just awful, so you need privacy controls, that’s a fundamental.”
“With blockchains,” Ian says, “every transaction is available to everybody, and you can’t have a world in which everybody can find out about your payments. You have your business competitors knowing about it, you have stalkers using it to harass people – the things that’ll happen are just awful, so you need privacy controls, that’s a fundamental.”
The Creation of Zcash
Zcash was founded with the purpose of addressing these issues head on. It calls itself ‘the first open, permissionless cryptocurrency that can fully protect the privacy of transactions using zero-knowledge cryptography’. It’s one of a handful of cryptocurrencies that could realistically deliver secure, private transactions on the blockchain.
Vitalik Buterin, co-founder of Ethereum, has even joined those praising Zcash earlier this month, tweeting that the technology is ‘cool’ - recognition and praise which will come as no surprise to Ian, who has been working on the project for some time.
“Zcash is a very important tool for getting privacy for blockchains,” Ian says. “We’ve been working on it for quite a while, building the core tech stack, and now that we have that up and have gotten to the point where it’s actually performant – a thing called Sapling that is going live hopefully in October – we’re now starting to focus on usability and actually growing the consumer user base. Getting people onto it so they actually have privacy and aren’t exposing all their details to everybody in the world.”
This anonymity and inherent privacy for all users underpins Ian’s work. Of course, individuals don’t want their financial transactions broadcasted in a public forum for anyone to examine, but equally no business would want to expose their dealing to potential competitors. Ian believes there is now a strong call for a stringently private cryptocurrency from both consumers and businesses alike.
“[Privacy is] necessary for economics. Fungibility is an important property of money; you give someone else a dollar and it’s actually the same as another dollar, and that doesn’t work if currency has history.”
“Anonymity is crucial to crypto for social reasons – privacy is a public good, it’s a human right,” he tells us. “It’s also necessary for economics. Fungibility is an important property of money; you give someone else a dollar and it’s actually the same as another dollar, and that doesn’t work if currency has history.
“It’s also important to businesses. One of the more interesting things that has come out of doing Zcash is finding out that there is actually quite a bit of demand from enterprises who want to do blockchains but again don’t want to expose everything that they’re doing to their competitors."
This point is interesting, because ultimately it will be businesses that carry the torch for privacy on the blockchain. The general public will, eventually, be almost unaware that they are using cryptocurrency or blockchain technology altogether. Even when they are aware, the history of the internet would suggest that users are willing to sacrifice elements of individual privacy to access the benefits of new technology.
The right to privacy has its origins all the way back in Ancient Greek philosophical discourse. The most well-known of these is Aristotle’s distinction between the two spheres of life – polis, the public sphere, associated with political life, and oikos, the private sphere, associated with domestic life. The advent of privacy law in the United States in the 1890s was one of the first instances of it being entrenched in law.
But do people really care about privacy? We all protest vigorously whenever we perceive anyone to be encroaching it, but then we yell our business all over public transport. So maybe many of us actually don’t care quite as much as we think.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]