Creating privacy in Open Money systems

The earliest of cryptocurrencies weren’t developed by memecoin traders or pump and dumpers. They were created by a loose band of technologists who called themselves cypherpunks.

The core ethos of the cypherpunk movement was to build systems on the internet that secured privacy and individual freedom — and protected people from the overreach of corporations or governments.

Imagine trying to plan a revolution and you wanted everyone to know about it, but you also wanted to keep it all one big secret — because if you didn’t, then the revolution might never happen. That’s kind of what the cypherpunks were doing. They wanted two things at the same time: to make the internet as open as possible, but to build systems that aligned with individual security and privacy.

Crypto — and you could say Open Money by association — has taken a turn since the early days when the cypherpunks were trying to create a new kind of value system. Despite all of the wayward energy, or its casino-like vibes, the underlying tension between being truly open, secure, and private is still very much a part of crypto’s development story.

We’ve talked about data ownership and transparency and how those two Open Money primitives make it hard to have actual privacy in digital currency systems.

But here’s the thing. All three things can exist. Digital assets can be private and transparent, and at the same time highly secure and easily accessible.

Some of the privacy opportunities have to do with systems design. For example, zero-knowledge proofs (ZKPs) are a powerful tool that can help enable privacy in crypto protocols. ZKPs allow one party to prove to another that they know a specific piece of information without revealing what that information actually is.

This approach is used in projects like Zcash, which employs a version called zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) to allow for shielded transactions. These transactions obfuscate details like sender, receiver, and amount, while still ensuring that the transaction is valid.

Another example is the use of CoinJoin, a privacy-enhancing technique for Bitcoin. CoinJoin works by combining multiple users’ transactions into one large transaction, making it difficult to trace individual inputs and outputs. Services like Wasabi Wallet implement CoinJoin to enhance user privacy.

There are also privacy-oriented blockchains like Zcash, which uses zk-SNARKs to allow users to selectively disclose transaction details. Zcash’s design provides optional privacy, allowing users to choose between transparent and shielded transactions, depending on their privacy needs.

Other privacy opportunities have more to do with specific tactics and user decisions. Tactics like good wallet hygiene, such as using separate wallets for different purposes, or not reusing public crypto addresses, can help reduce the risk of linking transactions to a single identity.

Another example is using privacy-preserving wallets like Samourai Wallet, which offers features like “Stonewall” transactions to make blockchain analysis more challenging. Users can also leverage tools like VPNs and Tor when accessing their wallets or interacting with crypto platforms to further obfuscate their activity.

Ultimately, privacy in open digital currency systems is both a technical and human challenge. It requires thoughtful protocol design, privacy-first features, and good personal privacy practices. While achieving true privacy in the world of Open Money is challenging, it is far from impossible.

This post is part of the Open Money project, an ongoing series that forms the basis of a longer work. Subscribe to get a weekly update as it unfolds.

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