Wendy McElroy: The Satoshi Approach to Privacy

The Satoshi Revolution: A Revolution of Rising Expectations

Section 2: The Moral Imperative of Privacy

Chapter 6: Privacy is a Prerequisite for Human Rights

The Satoshi Approach to Privacy. (Chapter 6, Segment 5)

The traditional banking model achieves a level of privacy by limiting access to information to the parties involved and the trusted third party. The necessity to announce all transactions publicly [the blockchain] precludes this method, but privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous. The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone. This is similar to the level of information released by stock exchanges, where the time and size of individual trades, the “tape”, is made public, but without telling who the parties were.

— Satoshi Nakamoto

“The Case For Privacy” is an excellent essay by the economist and legal scholar David D. Friedman. It opens: “An old science fiction novel features a device that surrounds its bearer with an impenetrable bubble of force.” The novel is Shield (1963) by Poul Anderson. It presents a dystopian world in which a neoconservative, militaristic, and repressive United States dominates the globe, with the exception of China.

Then a game changer occurs. An idealistic astronaut, Peter Koskinen, returns from Mars, with a new technology that has been developed in tandem with indigenous Martians. A portable force field protects the wearer from almost every attack, but it allows light to penetrate freely. It is the ultimate defensive device for individuals. Koskinen wrestles with himself about which political faction to gift with the force field. After a murder attempt, he realizes that no one should have a monopoly on the technology. Friedman sketched Koskinen’s solution. “He writes out an explanation of how the shield works and spends two days distributing the information to people all over the world. By the time Military Security-the most formidable of his pursuers-catches up with him, it is too late. The cat is out of the bag.”

Friedman’s brilliance is to draw an immediate parallel between the force field and privacy. Anderson’s brilliance was to foreshadow Satoshi’s strategy regarding release of the blockchain.

Satoshi’s Solution to the Privacy Problem

The transparency of online communication, according to some, is the death knell of privacy because unwanted others can easily eavesdrop. The government is the biggest snoop of all, of course, especially when it comes to the most demonized personal information of all–financial data.

With apologies to Mark Twain, reports of privacy’s death have been greatly exaggerated. With the possible exception of science designed for global warfare, technology always benefits individuals as much as or more than it benefits government. Digital technology has enhanced the individual’s ability to control his own life, including the flow of information and how to protect sensitive data that could be used against him.

Privacy is stepping into new territory. This is predictable. The concept of privacy exists only because of social relationships, only because people connect with others. Dangers are hidden among the vast advantages of participating in society. One of the dangers is that government or other criminals will use information to harm the person or property of participants. Social interaction has shifted dramatically due to online communication, and it would be amazing if privacy had not done the same.

There is no one path to privacy. The strategies employed depend on variables such as an individual’s personality and the circumstances. But the Satoshi approach should be considered seriously, if not preferred. For Satoshi, the transparency of the blockchain was not only salutary but it also allowed for genuine privacy—a privacy that rested on keeping the public key anonymous and never linking it to a true identity. In other words, protecting a True Name was the privacy. And the first line of protection for a True Name was the use of anonymity, pseudonymity, or polynymity (multiple personas). Past that point, there were and are constantly evolving tools to separate an identity from a transaction, without compromising the transparency of the latter.

Why is transparency salutary? A visible timeline and a public ledger promotes confidence in the honesty of transactions; it provides an immutable reference to arbitrate disputes. But the main reason to value transparency is also the reason it was built into the blockchain to begin with. An open ledger solves the problem of double spending and fraud. Double spending refers to paying for more than one transaction with the same coin, often by using the same coin in rapid succession for different transactions. “Bitcoin Whitepaper: A Beginner’s Guide” observed,

A timeline and public history of all transactions prevents double-spending because later transactions would be considered an invalid, or perhaps fraudulent, payment from the same coin. Each coin has a unique timestamp and the earlier transaction would be accepted as the legitimate payment. One coin, one payment…Here we see the emerging structure of the blockchain. The timestamps are key to preventing double-spending and fraud. It’d be virtually impossible to send duplicate coins because each coin contains different, chronologically-ordered timestamps.

That’s the main advantage of transparency, just as the main advantage of the properly-administered public key is privacy, especially in the face of government. Friedman commented:

Privacy includes the ability to keep things secret from the government….I might be keeping secret my weakness for alcohol, or heroin, or gambling or pornography and so preventing the government from stepping in to protect me from myself….If you view government as a benevolent super being watching over you-a wise and kindly uncle with a long white beard-you will and should reject much of what I am saying. But government is not Uncle Sam or a philosopher king. Government is a set of institutions through which human beings act for human purposes. Its special feature-what differentiates political action from the other ways in which we try to get what we want-is that government is permitted to use force to make people do things.

The human purposes served through government institutions include power-seeking, greed, status, and the imposition of moralistic rules. Crypto users have reason to be particularly private. A recent news story declared, “NSA Has Been Tracking Bitcoin Users Since 2013, New Snowden Documents Reveal.”

An abundance of caution is not paranoia. It is never paranoia when they actually are out to get you.

Data Evolves as a Weapon of Oppression

Governments are developing new ways of using databases to repress average people. A headline in Reuters (March 16, 2018) read, “China to bar people with bad ‘social credit’ from planes, trains.”

Social credit (xinyong) is a long-standing moral concept within the Chinese tradition, which indicates the level of a person’s honesty and trustworthiness. The Chinese government now extends the moral concept to include loyalty to the state and social honesty; it proceeds to assign an official rank to each person. Then, social control is imposed on those with low scores by denying them privileges, such as traveling by plane or train. Other social-credit offenses include using expired tickets to board a train or smoking while on it, buying “too much” alcohol, watching porn, returning a rented bike in a tardy manner, “not showing up to a restaurant without having cancelled the reservation, cheating in online games, leaving false product reviews, and jaywalking.”

The trivial offenses may seem puzzling or even funny. But they serve an important and frightening purpose. The Chinese government is able to isolate anyone it wishes by barring them from travel. The trivial offenses hand the government a blank check.

Social credit is not a uniquely Chinese phenomenon. Governments around the world impose their own forms of it on citizens and foreigners alike. In the U.S., passports are denied to those who are sufficiently behind in child support or tax payments; former felons find it difficult to travel abroad. Foreigners who tell a U.S. border guard that they have smoked marijuana, whether the occasion was legal or not, will be refused entry. Global News, a Canadian outlet, explained, “they’re…told to go back to Canada, and told they are inadmissible for life. This is a lifetime ban.”

In the UK, three activists were recently denied entry, allegedly due to their anti-Islamic views.

Increasingly, social credit is used to deny basic rights to “low scorers,” with the ability to travel being only one example. Government’s voracious appetite for data is growing. For example, the 2,232-page ‘‘Consolidated Appropriations Act, 2018,’’ which is now before the US Congress, contains many “poisoned riders.” On page 2201, there is the Cloud Act, which allows police access to online data without a warrant. Such access happens now in a covert manner, but the bill allows visible and aggressive intrusions as standard and sanctioned procedure. It means the data would be admissible in court.

Many of the reasons used to deny basic rights are financial, such as back taxes, back child support, expired train tickets, unpaid debts, or such “incorrect” purchases as porn and alcohol. No wonder people want to cloak their online financial transactions. Shielding the transactions themselves can be difficult or impossible, however. Once information is released to the wind of the Internet, it becomes vulnerable. Even encrypted data can be broken open, and encryption draws the suspicion of law enforcement whenever it is used. Various projects are in progress to cloak transactions in an effective manner. They should be applauded as another privacy option, but it is far from clear that they will succeed.

It is far more practical to cloak privacy at the source of the transactions, to break the connection between a True Name and an exchange, however transparent the latter may be. The participant has much more control over his public key than he has over transmitted financial data.

Conclusion: Choose Your Privacy Strategies Wisely

People should choose the approach to privacy with which they are comfortable, and their approach will hinge on circumstances.

A key circumstance: all information is not equal; some information is more equal than others. Everyone has at least three kinds of personal data, each of which demands different treatment. First, there are facts that people want to broadcast widely, such as a new novel or an employment resume. This data requires the opposite of privacy: marketing. Second, there are facts that are harmless to disclose, such as a favorite color or a preference in potato chips. The disclosure may draw unwanted solicitations, but these are minor annoyances that do not jeopardize rights. Third, there are facts that can be vectors of oppression, such as financial data. They can be used to harm people’s rights, wealth, and well-being.

Each type of information may require a different privacy strategy, including the strategy of doing nothing at all. Whenever privacy needs to be shielded, however, the Satoshi solution should be seriously considered.

[To be continued next week.]

Reprints of this article should credit bitcoin.com and include a link back to the original links to all previous chapters

Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.