by Daniel Krawisz

In Bitcoin, ideas have consequences. The price of Bitcoin is a shared idea about everybody elses’s unit of acount. The price is higher when more people believe that everyone will want to use Bitcoin as their unit of account. Therefore, if many people believe something foolish for a long time, other people can get wealthy off of them and in turn use their money to cause bad things to happen. An idea whose consequences I wish I had understood more fully earlier was anonymity.

Anonymity means that no individual in the crowd can be associated with any message that is produced by the crowd. Anonymity lacks the concept of identity. All members of an anonymous crowd are equally nondescript. Anonymity is not the same as pseudonymity, which is a system in which messages can be attributed to specific identities in a crowd that are identified by pseudonyms. In a pseudonymous system, the pseudonyms cannot easily be associated with outside identities. Pseudonymity is like a masquerade ball. Anonymity is more like a dark street, as Craig Wright has said.

Anonymity is a service that a group of people gives to one another. Everyone in the crowd behaves in a way as to enable everyone else to be lost in the crowd. Everyone who gains anonymity is also a provider of anonymity. As a service provider, all members of the anonymous crowd become responsible for the service. Not every reason to want anonymity is nefarious but the nature of the service is such as to be incapable of consistently preventing it from enabling dangerous criminals. Therefore the only resonsible way of using an anonymizing service is not to use it at all.

See one of the earliest papers on anonymity David Chaum, The Dining Cryptographers Problem : Unconditional Sender and Recipient Untraceability, https://sites.cs.ucsb.edu/~ravenben/classes/595n-s07/papers/dcnet-jcrypt88.pdf. David Chaum describes an anonymous message-passing service N people can allow 1 out of N to transmit a message without revealing who has transmitted it. It only works if all particpants follow the protocol correctly. Chaum does not consider the ethics of the protocol other than in the title of the paper. The cryptographers are dining together, ie, they are all friends and able to cooperate sufficiently well to follow the rules of the protocol. All must work together to provide anonymity. It may not at first appear that there is anything wrong with such a service, but what if the message is a valid order to transmit money? Then it is something that is always more preferable to worse criminals. They cannot be friends. They cannot implement digital cash together because they will be overrun with violence. If you think you are getting a good deal out of such a service, remember that you are giving anyone worse than you a better deal.

Anonymity is unnatural with Bitcoin because it requires many people to work together to construct records that conceal the relationship between inputs and outputs. Gold is anonymous by nature because of the physical fact that gold atoms are identical. The physical properties that make gold valuable enable people to trade with it without necessarily leaving records about where it came from. Gold works like anonymizing service that is on by default.

In order to give gold the properties of Bitcoin, everyone would have to keep records of their own sales of gold and would have to check that everyone else they accepted gold from had kept records. They could not do this very easily because gold in and of itself is demanded, therefore someone who didn’t have records would be able to sell it easily anyway.

On the other hand, it is easy for people consistently treat one another this way if they are using Bitcoin as money. Bitcoin has no physical properties and the market will understand that Bitcoin with an anonymizing service is less valuable than one without. Libertarians who have preferred gold to Bitcoin have failed to appreciate the value of money as a form of cooperation. Bitcoin is better cooperation in part because it’s stupid to steal it. Bitcoin is not like gold. Gold is a form of money suitable for a primitive and violent society.

Ideas of digital cash prior to Bitcoin have attempted to replicate gold rather than envision properties of money more suited to the modern age. Libertarians who have believed that gold has ideal properties as money have been misled from seeing anonymity for what it is. Anonymity makes Bitcoin better for stealing. Core ideas are about transforming Bitcoin into something more like the cyperpunk vision. Old cyperpunks do not understand that their ideas were primitive and would never have really worked. Although the cypherpunks were very good for attempting to imagine digital cash back early on, they did not understand economics well enough to come up with something that genuinely functioned as a form of money.

Adam Back and Nick Szabo are useful idiots. Their belief in their own ability as philosopher kings has allowed them to be manipulated into protecting dangerous criminals. Neither of them is intelligent or knowledgeable enough to have invented Bitcoin. Bitcoin is an advanced idea, not a collectable as Nick Szabo described in Shelling Out [1]. Yet BTC is being turned into one. Schnorr signatures make BTC into an anonymizer. That means worse and worse criminals will want to rush in more and more quickly.

In the past I have failed to appreciate the danger of anonymity and I wish I had understood the need to write this much earlier. Monero is something that destroyes itself but is very dangerous until it does. People must understand the relationship between anonymity and value. An anonymous coin will only attract worse and worse criminals as it grows. An investment in an anonymous coin is effectively the belief that attracting more of the worst criminals will result in more future production. It will not. It will only mean that the worst criminals will be rewarded more until the system collapses. Until it does they will do as much damage as they can and they won’t care who gets hurt.

[1] https://nakamotoinstitute.org/shelling-out/