This is the third part in a five part series of posts that lay out the basics of what we are trying to build with Catallax. The series will follow the following schedule and I’ll update the list with links as the articles go live:

Privacy is a very important issue. It is also an issue that is very hard to predict. It is possible that in the future we will have a very hard time maintaining privacy for anyone when computers and data are involved. This has caused me to think about a few questions in regards to Catallax and how to move forward with privacy in mind.

How can we be long privacy in the places we want it?How can we be short privacy in the places we don’t want it?How can we reduce the need for privacy by increasing the value of transparency? Let’s first talk about the elephant in the room. Catallax in its rawest form lacks any kind of privacy. It tracks who you spend money with, who spends money with you, and publishes that info on a public blockchain. Yikes. This is a privacy nightmare. So let’s unpack this and see how it isn’t that bad.

The first step we take is by making transparency really valuable. The scenarios given in part 1 show how by making your transactions open you can reap varying levels of financial reward for the sacrifice in privacy.

A scenario that I regularly compare this to is the ownership of stock. Chances are that if you own stocks you don’t own them anonymously. You want your name(or at least your account number) next to those certificates so that they well send you dividends when they pay out. Catallax’s first step in addressing these issues is by making it more valuable give up some privacy than to keep it.

With that in mind, there are still situations where you do NOT want to forfeit your privacy. For example, there may be a medicine you need for an undisclosed medical condition and you don’t want the public to know you are buying it. For those situations, we propose a system of privacy pools. The privacy pools will allow you to send cash into a vague account and have it anonymously end up in the account you want it to go to. This is a technical challenge but I think is achievable by using zkSnarks. This is a core feature coming to a future version of ethereum. These pools will still operate in a catallaxy way where cash will flow from receivers into the pools and out to payers via a pass through, but the payments will be less associated with the payer’s ability to spend money wisely.

We further address privacy by splitting accounts into contexts, each of which has a specific privacy profile:

Citizen Accounts: real people can send and receive private payment

Legal Entity Accounts: businesses with limited liability must sacrifice some privacy for the right to limited liability. They can receive private payments, but cannot send them.

Government and Institutional Accounts: These accounts can collect taxation from the system and as a consequence must be completely transparent. They cannot make or receive private payments.

These accounts and their subtypes are discussed more in the Form Language section of my book Immortality (buying a physical or kindle copy helps support this project).

This privacy signature is currently a proposal and I’m very interested in speaking with experts on the gaps I’ve left. I think that the current proposal address privacy where it is important and adds significant anti-corruption infrastructure where it is needed for a free and open society to develop.