436 sats \ 29 replies \ @antic 2 Dec 2023 \ on: Btc privacy tradeoffs, overt and covert bitcoin
I used to be a huge privacy nut, but I’ve reached a balancing point where I’m also risk adverse to the downsides of anonymity. I wouldn’t want to risk a fat bitcoin address with anonymously obtained UTXO pollution that triggers a KYC blacklist/confiscation, which could poison my ability to use my own bitcoin later in a legal public market setting.
So in small, specific settings, anonymity is great. Maybe I don’t want it to be public that I bought a specific thing on the internet or locally (but both of those actions open up other risks such as location finding by the seller). But for regular day-to-day, I’ve come to terms with wanting the majority of my bitcoin to be legit and not spiced with red flags.
I played with monero about 5-6 years ago and found the privacy features to be so cumbersome that it wasn’t worth it. Not being able to even view the balance of a wallet without another special set of keys is way more burdensome than most people will ever want to manage—and if you want a small amount of anonymity, just Loop out some coins over lightning.
Simplest non-KYC path I’ve found is to buy BTC with Cash App, Lightning pay your own node, then loop out to an offline private address on-chain. You don’t have to make all of your BTC non-KYC to gain the benefits of privacy.
I understand your evolution, and I have similar feelings. Still, isn't this really accepting the end of bitcoin as a fungible asset? That's a big deal.
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Fungibility seems to me to technologically determined -- if a money cannot be differentiated from its other units, then it's fungible. If it can be differentiated, then it will be, because people have all kinds of feelings on the issue of where it's been spent, and by who.
In other words, because it's technically possible for people / groups to have opinions about different UTXOs, they will have those opinions, and nothing can prevent them from having them.
Which would suggest that the best we can hope for is some kind of overwhelming cultural pressure to keep that inevitability in check, kind of like norms can racism or sexism socially inadmissible in the broader society, but obviously those things still happen.
Thoughts?
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What you wrote is accurate, but then we must accept that bitcoin is inferior to gold, and even paper bank notes, when it comes to fungibility. Perhaps the only recourse is to use mixers, and, to quote a famous philosopher named @DarthCoin, "fuck the guvs."
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Mixers, and then hope the culture makes mixing so prevalent that preferences for 'clean' coins with good pedigrees becomes implausible; and that the ability of state actors to oppress based on that pedigree becomes minimal.
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sir, did you finish reading ALL my guides?
Please try to pay this LN invoice and tell me if you can find the destination...
lnbc10u1pjkhyzkpp54xg0hgtp24h6mc0ce0llu3mxl57p86564pglk5vk86x0v3gqqt2qdqqcqzrcxqr8qlsp56qlgqxxfp5e2g2c5q2qdf24n09np4unfrnlmqkmv5us74vj3q7sq9qyyssq2r9zd7kda6g8cmpu6lh0hte9mentj0v7mcvy6glkngygdfe600qxkqf2f5ffumvvdatk5wzgmw6j49z6ee62hfkk8dpwggew7x6kntqpuykn79
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^ this. Lightning is the most effective mixer/anonymous layer on Bitcoin. When you need anonymity, it’s there, and it works pretty damn well these days. Sure, there are issues with edges knowing their points on the route, but it’s good enough to mitigate anything but a very expensive to concoct NSA surveillance node network (that would be frequently bypassed anyway).
Besides, it’s much easier for a government to just demand records from merchants and get shipping info to hunt you down in meatspace than to trace lightning. We’ve reached the point of evolution where the privacy failure exists outside the bitcoin payment ecosystem.
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I tried, it expired :)
But point taken. I need to learn more about this aspect of LN. Well, I need to learn about all of it, but this in particular.
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LOL after 4 h ?! hahaha, I never let my LN invoices to be valid after 1h.
Read more here https://docs.zeusln.app/lsp/wrapped-invoices/
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Dude with wrapped invoices you are involving a LSP. That is a third party. Similar privacy as a banking app.
The whole point is that ideally no one else should know except the sender and receiver.
How does that negatively affect Bitcoin fungibility? Lightning is effectively an anonymous payment layer and it maximizes fungibility by being able to send 1 sat. I would only use the loop technique if I wanted/needed a larger sum of BTC on chain to be anonymous, which is not even a need that’s surfaced yet.
Also, worth noting, I’m not in the camp that’s worried about hiding BTC to evade taxes. Ultimately, I think that’s a losing proposition if you are buying BTC and then trying to anonymize it. May work for local merchants like taking cash, but ultimately the government knows you bought some asset and then sent it somewhere.
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Fungibility meaning "The property of a good or a commodity whereby individual units are capable of mutual substitution." In other words, the impossibility of having whitelisted and blacklisted bitcoin.
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Ah, you mean the labeled UTXOs being the ruin of it. I think that will ultimately wash out. The government blacklisted Silk Road BTC, but then what? They confiscate and sell it to the market and remove the blacklisting because they washed it. The purpose of government blacklisting UTXOs is so they can catch people (and then steal the asset to sell it).
But, in the meantime, if you are operating on the dark market for UTXOs, you could get stuck holding that pre-government-cleansed blacklist UTXO.
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My point is more basic. Bitcoin is money. Gold served as money for centuries. Part of the reason gold was good money was that it was fungible. If a government attempted to restrict a particular gold coin, the owner of that coin could just melt the coin into an unrecognizable lump that would be the same weight and value. That's fungibility. If we surrender that in bitcoin we are surrendering an important trait of good money. No government should have the ability to favor one type of the asset from another.
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Bitcoin is money.
Exactly. Nothing else. People always forget that.
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I talk and talk, and think about things from different angles, and then I just wind up agreeing with you. I should save time and energy.
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I’m not concerned about government or individual preferences because systems like Lightning exist to bypass preference.
For gold, people and governments absolutely have preferences and exercise them. That’s why American eagles have a premium over Canadian maples (even though Canadian maples have higher gold purity). Assaying gold is a nightmare and most people won’t trust a gold bar from China. Gold is barely fungible in practical terms.
Likewise, I may have a preference for $2 USD bills or classic Eisenhower dollar coins. Just because I have this preference doesn’t really mean that dollars are less fungible, just that I’ve put a premium on some forms of it.
This is inevitable to any asset that is not 100% obfuscated like monero, but I don’t think the value proposition of removing this ability to have format/source preferences is worth the trade-offs of a purely anonymous monetary system.
And, even anonymous systems like monero can be subject to preference overrides. A government could say that the only legal monero is accompanied by a Keybase.io signature linking your identity to the transaction…
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And, even anonymous systems like monero can be subject to preference overrides. A government could say that the only legal monero is accompanied by a Keybase.io signature linking your identity to the transaction…
That's why white market crypto usage makes little sense. Using a permissionless money (Bitcoin/Monero/etc) in a permissioned way defeats the entire purpose. And regulations/requirements on the white market are pretty much garunteed to become more onerous over time.
Bitcoin/Monero is inherently black market money.
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It's not an issue of preference. American Eagles and Maple Leafs are coins. You pay a premium for design- if they look pretty. The ugliest looking once ounce Krugerrand and a beautiful Eagle are the same value when melted down. You're discussing jewelry premium.
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They are physically not the same when melted down. The melt value of an American eagle is lower than the melt value of a maple because eagles are watered down (American Eagles contain 91.67% gold, 3% silver, and 5.33% copper, whereas a Canadian maple is 99.99% pure gold)—and yet somehow the manipulated gold market values the eagles higher.
Beauty is an arbitrary construct. My point is that anyone can think anything is more desirable and that can’t be fixed even with anonymous assets.
The fact that you're worried using Bitcoin privately could taint your coins speaks volumes about it's fungibility problem.
If you're buying Bitcoin on Cash App that isn't non-KYC (your identity is tied to a Bitcoin purchase, how much you bought, and when)...forward privacy with what you do after that is something different.
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speaks volumes about it's fungibility problem.
this argument about fungibility is silly as there is literally nothing on the planet (or in digital space) that meets this requirement. Everything can be differentiated, controlled, and given special treatment.
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Would you agree that there are some things that make it much easier to distinguish between and value differently than others? The goal should be to make money as uniform as possible.
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I agree there are some things that makes it easier to distinguish characteristics.
The goal of making money as uniform as possible seems to only leave room for currencies like Monero--where you can't track the history or balances. But I don't see that existing within the framework of society in the next 20 years (regardless of whether that's an ideal goal). I think the on/off ramps for purely anonymous systems are going to close hard and those currencies are going to be worthless. Allowances will be made for bitcoin conveyed over lightning with the argument that they can track some on-chain things and ultimately, the NSA's big data profiling probably makes any effort to anonymize bitcoin a nothingburger at the state level. As a citizen, you might have the freedom to keep your neighbor from knowing you bought a sex doll online, but the supply chain records and government data pools will have that info. It's very hard to maintain anonymity and privacy and 99% of people don't care about either, so society will shape around making it harder and harder.
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Not necessarily Monero.
Whatever comes to achieve that uniformity best because it greatly reduces friction on that dimension. There is already better tech available, but no/poor implementations of it.
But of course that is only one of several ideal properties of money.
Maybe it is impossible to excel in all these properties for p2p digital cash because some are mutually exclusive (privacy vs auditability)
Any white market adoption is less relevant imo.
Because of increasing onerous regulation Bitcoin will be squeezed into black markets over time, and whatever usage allowed on white markets will be greatly limited and in a neutered form.
White market acceptance might be nice to have, but is at odds with the whole point of Bitcoin: Permissionless money.
"White market trade, by definition, requires permission, and black market does not...Any person operating in the white market requires permission to do so. Bitcoin is therefore inherently a black market money."
While arguably easier for many, you don't need on/off ramps (and for some it is not even preferable (noKYC crowd) or possible to begin with (cash cultures/unbanked large populations of the world)). Off the top of my head you can always swap from other crypto, sell things, offer labor/services, or take advantage of jurisdictional arbitrage. I'm sure I'm missing more.
For sure agree that big data and NSA spying is a problem, but not insurmountable.
For example, encrypted messengers and VPN services (yes, most suck) have become very popular as a direct result.
USPS postal services deliver millions of illegal packages/letters (~16 billion just this holiday season). Even from within, these systems flail for control. Darknets couldn't do it without them.
I suspect you don't think it is all hopeless either though, otherwise you wouldn't be bothering with Bitcoin.
Private p2p digital cash can only protect you on one side of a transaction. It's only part of the solution, but something that wasn't even possible before.
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Fair enough. Time will tell as the global markets mature. I see a lot of countries dollarizing in the near future. Argentina next, then a cascade of others. And as they do this, they will look at El Salvador and in many cases dual implement BTC/LN. This is the real revolution: fixed supply, deflationary economics. Privacy is nice, but it’s not the main attraction.
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