Privacy is Not a Crime
Counterrevolutions, cryptography and the criminalization of privacy
"Concentrated power is not rendered harmless by the good intentions of those who create it." – Milton Friedman
"That the chains bear lightly down in most cases should not lull us into forgetting that we are chained." -- Erik Voorhees
Listening to a Alex Thorn’s Galaxy Brains podcast interview with Coin Center’s Peter Van Valkenburgh was a crystallizing moment for me. They were talking about U.S. Senator Elizabeth' Warren’s Digital Asset Anti-Money Laundering Act of 2023, which applies the Bank Secrecy Act to self-hosted wallets, staking validators, miners and other participants in decentralized networks: effectively, it requires ordinary citizens hosting wallets or running decentralized nodes to apply KYC (Know Your Customer) type checks and meet the various reporting requirements applied to institutions to prevent money laundering, funding of terrorism and other controls on the flow of funds. I had been wanting to talk about AI, privacy and blockchains for this year’s end-of-year post, but this was more than a timely topic: this also made abundantly clear to me why that had to be the topic, and why personally it has been important to support the evolution of Web3 and to ensure its core principles are preserved.
This bill erodes both privacy and autonomy, which are part of those core principles. It erodes privacy by putting more information into the public sphere: transactions would need real identities attached to them for this wildly impractical bill to work at all. And as emphasized in the title in a rephrasing of something Thorn said, obfuscation of financial transactions is not a crime. It can be cause for suspicion, but let’s not forget every time you pay for a coffee in cash, an “opportunity” for electronic surveillance has been lost, and if I divide my legally-earned savings across 10 banks and separately transact with each one for different purposes, this is not illegal. It is the use of these means to conceal illegal activity that is the crime, and so the interest of the state in this case is that pervasive deployment of privacy-enabling technologies makes it harder for them to detect crime through routine surveillance. The state has no interest in the penumbra, only that it is harder to hunt in the shadows.
It is at this point that you will often hear a simple argument: “if you are not doing anything wrong, you have nothing to hide.” This can be applied to both requirements for greater transparency and permissioning: because of course no one will fail to grant permission for reasonable behavior by a good citizen, right? We only censor terrible things, right? (Like, you know, Beloved.) Thomas Jefferson said that you could eliminate every element of a free society and so long as the Fourth Estate of journalism remained, this could be good enough to preserve freedom, because that function has always had as its role — whether or not it always lived up to it — to question, challenge and if need be shame authority. We do not operate on a presumption that permission will be granted at all times or that our secrets will be protected and not held against us. Checks and balances, whether it is a Fourth Amendment requirement to go before a judge for a warrant or an awkward headline in the Wall Street Journal, are in place to ensure concentrated power is not abused.
As Erik Vorhees pointed out earlier in the year, the power to deny permission to access funds is immense in a capitalist society. If there is something you do not like, if you can block payment for it, you are well on your way to extinguishing it. Thus reaching within my home to require there are well-known counterparties to a transaction I authorize on a hardware wallet or a mobile phone — a device the state could not physically seize without a warrant — is a significant extension of the Panopticon. It seems we have two counterrevolutions at work at this moment, often in opposition: the post-2022, post-FTX backlash against crypto, and in my mind the much more significant counterforce of cryptography and permissionless systems standing against this idea that the center must not only always hold, but must always hold all our information. I completely reject this idea.
In the face of all this, if crypto loses, what comfort can we take? Maybe the watchman in front of the CCTV camera has nodded off, and we can slip past. Unfortunately, all this is happening at a time of advancing AI and data-processing capabilities that mean this untiring watchman — whether monitoring our movements, our funds or simply our pause as we peruse a pair of sneakers which will then haunt our days with ads — is growing ever more capable. I consider myself an optimist about technology and do not think AI is bound to destroy us, or at least will do no better than we already seem to be doing on our own, thank you very much, but I am concerned about its widespread deployment without significant checks & balances on centralized power.
What do those checks and balances look like? You’ve seen them. They take the form of Decentralized Physical Infrastructure (DePIN) networks which grant permissionless access to farms of GPU’s to train AI models or run uncensorable servers with their immutable libraries of banned books. They are open source, whether it’s LLM models or smart contracts. They use Zero-Knowledge Proofs to attest to what you know without revealing he details in the service of the state and private sector’s reasonable demands for evidence when the stakes are high — and only then. But it’s also the tumblers and mixers, the fully-encrypted channels and most of all the networks under everyone’s and no one’s control. The revolution will not be televised: if all goes well and the forces of centralization are thwarted, it will be very hard to discern.
Happy holidays from Blockchain Confidential. I encourage you to do all the right things in the most suspicious possible manner in 2024.