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This is the first article in a series covering Dr. Craig Wright. Dr. Wright gives a lecture on secrecy, how it differs from anonymity, and why it is so important to distinguish between the two concepts.
Confidentiality is very simple. This ensures that the right people have personal information. – Dr. Craig Wright
Bitcoins are not anonymous
Dr. Wright explained that security requires three elements: authentication, integrity, and confidentiality. No identity on Bitcoin means we can’t authenticate people. Bitcoin is all about data integrity, individual authentication and privacy.
Dr. Wright reminds us that identity is firewalled from the blockchain in the Bitcoin white paper. That doesn’t mean there isn’t one—it’s not an anonymous system. Authenticating people is critical for some types of transactions, and anonymity makes this impossible.
What are some reasons we might want to authenticate people when making transactions? Regulations, taxes, and receiving goods are some examples. For example, if we buy a TV on Amazon (NASDAQ:AMZN), we want to receive it, get a warranty, potentially return it, etc. We couldn’t send it to Central Park behind the oak tree—we had to share our addresses and identities.
Confidentiality and maintaining privacy
Confidentiality means that we share our identity with the right people, governments and people with whom we come into contact. That means the right people have personal information. It does not lose information or become anonymous.
How do we maintain privacy in a fully traceable system? Not reusing addresses is one method. “This is a public blockchain,” Dr. Wright emphasizes, noting that anyone can search for anything.
Separating payments, combining direct and indirect payments, and keeping coins in different wallets helps with privacy. Someone who cares deeply about privacy could even send transactions back and forth randomly between different wallets. While no one else knows what these transactions are, the individual or company concerned will still have a record of the transaction if needed.
Dr. Wright points out that there are also instances where someone may need to prove who they are without publishing that information on a public blockchain. Transaction records can reside on the blockchain and thus be validated for years to come without the private information of the two transacting parties becoming public knowledge.
“Who else knows?” Dr. Wright asked, “depends on who needs to know.”
For example, a person might share information with relevant government agencies and insurance companies when buying a car.
Dr. Wright explains how we can maintain privacy when exchanging transaction-related information while ensuring those who need to know have the necessary information. Using PKI certificates, which contain attributes such as personal information and which can be linked to registered and certified keys, and thanks to the Merkle tree in Bitcoin, which allows selective disclosure, we can verify information such as documents issued from a certain country without having to disclose anything.
As it is easy to see, Bitcoin has revolutionary implications for financial transactions, data management and exchange. It can introduce true privacy without crossing the line into anonymity. It could also usher in a new era of accountability, recording exactly who accessed information, when, and why on an immutable public blockchain. Non-fungible tokens (NFTs) could play a role in all of this, and Dr. Wright would explain later in lecture.
IP-to-IP transactions and identity certificates
Dr. Wright reminds us that the original version of Bitcoin was IP-to-IP. He admits that with IPv4, it’s less than ideal. However, he stated that as long as the user has an identity certificate, man-in-the-middle attacks will not occur. Why?
“Because there is no man in the middle,” he said. “If I have a certified key, you know it’s mine. Likewise, I know who the other organization is.”
These peer-to-peer transactions with verified identities also have other benefits. They make tracking and tracing easier for business purposes, such as issuing refunds. They also make it easy to prove real transactions between different parties that occur in things like audits. Dr Wright mentioned Worldcom and Enron, which were notoriously involved in trading laundering. It would be easier to prove that no other party was involved in transactions with a system like this.
How the search for anonymity killed previous attempts at digital cash
Dr. Wright points out that without an identity, you can’t sign with a digital signature. He explains that digital signature laws go back to 1986 in England, but ultimately stem from Roman laws.
“There’s no such thing as an anonymous signature,” he said. There may be signatures with pseudonyms, such as company names, but in the end it’s all tied to people.
Referring to previous attempts to create a karma-like ‘cryptocurrency’, Dr. Wright says they all failed because everyone, including university professors, made one mistake: they all tried to be anonymous and impersonal. This leads to illegal use by bad actors and a subsequent crackdown by the authorities.
Problems with bank accounts and Bitcoin discrepancies
Outlining some of the problems with bank accounts, Dr. Wright identified the fact that they often scrutinize your finances and ask you to explain transactions. They are inferior to cash in terms of privacy for this reason.
Other issues include the fact that many people are unbanked in many parts of the world and others who may be joint account holders can view our transactions.
Bitcoin is analogous to taking cash out of your bank account. Yes, there is traceability, but no one knows exactly where it went or what it was for. Paying for something, say, an item from Amazon, from three wallets, gives you further privacy. Buyers and Amazon can prove it, and it can be proven in court thanks to keys linking addresses, but third-party observers can’t see what’s going on.
In this way, Bitcoin has many of the advantages of a combined bank account and cash. This allows for privacy, like cash, while making it easy to keep records of what is spent.
Register for free to attend the next Bitcoin Master Class with Dr. Craig Wright in Ljubljana, Slovenia, February 22-23, 2023.
Watch: Highlights of the Bitcoin Masterclass: Identity & Privacy
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New to Bitcoins? Check out CoinGeek Bitcoins for Beginners section, the ultimate resource guide for learning more about Bitcoin—as Satoshi Nakamoto originally envisioned it—and the blockchain.
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