Edward Snowden | "The Future of Crypto Is Not What It Seems"

Summary

The speaker discusses the privacy issues in Bitcoin and Ethereum, highlighting the challenges of tracking transactions due to their public ledgers. They mention the use of mixing services and Tor for privacy, but acknowledge that average users lack this awareness. The script emphasizes the need for privacy features to be integrated into protocols, like in Monero and Zcash, to protect users effortlessly. It also touches on the importance of movement between blockchains without high costs and the need for users to be able to choose properties that suit their needs, advocating for a mature ecosystem that allows for informed decision-making.

Takeaways

• 🔒 Privacy Concerns: The speaker highlights that Bitcoin and Ethereum have significant privacy issues, with Ethereum's account-based model leading to more traceable transaction histories.
• 🕵️‍♂️ NSA Tracking: The speaker, with experience from the NSA, suggests that tracking Bitcoin transactions was straightforward, implying a lack of robust privacy protections in early blockchain technologies.
• 🛡️ Privacy Measures: The use of Tor, mixing services, and other privacy-enhancing techniques was necessary to protect against sophisticated tracking by entities like the NSA.
• 🔄 Transaction Analysis: Chain analysis tools can trace transaction flows and identify patterns, making it easier to de-anonymize users in Bitcoin and Ethereum networks.
• 💡 Technical Solutions: The speaker mentions CoinJoin and mixers as potential solutions to improve privacy but notes that they are too complex for the average user.
• 🌐 Network Effects: The success of cryptocurrencies is heavily influenced by network effects, making it difficult for privacy-focused coins to gain traction despite their advantages.
• 🌐 Cross-Chain Movement: The speaker advocates for the ability to move assets between different blockchains, emphasizing the importance of user choice and portability.
• 🛑 Centralization Risks: The focus on speed and scalability in blockchain development can lead to compromises in decentralization, as seen with Ethereum's recent challenges.
• 🛍️ Decentralized Finance (DeFi): The speaker sees potential in DeFi, particularly with decentralized stablecoins like Dai, for their resilience and ability to maintain value.
• 🔑 User Autonomy: There is a call for greater user understanding and autonomy in choosing the right blockchain properties for their needs, without being misled by superficial features.
• 🚧 Immaturity of the Space: The cryptocurrency and blockchain space is still in its early stages, with much of the infrastructure and user education yet to be fully developed.

Q & A

Why is Bitcoin considered to have poor privacy compared to other cryptocurrencies?

Bitcoin is considered to have poor privacy because it uses an address-based model which allows for a history of transactions to be traced. This creates a 'history cruft' that can be followed by chain explorers, making it easier to analyze and track the flow of funds.

How does Ethereum's accounts-based model affect its privacy?

Ethereum's accounts-based model can also lead to poor privacy since many users only use one account, making it similar to reusing the same wallet in Bitcoin and leaving a traceable transaction history.

What are some of the tools or methods mentioned that can be used to enhance Bitcoin's privacy?

The speaker mentions using Tor, mixing services, and CoinJoin transactions as methods to enhance Bitcoin's privacy. These methods can help to obfuscate the transaction trail and buy time against potential tracking.

What is the significance of the network effect in the adoption of privacy coins?

The network effect plays a significant role in the adoption of privacy coins because it determines their use, acceptance, and traction in the market. Despite being technically superior in terms of privacy, privacy coins struggle to gain adoption due to the established networks of non-private competitors.

Why did the speaker use Bitcoin to rent servers for communicating with journalists?

The speaker used Bitcoin for renting servers to communicate with journalists because it allowed for anonymous and secure communication. Despite Bitcoin's privacy limitations, the speaker employed additional privacy-enhancing techniques like Tor and mixing services to mitigate the risks.

What is the importance of having privacy features built into the protocol itself?

Privacy features built into the protocol ensure that privacy protection is a fundamental part of the transaction process, making it effortless for users to maintain their privacy without needing to understand the technical details or take additional steps.

How does the use of Monero and Zcash compare in terms of privacy?

Monero and Zcash are both privacy-focused cryptocurrencies. Monero is praised for its strong privacy features, while Zcash has made strides in making shielded transactions more accessible through mobile clients, although not all users take advantage of these privacy features.

What is the 'trilemma' referred to in the script, and why is it important for users to understand it?

The 'trilemma' refers to the trade-offs between decentralization, scalability, and security in blockchain networks. It is important for users to understand these trade-offs so they can make informed decisions about which properties are most valuable to them and choose the cryptocurrencies that best meet their needs.

What is the role of bridges in enabling movement between different blockchain networks?

Bridges facilitate the transfer of assets between different blockchain networks, allowing for greater interoperability and user choice. They enable users to move their assets to networks that offer the properties they value most, such as privacy, scalability, or security.

What are the challenges faced by Ethereum in terms of privacy and decentralization as mentioned in the script?

Ethereum faces challenges in maintaining privacy and decentralization, particularly with the introduction of proof-of-stake and the issues surrounding the OFAC compliance. The script mentions the risk of Ethereum's focus on speed, scalability, and efficiency potentially compromising decentralization.

Why is the concept of portability between different blockchain networks important?

Portability is important because it allows users to move their assets freely between different networks based on their needs at any given time. This freedom supports user choice and the ability to leverage the unique features of different networks without incurring high transaction costs.

Outlines

00:00

🔒 Privacy Concerns in Cryptocurrency Transactions

The speaker discusses the privacy issues inherent in Bitcoin and Ethereum transactions. They mention that while Bitcoin's addressed-based model provides some privacy, the reuse of addresses and the lack of contract-based activity make it easier to track transactions compared to Ethereum's account-based model, which leads to a more visible transaction history. The speaker also talks about the use of Tor and mixing services to enhance privacy, and the inadequacy of current privacy solutions for the average user. They advocate for privacy features to be built into the protocol, like in Monero and Zcash, to ensure effortless and inherent privacy in transactions.

05:00

🌐 The Importance of Chain Interoperability and Decentralization

This paragraph delves into the importance of interoperability between different blockchains and the risks of prioritizing speed and scalability over decentralization, as seen in Ethereum's recent developments. The speaker expresses concern over the centralizing effects of focusing too much on efficiency and the need for a diverse ecosystem where users can choose coins based on their desired properties. They discuss the concept of 'portability' of assets across chains without significant transaction costs and the current lack of user understanding in making informed decisions about blockchain properties. The speaker also emphasizes the need for a mature infrastructure that supports user autonomy in navigating the blockchain space.

Keywords

💡Privacy

Privacy in the context of the video refers to the degree to which transactions on blockchain networks, such as Bitcoin and Ethereum, can be traced back to an individual user. The speaker mentions that Bitcoin is 'really bad on privacy,' highlighting the challenge of maintaining anonymity in a public ledger system. The script discusses the limitations of Bitcoin's privacy due to its transaction history being visible on the blockchain.

💡Ethereum

Ethereum is a blockchain platform that supports smart contracts and has its own cryptocurrency, Ether. The video script contrasts Ethereum's privacy issues with Bitcoin's, noting that Ethereum's accounts-based model can lead to a lack of privacy due to the visibility of all transactions and interactions with smart contracts.

💡Accounts-based model

The accounts-based model is a system used by Ethereum where each user has an account with a balance that is modified by transactions. The speaker points out that this model can be detrimental to privacy because it creates a 'history cruft' that is easily traceable, unlike Bitcoin's address-based model.

💡Address-based model

In contrast to Ethereum's accounts-based model, Bitcoin uses an address-based model where transactions are sent from one address to another without an account balance. This model provides a level of privacy as it does not show account balances, although the script notes that Bitcoin still has privacy issues due to the traceability of transaction chains.

💡Smart contracts

Smart contracts are self-executing contracts with the terms of the agreement directly written into code on the blockchain. The video script mentions that Ethereum's use of smart contracts contributes to its privacy issues because every interaction with these contracts is recorded on the blockchain, creating a detailed transaction history.

💡Chain explorers

Chain explorers are tools that allow users to explore blockchain transactions and addresses. The script refers to how chain explorers can be used to track and analyze transaction histories, which can be problematic for privacy, especially on networks like Ethereum where transaction details are more exposed.

💡Mixing Services

Mixing services, also known as tumblers, are tools that anonymize cryptocurrency transactions by mixing multiple transactions together to obscure the source and destination of funds. The speaker mentions using mixing services to enhance privacy when using Bitcoin for transactions with journalists.

💡CoinJoin

CoinJoin is a technique used to enhance privacy in Bitcoin transactions by combining multiple transactions into one, making it harder to trace the origin of the funds. The script suggests that CoinJoin and similar techniques are too technical for average users and are not widely adopted.

💡Monero

Monero is a privacy-focused cryptocurrency that uses various techniques to obfuscate transaction details. The speaker acknowledges Monero's privacy features, despite some community issues and design decisions, as an example of a cryptocurrency that prioritizes privacy.

💡Zcash

Zcash is another cryptocurrency that offers privacy features, allowing users to make shielded transactions that hide transaction details. The script mentions that Zcash has improved its usability by making it easier for users to switch between transparent and shielded transactions.

💡Network effect

The network effect refers to the phenomenon where a product or service becomes more valuable as more people use it. In the context of the video, the speaker discusses how the network effect can hinder the adoption of privacy-focused cryptocurrencies like Monero and Zcash, despite their superior privacy features, due to the established user base of more widely used cryptocurrencies.

Highlights

Bitcoin and Ethereum are criticized for their lack of privacy due to their transaction tracking features.

Ethereum's accounts-based model versus Bitcoin's address-based model contributes to privacy issues.

The use of a single account in Ethereum leads to a history of transactions that can be easily traced.

Smart contract interactions on Ethereum are visible and can be problematic for privacy.

Bitcoin's privacy issues are less severe due to fewer contract-based activities.

Transaction tracking tools can trace Bitcoin transactions back to KYC gateways.

The speaker used Bitcoin and Tor for secure communication with journalists, employing mixing services to buy time against tracking.

Average Bitcoin users lack awareness of how their transactions can be traced and recorded.

Techniques like CoinJoin transactions are mentioned as potential improvements for Bitcoin privacy.

The importance of having privacy features built into the protocol is emphasized, like HTTPS for web browsing.

Monero and Zcash are praised for their privacy features, despite some community and design flaws.

The need for privacy in transactions to be effortless and protocol-level is highlighted.

The focus on speed and scalability in blockchain development is critiqued for potentially neglecting privacy and decentralization.

Privacy coins are considered superior to non-private coins in many aspects but struggle due to network effects.

Ethereum's interaction and off-chain activities through bridges are noted as significant but also risky for privacy.

The importance of movement between chains for user choice and portability of assets is discussed.

The concept of a trilemma in blockchain, where users must choose between properties like speed, privacy, and decentralization, is introduced.

The immaturity of the blockchain space and the need for infrastructure to support user decisions is pointed out.

The challenges faced by Ethereum with proof of stake and OFAC compliance are mentioned, calling for solutions.

Transcripts

the challenge here is everybody knows

who you know is technically involved in

this that Bitcoin is uh really bad on

privacy I think the only people who do

it worse actually are ethereum

um and that's because they use the

accounts-based model as opposed to the

addressed based model but a lot of

people only use like one account so they

see it's like as if you were using

Bitcoin you were just reusing the same

wallet you get this giant history cruft

that just follows you wherever and you

create all these chain explorers and

then people see you know every smart

contract you've interacted with uh on

ethereum and it's just it's it's

problematic Bitcoin suffers from the

same thing but at least uh largely

because there's not as much

contract-based activity on bitcoin

um they they only see you know uh

address a sends to address B and so on

they follow it out they chart it they

see where it splits on the chain and

then they try to go uh where it goes

back to a common node or they track

spans or they go where it goes through

kyc gateways and you know they find out

it

with the tools that I had at the NSA uh

in like 2013 uh tracking Bitcoin

transactions would have been very very

uh easy and this is why even though I

used Bitcoin

um to rent the servers that I use for

communicating with journalists and

passing you know massive archive files

over the Internet anonymously I was

using Tor I was using uh sort of mixing

Services I was trying to basically do

anything that would buy time it wasn't

that I thought the NSA wouldn't be able

to follow the trade it was that you know

I'd have to go to this guy and then I'd

get crowded over to the office and then

they wait on it because they had other

things to do and it wasn't until there

would be a sustained effort that they

would be able to do this and by then I

would have always already contacted the

journalists so the door would be closed

um normal Bitcoin users don't have that

level of awareness they don't understand

the network flows they don't understand

simply your IP address uh is sending you

know this transaction to this node that

then passes it on all of that leaves a

history that is largely being recorded

there are ways on bitcoin that they can

improve This and like coin join

transactions and the whole joint Market

thing which are great but they're way

too technical for average people we see

some wallet providers who are trying to

like build in their own mixers and like

that that's great it's an improvement

but it's it's really not enough you have

to have this stuff in the protocol it

has to happen on chain and that's where

you see things like yeah Monero is is

great I I use Monero right people think

like a super Monera hater and no it's

they've got a couple super toxic people

in their community and there were some

bad design decisions like a million

years ago and it's not perfect right but

what is zcash has its own flaws too

um and then Z cash you know it's also

great but you know for a lot of people

they're not using the shield of

transactions or at least they weren't

using the shield and transactions now

it's getting easier they've got mobile

clients that will actually you'll do a

transparent transaction that'll roll you

over to a shielded transaction

automatically and these things are great

this is what we need though we need

people to be able to transact on chain

at any time and effortlessly without

their awareness the same way that when

you connect to you know gmail through a

web browser it's using https

you should have levels of privacy

protection baked into the protocol and

this prevents the kind of Tom Foley that

we see the US government beginning to

engage in with things the whole fact and

tornado cash and my reflex here is that

everybody gets excited about sort of

speed and scalability and what is so

remarkable uh

about how Bitcoin succeeded in the way

they're the reason uh that it changed

the world is because that wasn't really

the focus it was a factor it was an

interest but they went let's make this

work uh let's make it powerful let's

make it uh Unstoppable and then we can

worry about the sort of the scaling the

speed and everything else later

um now so she wasn't trying to uh

attract a VC Capital right he wasn't

worried about uh where she wasn't

worried about the competition

but

when we look at it today we have these

networks and we see things like I think

the Privacy coins are a great example of

this uh they are really strictly better

um than uh non-private competitors in a

lot of ways but the network effect

determines so much in terms of use in

terms of adoption in terms of acceptance

that is really difficult for them to get

traction

uh one of the things that is very so

interesting to me about ethereum

um is the fact that it has so much

interaction it has so many frost chain

uh activity through Bridges and whatever

um

Bitcoin we really don't have very much

with that except as the conclusions to

sort of enable everything else because

it wasn't really supportive of the

protocol layer

um we seem more interest in it but I

think the idea that we need to accept

uh and unfortunately ethereum is really

calling this into jeopardy with this

whole of fact thing because it shows uh

the flaw of going well let's focus on

speed scalability efficiency and let's

put sort of decentralization to the

Wayside

um

we need movement between chains right

there's like the Bitcoin maximalist

mindset where it's like one coin to rule

them all uh

and we're going to end up there

if the other chains frankly don't get

their together like with ethereum

uh but that's not the world we want we

want we want people to be able to choose

the properties that are most efficient

and interesting and valuable to them

maybe you store

uh your savings in a coin that's a

strictly good store of value right and

I'm talking about uh like tether or

stable coins I I think the centralized

stable coins are great crap uh I'm very

interested in like the maker Dow Dai

thing not the maker token but the dnai

part of it it's phenomenal the fact that

it still works is remarkable the fact

that it still holds its Peg it's

remarkable uh just so there's some over

collateralized uh algorithm schemes

uh but then when you want to uh sort of

make it more private you move it through

whether it's tornado cash like thing

that's on chain right if that's

supported there but imagine it's able to

freely move to another chain uh we see

something now like the ren bridge that

allows you to move from ethereum into

like renzeca and then you've got your Z

cash there and then maybe later on you

move back into Bitcoin because you want

to spend there or to speculate or or

whatever you just trust this one more to

hold its value there's some feature of

the chain there that's interesting to

you and then you move it somewhere else

there should be a portability here

that's not costing you like two percent

on every transaction where you know we

have all these D5 people that are just

trying to this extract rents from the

ecosystem

uh but we want people to be able to

answer that trilemma for themselves uh

right now very few people are qualified

to do that because they don't understand

the implications of movement between

these changes they don't understand the

values and the properties between it

they just say stupid dog Avatar and a

coin that comes out of Elon musk's

account and then they're like yeah write

me down for that one

um

and that's a problem but as the space

matures as P these uh

sort of networks become more

sophisticated people should be trusted

to make their own decisions on these

kind of things and we should enable that

there should be coins that are better in

certain parts of this uh trilemma than

others and that's okay right maybe we

have a transactional layer where it's

super fast and it's got great scale but

it's got terrible properties for

everything else it's super centralized

but it doesn't really matter because you

never keep anything on that chain you

only basically rinse through it to spend

it could happen transparently nobody's

even where it's there but the

infrastructure has to exist people have

to build it like there has to be space

yeah and that that's where we still see

the great immaturity of the space

everything is an experiment and the

people who are doing really well with

precisely this kind of thing I like the

ethereum guys I I really like again that

they've done this proof of stake thing

uh but it's incomplete we don't have the

end now we're being confronted with the

problems of it and they really need an

answer for this and right now there's

been no response to the ofac compliant

compliance disease that's you know

eating into their blocks and we needed a

solution to that