Topic: BTC Needs A Privacy Layer (Read 763 times)

Today Bitcoin is veery Down

Absolutely. And if that merchant is happy to complete KYC at that exchange to turn his bitcoin to fiat, then it is also his right to do so. However, I am under no obligation to complete KYC at that exchange. And sure, I can always refuse to use the merchant who wants my personal details and find another merchant, or refuse to trade with the user who wants my personal details and find another, which is a viable solution at the moment. But as time goes on, and governments push for more and more restrictions and more and more KYC, then the pool of people conducting business without KYC details or accepting bitcoin from unknown sources shrinks. Some countries are starting to force users to complete KYC for their own addresses before letting them withdraw from an exchange, for crying out loud. Mining pools are starting to censor transactions which don't come from "approved" sources. The government will not stop until every address and every bitcoin is linked to someone's personal details, and if you don't compromise your privacy in this way, then your bitcoin will not be accepted at any exchange and your transaction may not even be mined.

No merchant will accept coins if they are worried about them being seized. Instead, centralized payment processors like BitPay (which are already pretty far along with the whole spying on their users thing) will start to employ the same chain analysis firms that exchanges employ. If the exchange would seize your coins, then BitPay will too, and the merchant will not be out of pocket.

It's an extreme scenario, yes, but I don't think it's sufficient to say either "Well, let's convince governments or exchanges to stop their regulations" (which will never happen), or just to cross our fingers and hope it doesn't come to this. If it becomes near impossible to spend your bitcoin without some chain analysis company giving the approval or some centralized third party collecting your KYC data, then bitcoin is no longer bitcoin as far as I am concerned.

That's part of the freedom that bitcoin gives you. If a merchant wants to use a centralized exchange for reasons that make sense to him, it's his right to do so. I can tell him about better options, but he doesn't have to listen to me as long as that exchange satisfies the needs he has. If I use the services of such a merchant who then sends those coins to a centralized exchange where they get confiscated for being associated with mixers/underground markets/gambling/whatever, I can't tell the merchant that I am a privacy-oriented individual and he needs to be one as well by not using such exchanges. He'll want his money because the coins I sent him, aren't worth anything to him. Therefore, if this practice of removing value from certain coins that centralized entities don't like continues, it will be the privacy-focused users who suffer the consequences.

It's an interesting concept, but I'm not sure it solves the problems of centralization. It is possible that transactions "withdrawing" coins from the Mercury statechain are identifiable due to specific nlocktimes or other parameters. And even if they are not identifiable, then the UTXO in question still has a transaction history which can be traced as normal, including any involvement in coinjoin transactions, for example. Although the Mercury wallet obviously breaks the link between coins and an individual, it doesn't break the link between coins and their history, as is the case for coinjoins or mixers.

If exchanges are banning coinjoined coins, they don't care (or maybe won't be able to tell in Mercury's case) if the coins were coinjoined by me or were coinjoined by someone else before being transferred to me. Either way, my account is being locked.

I listened to Andreas Antonopoulos, who btw would also like to see privacy improved for Bitcoin base protocol, and he said that ring signature are almost impossible on Bitcoin blockchain, but there are other things that can be implemented and better sooner than later.

There are several ideas in circulation for improving privacy but not many of them are actually realized and in testing phase, and so far I only saw few of them that can do something in future but they are all second layer solutions like Mercury wallet for example.
It's not perfect but I guess it is better than nothing.

I never said I want ring signatures specifically. I don't know what the best protocol level privacy improvements would be, and whether these would require a soft or a hard fork. We obviously can't implement a change which would make "wallets useless" as you suggest by depreciating P2PKH addresses or something similar, since doing so would effectively be stealing and burning millions of bitcoin from completely innocent users.

Someone will propose an idea. Anyone who is interested can discuss the idea. If it's a good idea, the developers might work on the idea. If there is a lot of support for the idea, then it might move towards being implemented. Some changes make their way in to Bitcoin Core based on the consensus of the development team, but it is still ultimately up to each person running a node to update their software with these changes. Other changes, like Taproot (a soft fork), require both nodes and miners to make the switch. For Taproot, once >90% of miners signal their acceptance, then it will lock in for activation at a future date. You can see the Taproot consensus status here: https://taproot.watch/

What's wrong with private Bitcoin transaction introduced by some changes in code?

All other privacy coins had many flaws that made them not really private from the start like you say, but they are also changing their code and improving all the time,
and I don't think that Snowden is stupid for proposing such change for Bitcoin, even as optional feature like in zcash for example.

Thanks.

I haven't read what's Taproot yet, besides the known fact that it it helps with privacy, but aren't all those you mentioned soft forks? How do you vision a protocol change that would make Bitcoin transaction's outputs interchangeable? Wouldn't we have to move onto implementations like ring signatures that would create hard forks?

Who exactly is the community? This forum? The developers? The miners? The majority of its users? I think that in Bitcoin, the word “community” is highly abused. How can one define what's the community on a consensus based system?

I'll skip the Taproot part, because as I said, I'm unaware. What solution do you propose that will make Bitcoin fungible, but won't affect the already existent wallets? With ring signatures, they'd have to change.

What's wrong with that?

Here is the link for post made by Satoshi:
https://bitcointalksearch.org/topic/m.9074

We the people are real users of this thing called Bitcoin, and this thing code changes all the time if you didn't notice so far.

Saying no to privacy for Bitcoin, while supporting other privacy oriented altcoins...  

It's here: https://bitcointalksearch.org/topic/m.9074

Was P2SH necessary? Was SegWit? Is Taproot? Even P2PKH isn't the original design, which was simply pay to pubkey. Bitcoin would have continued to work without any of these changes, but the developers proposed a useful change, the community agreed with it, and it was implemented. The whole point of bitcoin being free, open source, and decentralized, is that the community can decide to change things.

Why? Taproot is a privacy improvement and will not affect existing wallets at all.

I remember that discussion, but I can't find it from satoshi's posts. Do you have the thread link?

I may just believe that changes must happen on extreme occasions like hash collisions or weaknesses on public key cryptography and not for privacy. A privacy layer would surely be wanted, but the protocol shouldn't be changed if the chain started with that idea. To put it another way, who are we to change the way this thing works 11 years now? Shouldn't consensus change only if it's completely necessary? How can you explain to someone that privacy is necessary and not just another one of the improvement proposals?

I know that Bitcoin should have a better privacy system and I don't like getting exposed by blockchain analysis due to my coins' relativization with illicit activity, but we tend to forget its censorship resistant philosophy. Not to mention that if we changed the protocol on that level, we'd instantly make every wallet out there useless. Again, who are we to take that decision? Surely not the majority.

If that was a poll thread, it's a no from me. I'm in favor of using other cryptocurrencies whose purpose was privacy-oriented from the beginning.

I don't think Satoshi would be against changing and improving Bitcoin protocol because if you read some of his earlier posts you could see that he was talking about key blinding and group signatures back in August of 2010.
I tend to agree with Edward Snowden here when he said that if Bitcoin would introduce some privacy upgrade in base protocol, there would be nothing governments could do about it now,
and with more important changes in Bitcoin code I believe that most of the shitcoins would not even exist anymore.
Further we go in future it would be much harder to make this changes, I have no doubt that centralized exchanges will have more strict rules and regulations in future, and there will probably be more and more ofac mining pools like Marathon.

Bitcoin is actually mined every day and it has some inflation that is much lower compared to fiat inflation but it still exists and it is about 1.45% currently.
We can however say that millions of bitcoin are lost so far that would somehow negate that inflation.

If Satoshi got everything right, then why is bitcoin still being developed? The whitepaper also talks about one-CPU-one-vote, but nobody mines on CPUs anymore. It talks about "a single hash" for mining, when we actually use a double hash. It talks about following the "longest chain", when actually we follow the chain with the most work. Just because it is in the whitepaper doesn't mean it can never be changed.

The whitepaper also says "privacy can still be maintained by breaking the flow of information in another place: by keeping public keys anonymous". We no longer keep public keys (or rather, addresses) anonymous. Every centralized exchange and service links every deposit address you use and every withdrawal address you use to your real name and KYC data, as well as tracing these addresses backward and forward another several transactions. We have entire industries built on de-anonymizing public keys and addresses and selling their services to the FBI and others. I doubt Satoshi foresaw that.

But none are as widely accepted as bitcoin. As long as I can keep using bitcoin privately then I will continue to do so, but as I said above, if the day comes when I can longer spend my bitcoin without a centralized third party invading my privacy or demanding KYC, then that is the day I stop using bitcoin.

And Coca-Cola was intended as a patent medicine, but now it's considered a temperance drink.

What I want to say is that, because Satoshi visionned it as a currency, it doesn't mean that everyone should too. If you ask me, I'd answer you that it can't work as a medium of exchange the way you imagine it, whether the majority of the people saw it as it's said or not. I'll omit the fees, let's just think about it ethically.

It's deflationary. If we agree that the greatest currency is the one that circulates the most on a capitalism, then Bitcoin is the worst one. Not sure why you haven't understood it, or if you don't want to, but it just seems odd to me that there are, indeed, people who still believe on the so-called “global adoption” of Bitcoin as a currency.

You can use it as a currency, if it satisfies you, but I think that it'd be advisable to give a childish example:

(In the system below, 100 fresh bitcoins are brought into circulation every day.)

Let's assume that once upon a time, on an island, there were 100 people with 100 mushrooms in total and each one of them had 10 bitcoins, willing to use it as a currency. This means that each mushroom costs 10 BTC since there are 1000 BTC in total. But, hey, the next day, there are 1000 newcomers bringing 1000 mushrooms and they are also willing to use Bitcoin as a currency. But, unfortunately, there are only 1100 bitcoins in circulation which means that each mushroom now costs 1.1 BTC. Same thing would happen if that little community gained 10,000 new mushroom-farmers the next day. Every mushroom would cost 0.12 BTC.

So, the more newcomers, the more my money's value. Would it be beneficial to pay with Bitcoin? No, because next year, I'll probably be able to buy more things than today with the same amount. It turns out that, phenomenally, it's better as a store of value or as a long-term investment.

This isn't going to happen. I think Satoshi was clear in the whitepaper that all the transactions must be publicly announced. Making such big change would censor it and devalue it. If you don't like Bitcoin the way it is, then use a different cryptocurrency. I have used to see Bitcoin as a “religion”, but I shouldn't. Truth be told, there are far better cryptocurrencies than Bitcoin for privacy, anonymity and decentralization if you want to use them as mediums of exchange. First one that comes in mind, Monero.

If everyone used it as a currency, then none of the arguments would stand. But when someone like me comes along, who isn't interested in day trading at all and just wants to use it as a currency, and tries to spend bitcoin with a merchant who just wants to immediately send the bitcoin I spend to an exchange and convert it to fiat, then the arguments absolutely still stand. As long as merchants, retailers, counter parties, etc., want to use centralized exchanges to convert back to fiat, then the fungibility of my coins absolutely matters. Exchanges are blacklisting some coins, and now mining pools are blacklisting some coins. BitPay already block users based on IP address and location. It's not a huge stretch of the imagination to reach the point where payment processors start blacklisting some coins too. And sure, the argument again is if everyone just accepted bitcoin themselves without centralized payment processors this wouldn't be an issue, but we both know that is never going to happen.

I don't necessarily disagree, but there is absolutely zero chance of convincing governments to stop regulating against bitcoin, stopping centralized exchanges enforcing these regulations, or convincing every bitcoin user in the world to move to decentralized exchanges. Our only option left is to improve the fungibility of bitcoin at a protocol level.

True, but we still haven't reached a point where the acceptability level of this currency is high enough. There are many limitations, and they depend on how crypto-friendly the place you find yourself in is. When we reach a point where I know that I can ask my counterparty if he accepts bitcoin, and he will happily take it in the same way he would accept cash or a credit card from me, I would be happy with the results. We can only measure the true value of an asset by how accepted it is in any situation we are in. The more those odds move in bitcoin's favor, the better it will be.     

I feel like we got sidetracked into discussing exchanges. Although I admit trading bitcoin and making profit has become the only thing that newcomers care about but that is not what bitcoin is made for. Bitcoin was made to be a currency not an asset that you trade on some exchange whether centralized or otherwise. If you use it as a currency none of your arguments stand anymore.

I have mixed more than 0.005 and have paid lots of merchants both online and offline (face to face), even big regulated companies located in US and to this day I have never had any problems with fungibility.
Meanwhile people who have never used any mixing services or received any mixed coins have had their exchange accounts shut down!

I repeat my first post here; I'm not against more privacy in bitcoin but the problem is not with bitcoin protocol, the real problem is with centralization. Even if bitcoin were fully anonymous or if it were like this but 99% of bitcoin users were mixing their coins the centralized exchanges (and others) would still enforce anti-privacy rules. For example the exchange could force everyone to submit how they got their coins and provide a detailed transaction history to the exchange or their account would be shut down and their coins seized.

You can read about Bisq's conflict resolution process here:
https://bisq.wiki/Dispute_resolution
https://bisq.wiki/Arbitration

Bisq uses a 2-of-2 multisig between buyer and seller. At the start of the trade, the bitcoin seller sends the bitcoin to be sold to this address, and both buyer and seller also send a security deposit to this address. They both then sign a timelocked transaction which sends all the coins on this address to a Bisq donation address. If the trade is not completed in this time, and was not able to be resolved through mediation, then either party has the option to publish this timelocked transaction and request for an arbitrator to step in to resolve the dispute. Once the arbitrator reaches a decision, then the deposits and traded coins are sent to the appropriate parties, with the possibility of the offending party losing part of all of their security deposit and it being awarded to the other party. I've never had to use arbitration on Bisq before.

Other DEXs have different mechanisms.

That! People tend to blame centralized exchanges for their differentiated behavior regarding fungibility, but they can't do otherwise! For instance, if they receive some hundreds of bitcoins which were recently stolen from a company, they'll be reproached. They ought to be 100% fine with the law.

The problem can only be solved by implementing a protocol change.

I've never traded from a decentralized exchange and I'm trying to understand its functionality. So, you setup a 2-of-2 multisig and deposit your BTC there once you want to sell for, let's say, XMR. Since it's decentralized, there's no third party neither nodes that will operate your transactions, such as on the lightning network.

How will you ensure that your buyer won't rip you off? I've read bisq, but it doesn't describe that little part last time I checked and I was wondering if you guys could give an explanation.

I completely agree, but I'm also not sure such an exchange will ever exist. It is simply not possible to make a decentralized bitcoin-fiat exchange, which by definition requires users to back up their own wallet, browse offers or post their own, and deal with the slowness of the fiat banking system, which is easier and faster to use than a centralized exchange. The sad fact of the matter is that the vast majority of users simply don't care that centralized exchanges invade their privacy, track all their transactions, report them to governments, and seize their coins. All they care about is YOLOing in to some stupid altcoin for a quick buck. It is unrealistic to say "Well, privacy will be better once we convince everyone to stop using centralized exchanges". As much as I wish everyone would stop using centralized exchanges, the only way for that to happen is if centralized exchanges cease to exist. If we want better privacy, and if we want bitcoin to remain fungible, then we need to implement change at a protocol level.

I've never had a problem yet with having bitcoin refused or seized, but I also don't use any centralized exchanges. However, to say I am not concerned about this kind of privacy invading behavior spreading to merchants and affecting me in the future would be a lie, especially with the news of mining pools now excluding so called "blacklisted" transactions. The day I can't spend my bitcoin without completing KYC is the day I trade all my bitcoin to monero, I'm afraid.