Looking Into Your Neighbor’s Wallet: On-chain Ethics

Transcript

all right what a pleasure it is to be here in this room of brilliant people building the future of Finance uh I'm Isaac from nanson I'm Chief of Staff a little bit about myself um uh oh sorry title of my talk first we're talking about onchain ethics uh how to think about tracking people onchain tracking wallets transaction data so bit little bit about myself um I'm Chief of Staff in nanson I work on organizational issues I work on m&a uh and fundraising primarily uh and if you're not familiar nanson is a data analytics platform uh primarily focus on onchain data uh we track and label millions of wallets uh and we enrich the blockchain dat data in order to uh allow

our users to do primarily three things uh they can discover potential crypto Investments um using our product they can perform due diligence on projects and then lastly they can defend their crypto portfolios from large movements so we currently currently we focus on blockchains that support virtual machines like ethereum but we also have uh BSC polygon Phantom and more coming up as we integrate them so today I'll I'll be focused on um the world of onchain data and like the world that we live in and how we should think about uh the ethics of what we do so firstly I'll talk about transparency in in the world that we have uh then I'll

talk about why we prefer this transparency then lastly how to think about uh the ethics uh of of this so for this talk I'll just be focusing on the world of ethereum since we're at ECC uh and in this world that we live in it's a world where all onchain data is transparent right it's all public information anyone with uh eth node can access this information so this transparency and trustless nature is kind of by Design and by default so it's kind of on the user to calibrate the level of transparency that they want right you can think of like a sliding scale here on one extreme you

have full anonymity uh anonymity where you use like mixers like tornado cash you could use burner wallets you basically never associate any kind of identity with your wallets somewhere in the middle uh you kind of adopt uh more obsc maybe you perform coinbase Hops and for those of you who don't know a coinbase hop or or like an exchange hop is basically when you send funds from your wallet to a centralized exchange like coinbase or FTX and then FTX generates a new wallet for you to send that fund to another wallet so you kind of break the chain of tracking uh in the middle so it's hard to track where your funds originated

from of course the exchange like FTX might know because they have your kyc information and all that uh and then on the Other Extreme you have full transparency this is where let's say you register an ens name so like maybe I would register Isaac zoo. e to one of my wallets I would always use that wallet and Associate it with online uh activity maybe I'm involved in governance of a dow maybe I post publicly I tweet about it and I associate their reputation with that particular wallet so why is this transparency good um we think that in this world where you have transparency by by design by

default um it's better because large players are kind of incentivized to act in good faith right if they know that all their transactions are public you also have smaller users like ourselves individuals where uh we are empowered with tools to kind of track and verify Financial Health of projects we can more easily hold projects accountable hold uh like uh funds accountable and then there's also a lot less space for criminals to hide their proceeds right of course um you and as a as a user you also have a finer degree of control compared to web 2 over your data and your online identity so right now we have like ens names you have nft profile

piics uh in order for you to kind of shape and monetize your identity online in powerful ways and of course this degree of control will just increase as more technology develops there are some downsides right like of course in this world exchanges and like they're they're acting as intermediaries they hold a lot of power because they have your kyc info they can link you and identify you to wallets um there's also an so like you know of course uh the way you get around it is that you increase comp compliance costs on the exchanges um the other danger is that less sophisticated users they are a lot

less uh they might not understand the full consequences of their on chain transactions and their actions and I think a lot of us when we first started doing transactions on chain we didn't think about upsc quite a bit right and this this Pro problem I think would grow as you have more and more Tech and products that you know like hide uh onchain the onchain part under the hood in order to have like a easier UI for users so I think the the way to tackle this is to educate uh users more about like the implications of uh what they do online on chain lastly there's also not a lot of clear regulations and uh guidance on best practices right so I think this will get better as as uh we go uh and like the

space uh matures a bit okay so on the ethics part so how should we think about ethics when it comes to tracking uh on chain information firstly uh let's look at the kind of information that you that we have accessible right so um in this like 2x two box you see public information private information onchain and offchain so like some examples here let's say uh you know let's look at the onchain part first we've been talking about how it's fully transparent and public right so you have ens names nfts there there is some like private or like less accessible onchain information like if you use a mixer some parts of that uh

transaction that's obscured but gen like by and large like onchain transactions are fully public right then when you move to the offchain world uh you also have public and private information public is if like if you're a project and you post uh on medium you have tweets about like you know what you're doing uh maybe you give details of like your fundraising and wallets involved uh and then private private information is like you know maybe if you have an embarrassing photo of yourself on your hard drive so why this distinction is important because um I will talk about two kinds of tracking uh and focus on one part in particular so the first kind of tracking uh is when you are focused on all this information

more importantly focused on both public and private right this is kind of like investigative journalism uh and the prime example I think is lorian's recent article where she uncovered the identity of the Dow hacker right so she used a combination of offchain and onchain public and private information so like for example she would track uh the hacker transactions on ethereum then she cross references um what like the alleged hacker did by interviewing you know that person's Associates uh by trying to gather uh you know private information that way so this world of investigative journalism you know it's quite quite separate uh and and there are like norms

and like laws involved uh you know you have to weigh the right of uh you know your expect like a individual's expectation of privacy versus the right of the public to inform to to to be informed and all that stuff uh and because you know I'm not a expert in uh that part of the law and like an expert in journalism I'll focus on the second kind of tracking and so this is the world of like onchain and offchain public info tracking and this is more like verifying and corroborating wallets because you don't deal with private information so um this is this second type type of tracking is um what you might find as products in in services like nanson so why does verifying so this

second kind of tracking why does this verifying in corroborating of wallets or does this benefit the community right um one obvious one is that the public the the information is already public uh it's just because you know anyone could access it with the eth node but it's it's like technically difficult so onchain analysis kind of makes this data more accessible it makes it a lot more digestible because all the information is served up in the ready to read format uh we also think that it benefits the community because there's a focus on larger entities versus individuals um and we you know like it's it's kind of obvious if you think about

it these entities like funds companies exchanges they're responsible for the majority of the transaction volume right um they also hold a lot more power and you know as with great power comes great responsibility so what are some examples of this kind of tracking um we we can add context to onchain data right by looking at other public uh sources of data so if let's say a dow publishes um you know details of the treasury wallet in a transparency report that report is not on chain but it's easily accessible uh you know maybe on their medium page or their official website so like it's uh it's easy for us

to add that context in nson for you to to know like this wallet is associated with that treasury address um or you know for example maybe a public figure like a famous project co-founder they tweet the details of their wallet right uh in order to show other uh investors that hey you know this is my locked tokens uh I believe in the project I'm not going to dump so like that's another way we can add context to onchain data so it's not just uh so you know this is this is like what you might see if you go to the product our product you know you have all this public information served in an easy to understand and excess way and it's not just adding information

it's also removing information so like there are people who know that the public nature of the blockchain means that they can kind of uh use that data to trick people right so there's a lot of wash trading that goes on with tokens with nfts um and you know if if you were let's say you were just to track this on your own you you need a lot of time for you to manually go through all this like transactions that are junk transactions that are wash trading and for you to remove that transactions in order to get a better picture uh so like another way for us to better analyze what goes on is to remove that kind of junk transaction so that's that's an example

here we can remove wash trading as a filter in Anon right so conclusion um so we think you know like in this world of transparency it's better to ear on the side of transparency or on the side of accessibility uh and you know it's better to make this kind of onchain tracking and Analysis more accessible uh thank you any [Applause] questions um what you have recommendations on for for people who

who had a lot of transparency into their wallets to then try to go and move all of those assets into a way that would be a little bit less discoverable would that be sending them back to an exchange and creating new addresses with subdomains in ens to categorize those assets or what would you do for just to increase the level of privacy yeah I I think there are quite a few things you can do So like um when it comes to tokens uh you could send it to an exchange that supports that token uh and then I I think you would also want to find an exchange that allows you to perform the hop right meaning like that exchange would generate a new wallet for

you to send to then send your your tokens to another wallet right uh of course the trade-off here as I talked about that that exchange knows this like the details of uh your tokens so you are at the risk of like data breach you're at the risk of malicious actors um but by and large other than the exchange it's a lot harder to track your movement um it's a lot more difficult for nfts because like you know I think most exchanges don't support nfts uh but like you know that's probably something that the space will solve as as you know we mature hi I just adding on that question the last bit you mentioned about that

NFD is a bit harder and because uh exchange doesn't support my question is even if they do is it even possible in the nature of nft as nonf fungible so if you go from one place to another no matter what you uh mix you still figure out the source and destination so I don't know if how much you can actually hide um so I guess I I understand your question as the fact that like the nft itself is nonf fungible so you can always it's easy to find that particular nft um in in that instance it's difficult

for you to hide the nft right uh but what you might want to do is to break the chain of like wallet ownership and we see a lot of like more in the farious actors here where like you know they might do wash trading for example uh where they send the nft to like another wallet in exchange for eth uh but it's like a fake trade because they own both wallets uh so like there are these things that you can do uh but yeah I I guess by and large that part that particular nft will still be trackable on chain hi how reliable do you think the composite information is um for purposes of for example some of the governance

platforms using it to inform voting power and you know voting reputation to try to bring some extra layer of you know information into the voting process you could try to identify people who are you know maybe historically not reliably good actors um like let me just clarify what do you mean by composite information well the aggregation of the offchain data with the onchain data to try to form a picture of like the wallet yeah interesting question I guess uh like you know like it's hard to always catch Bad actors um but over time like and that's something that you know

we also focus on and answer like over time you kind of build a better understanding of a wallet activities right and that kind of gives you a better degree of information over like what their intst uh if for example they always transact with a known you know like uh a wallet is known to be linked to a criminal um then chances are like maybe this particular wallet also has like bad intentions um yeah well I guess like conversely could you identify good wallets like and say you know like those wallets should have disproportionate voting power in certain circumstances or would it just be easy to transfer that good wallet to like

somebody who could potentially be a bad actor trans okay like so there are two questions here right like firstly can you can you identify good actors um yeah I think like good actors are kind of incentivized in that sliding scale uh oops in the sliding scale of I guess it's off but like you know if if you want to be a good actor you're kind of incentivized to uh make your transactions public and to like associate yourself with that wallet so that people know your intentions are good uh and um you know like as for the second part of your question which is like what if someone takes that wallet and gives it to someone else I guess

that's the tough part right like cuz it that's something that's purely private it's hard to know um but I guess there are ways to infer that something has changed so like uh an obvious way is like you know if you see that there's a break in the pattern of how they do things that's kind of abstract but like for example a concrete example in nson is like um let's say this wallet has always historically been active in the US time zone but now all of a sudden it's only active in the uh European time zone it interacts with a different uh group of wallets you know like I mean it's not foolproof but then you gain more and more data points for you to draw some kind of conclusion so yeah yeah that's that's kind of how we would think about it any more

questions hi uh recently paradig publish and for Dr and organization like admin wallet and staff wallet to organize o or project for best standard how do you think it's improv the global privacy for all the project and all the crypto project you think it's better or not better for development on the privacy of user or or problem for all privacy so I guess this question on privacy quite multifaceted because uh the world that we live in is kind of transparent by Design at the same time

there are people who realize that you know there's a need for privacy and so that you have projects who design like you know greater degree of control over like parts of your wallet parts of your uh Holdings um so like you know ZK badges are a thing now I guess uh with ssmo uh you have like layer tools you have like a bunch of different solutions um so so I think it's quite difficult to draw like a conclusion like this um for ourselves we think like transparency is a virtue that we want to ear on the side of we think like making it more accessible um is better because you increase the amount of options for users the same way that these users can then decide if they want to you know fall on one or the other extreme of their

sliding scale transparency right like they could choose to be more private if they want to uh they could choose to be more transparent if they want to and all like uh onchain public tracking does is that you know they would report what happens and they would make that position more you know easily accessible cool all right thanks so much for your time [Applause]