Privacy in the Era of Cryptocurrencies

Transcript

so again a warm welcome from my side my name is ian simpson at bitcoin swiss and this is actually our fourth session together with the crypto valley association focusing on our quarterly publications bitcoin swiss themes it's uh great to come back again now in the new year with the next session and for those of you who've joined before you'll know of course that today's session is recorded will be uploaded later on on the crypto valley association youtube channel and we'll be diving into the topic in just a few minutes questions are always welcome of course in the chat so feel free to drop those in comments or whatever today we'll be looking at our latest

publication from bitcoin swiss teams privacy in the era of cryptocurrencies um we published this actually before christmas but now we come with our discussion and presentation in the new year and to do that we'll turn to our head of research dr marcus dapp who will dive into the paper and some of the topics that it covers and then we'll finish up with a panel discussion with marcus and two guests costanza gallo from swarm and sebastian burgle from hopper so with that we'll turn over to marcus and he'll dive into the presentation thanks a lot ian good evening to

everyone uh glad so many people are interested in the topic of privacy in the cryptocurrency area i think it's a very important topic so give me a second to arrange my windows and share my screen of course so here we go you can see it because i cannot see people know all right privacy in the area of cryptocurrencies before we dive into it uh

a quick advertisement for another publication we did and that just happened uh was was published last week the crypto outlook which is a quite comprehensive booklet about the trends we see in this crypto space in this year and beyond and of particular interest for tonight is an interview i was lucky enough to be able to do with alex gladstein the chief strategy officer of the human rights foundation about bitcoin human rights and the esg debate and we touched upon a few of the topics of tonight and therefore i would like to start with a quote from alex he said i think the natural order of

things as we move to the electronic society is centralization and surveillance but thankfully there's a disturbance in the force a positive disturbance and that is encryption the ability of people to communicate privately with one another using code in a way that could not be spied on by even the most powerful government that made a massive asymmetry and helped shift power back to individuals over time throughout the last few decades and now it's like superpower so alex is obviously coming from the human rights side he's a very uh engaged activist and and fond promoter of bitcoin but i think he covers many of the few

things i would like to present so we have four key takeaways in our report and i just briefly highlight them and i totally invite you to read the full report online number one money and privacy are intimately connected let me explain this i'm sure you have seen before these charts showing how much data is actually produced in an internet minute and it's a lot all the social media platforms images videos you name it it's a lot of information a lot of data and most of it

a large extent of that data is personal data we upload stuff about ourselves about the relations professional or private other people etc and you know it's only a few years ago where this huge data scandal happened with cambridge analytica and it's almost nearly forgotten and we still continue so because it's so comfortable you know you can instead of creating a login and a password a new for each new website these nice places allow you to to sign into new pages just with a click or two

and of course we do it and of course they get hacked and data leaks happen on a regular basis there's a website called have i been owned pawned it's written pwned i'm collecting this information and you can actually go there and enter your email address and check on which websites your email address has been or your login has been pawned as they say and the number shows 11 nearly 12 billion so there's a pretty good chance your email address is there as well so check it out the other thing uh when welcoming people to the web 2.0 is money is also personal data

and of course we have quite let's say modest or innocent ways of collecting data in switzerland many of you living here know these then literally everybody has credit cards one or more these days because without them it's nearly impossible to do anything useful on the internet right that involves money and then of course swiss people have twint which is this payment processor that is yeah widely used also on the internet of course which is sort of an equivalent to to paypal and for paypal i'd like to show you something very interesting i recorded a page from their website um

yeah let me show it first and then explain what you see it's a list of third parties with whom personal information may be shared by paypal and it's an official page and i'm just scrolling through it so you may guess it's 600 companies so the transactions you do through paypal the data of these transactions may be shared in part or complete with up to 600 companies on a regular basis which is quite a lot a lot 600 companies and why do we know well because we have

gdpr and they are required to publish this information else we wouldn't even know um what's possible with all that data well that's what people mean when they say big data is the future you can do all kinds of things big analytics and why well why do people or companies do that finding correlations predicting behavior predicting sales predicting risk analyzing sentiment and several other things and the more data you have the better that works obviously then you can do all kinds of analysis across

slice and dice your data in many different dimensions so for example now you know millennials go to restaurants if there is no coffee um instead of going to the shop and and buying the food for themselves and many other things and in that environment where literally every website you visit collects data about you because it's part of the business model we try to talk about this the ability of an individual or a group to seclude themselves or information about themselves and thereby express themselves

selectively not all about myself should be revealed but just those aspects in those circumstances i select so financial privacy is an important individual right yet the traditional financial system is increasingly unable to protect our data and why is that well because money became digital as well so in the beginning we used valuable things as money because that was a bit cumbersome then we started to use paper representing something valuable and then some people figured out that

most of us prefer carrying paper to gold nuggets so we switch to paper only and there's no backing of gold anymore it's called fiat currency and then of course the digitization happened and paper became plastic and we are using credit cards for all kinds of things so money is not really visible and most of us are living in this area in this space and if you are over there in this new space called cryptocurrencies and symbolized with bitcoin interestingly

the latest and the first share a property that the others don't have both gold and bitcoin and other cryptocurrencies are bira instruments that means you can actually have it and control it you're not controlling the money that is issued by the government or the central bank actually um because in in times of emergency it can be confiscated um there can be a currency reform all kinds of things can happen it's not under your control and with credit cards it's even less under your control

what's happening with with your funds but if you have a gold nugget or a gold coin in your pocket then it's yours and you control it and actually the same goes for bitcoin despite the fact that it's digital in case you're interested uh to learn a bit more about this history of money and then how fiat currency works especially compared to bitcoin i invite you to read the chapter of a book i wrote before i joined bitcoin swiss it's open access that's how it looks and the introductory chapter goes into the depth of this discussion takeaway number two now cryptocurrencies are here but

generally they are not private let's take bitcoin again as an example so a bit of bitcoin history and a few ideas of how chain analysis works this is a very famous tweet that is 13 let me calculate 13 years old by helping me and it just says running bitcoin and hardly anyone noticed back then he claims alfini claims um he was the first person beside satoshi to run a bitcoin note a minor at that point and he was mining blocks blah blah blah and he also claims he's the

recipient of the first bitcoin transaction when satoshi sent 10 coins to me as a test and you can make up your mind yourself whether you believe this and that this person really existed because unfortunately he died a few years back um but we can actually check the thing with the ten coins because it's a blockchain and it's a public blockchain and here is the block block 170 that contains two transactions i'm only showing the second one the first one is when the person mining that block received 50 bitcoin as a reward

so these are the 50 bitcoin that person received and then the transaction happened and as you can see 10 bitcoin were sent to this address and a change of 40 bitcoin went back to the same address so if that is correct what we see on the blockchain and if this information over there is correct truthful and this person is who he is then satoshi nakamoto whoever he or she was sent 10 bitcoin to him and this address belongs to helfini and from that basic logic entire an entire industry

developed that does analytics on blockchains to figure out which address belongs to which entity what goes together as a wallet etc etc you're not going into that but that was just to illustrate you that of course it's possible to analyze this blockchain and the more sophisticated you become with statistics um well the more information you can find out and of course the big players like the centralized exchanges are easily to to be found because they usually have huge amounts of of coins on the various addresses if you're interested to to do this on your own

blockchain is one of the explorers you can use for that now of course the bitcoin community is working on making it less easy for these companies to figure out which coins belong to whom and who transferred to whom so let me just give you a few examples we're not going into any details but just a few examples for privacy improvements in the bitcoin space on layer one you may have heard taproot the recent technical upgrade to bitcoin was activated in november it uses something called schnorr signatures which allow signature aggregation

that means several if you have a multi-sig transaction several people can do their signatures and at the end you have one signature and you cannot see from that one signature that several people signed it or just one and that means um compared to the status quo at the moment where on the bitcoin blockchain you can distinguish a multi-sig transactions from a lightning transaction and normal transactions and we separate you are not able to distinguish these different transactions anymore they all will be looking the same some more obscure technology called must

allows to evaluate scripts off chain and when the transaction takes place not the entire space of possibilities will be revealed like it is today but only the path that was taken through that complex script is revealed so that's also a privacy um preserving measure on layer 2 in bitcoin we have the lightning network and lighting transactions are payment channels or happen in payment channels i should say and they happen offline offline of chain so there's no record on the blockchain except the start or the opening of the

channel and the closing of the channel and although it's kind of off topic for tonight there is no mining happening too because that's the other big discussion in the in the bitcoin crypto space uh energy consumption and the third approach to improving privacy is our social protocols so coin joins and coin swaps are the most i'd say important ones at the moment we are not going into details simplified it just means um several people pool together their inputs and a clever mechanism mixes them and so you don't know which output belongs to which input anymore

there are differences of course between coin joints and coin swaps but that that's not important just to understand you can mix transactions if you pull together with other users and then it's becoming much more difficult uh to analyze um what belongs to whom so why cryptocurrencies like bitcoin were invented in part to protect individual financial privacy in practice they are highly transparent payment systems and it takes an effort on the side of developers and on the side of users to keep the level of privacy high so people were thinking about other things and so privacy coins were invented and they can help to a

degree and again i'm not going into the technicalities of it it's quite quite hardcore two examples zcash and monero both conceal height the sender address the receiver address and the amount and the balances so the amounts transferred and the balances of the addresses zcash is an opt-in system in that sense that you can choose whether your transaction your next transaction should be shielded as they call it or not and they were the first using um so-called zero knowledge proofs to uh to

do that monero is yeah brings in much more ego in this they have a policy of enforced privacy by default so everything is switched on there's no opt-in if you choose monero then you get the full package so to say and as this small cartoon shows sender addresses receiver addresses amounts transferred and even they're even messing with the ip protocol beneath to make sure that as little information as possible is seen from from outside about individual transactions there's a lot of cryptography involved

it's very hard to do these things and of course they're not necessarily very easy to use therefore yeah privacy coins can help but not always as completely as as one might assume because it also depends very much on how you use them the fourth takeaway is a different different area government and corporate digital currencies will be coming soon well the corporate digital currencies will not come soon libra then called dm is now dead in the water so let's not

waste time talking about them the cbdc tracker on the other side shows quite some activity on the side of central banks slash governments around the world looking into the advantages of getting their money their fiat currency systems digitized fully digitized one distinguishes between so-called wholesale and retail cbdc's again central bank digital currencies wholesale means it will be used solely between banks for settlement between banks which is a different set of requirements and also in in terms of of privacy because mostly it's

aggregated numbers and the second group are so-called retail cbdcs that link banks central banks to citizens and i was surprised myself that there's more activity in in that group than in the wholesale group so you can see here mostly countries do research or proof of concepts very very few pilots and even less launches yet but we definitely can expect more in the next probably two three years on that front so cbtc's incorporate money

may pose serious challenges for financial privacy and i'd like to give a few arguments in favor and against so advanced i mean of course there are advantages in having cbdc's and the advantages mostly play out and strongly play out for the banks themselves central banks primarily they are of course faster and cheaper like everything we do when we digitize it it becomes faster and cheaper it helps to be more effective in policy making you can target groups and individuals specifically if you go for retail cbdc's and you say every every citizen has

account an account with a central bank then of course the central bank knows everybody because of the accounts right and then you can combine with other information you have work status families that you are all kinds of things um so you could do personalized taxation for example and it's easier to introduce unpopular measures as well for example negative interest rates and why because citizens have no way to escape anymore because cash will will of course fade out when we move to central bankruptcy

currencies that's the idea of the whole exercise um which by the way renders bank runs impossible because there's you cannot run anywhere and you cannot get your money out of the bank because it's this digital thing and there's no physical representation left the other side there are a few issues particularly for the citizens rather than for the banks and of course again it depends on the design but if a central entity like a central bank implement such a system it's possible to track all transactions of all citizens

and businesses in real time so anonymous cash payments will be impossible in that in that space um even for completely legal transactions and think about it when was the last time you paid something somewhere and you wouldn't want to know everyone that you did that and it's still it was still perfectly legal transaction governments can of course use the transaction data and maybe it's not switzerland it's not the prime country uh to look at here but governments can use transaction data to personalize fiscal policies again automatic taxation or fiscal benefits like like universal basic income

um but it's not um it's not as democratic as we wish it to be because the central bank is not an elected body it's it's not the government it's the central bank it has different rules and um they are much less transparent than our governments are and of course it opens the door for behavioral economists in the government slash the central bank to nudge manipulate or even prevent transactions for certain people and again don't think primarily about switzerland there are so many other countries in the world where you have authoritarian regimes

and if they can use this powerful tool why wouldn't they so if you open questions maybe for for the discussion later will we see a and that's a term i i use and coined will you see something like surveillance monetarism so basically what we've seen with all the fang companies and surveillance capitalism now on the side of governments and central banks maybe not everywhere but in some countries for sure because it's easy to be done and some governments try already work on it and also what are the geopolitical implications it's not just about citizens in this country

where the cbdc is is launched take china as an example um they are quite ahead in in their plans and we know they have other digitization projects like the citizen score etc and they have the road and belt initiative which means the trade relations to their neighbors and what will happen if china asks their neighbors to also consider the eu and would that mean that the citizens of a foreign nation can be surveyed by a country or how would that go

so with that i thank you for your attention and i'm happy to discuss and and of course nothing is financial advice thanks of course thank you very much marcus super super overview and again as you already mentioned we invite everybody to read the paper online it's in actually the event which you signed up where you signed up for tonight's webinar so you can find that online at our website bitcoinswiss.com um very very interesting surveillance privacy bitcoin all of this comes together now at this time in a very interesting

time would you say this is kind of a crossroads when it comes to privacy and financial independence or financial freedom me well maybe we have not reached the actual crossroad because i would i would argue um governments or central banks are let's say cryptocurrencies are faster in development um but it could happen yeah it could happen and and i think it it is a crucial time or the beginning of a very crucial time because in the next

i don't know two years three years all these design decisions i was hinting at will be made um at least in those countries that for for yeah seriously go about cbdc's they have to make these decisions is it retail is it wholesale how do we do it does every citizen get an account how do we do we have shielded transactions in cbtc's why would we and if we do is it still possible for the central bank to lift that shield and still look into it or the government says well for crime protection pornography drugs and the usual suspects

we need to be able to lift the shields etc etc so it's important i can only invite everyone in their own countries um to to be alert and also participate in this debate um should it arise very interesting yeah i think we're getting some questions also into the chat and and so on um there's the topic of china right and you you you raise this i actually read now just recently yesterday or the day before about the olympics in china and um privacy surveillance and and so on is a concern there and that there was

actually an information that there was a recommendation to foreign athletes to use a a disposable phone during that time in china good idea so so this is this is something that's that's coming up um yeah there's the question in the chat yeah how do we keep projects or more and more projects as they come up metaverse with independent is there one is there one because we in the paper address a few recommendations for individuals perhaps if if you uh are using cryptocurrencies but uh generally what is what is the

way to look at it i mean the the question is who will win right here um so it's harder to stop cryptocurrencies than it's to stop governments i think that's something we could say um really decentralized currencies cryptocurrencies are really hard to stop and china and bitcoin are maybe a good example from last year um when china decided to um to ban for well for the tenth time but then for good then mining of bitcoin in the country

and basically then more or less everything around the use of bitcoin and it was effective so they closed down all the mining companies they struggled getting their mining rigs out of the country et cetera et cetera hash rate was dropping by half and then it took six months or eight months and now the hash rate is higher than it was before and that was probably the the the country with the strongest motivation to stop it um but did they stop it they didn't right it's just elsewhere now and of course now you could say well

maybe the next countries will will try to stop it but then it will move to another place and at one point game theory kicks in because at one point for one country it makes sense to not ban it and we have a president's president yeah yeah which is el salvador right then of course you can pressure such a small country quite easily today but um yeah i'm not sure about really stopping cryptocurrencies whereas um in the case of cbdc's and governments at least in the countries that are democracies it should be possible to have a very let's say a very

intense debate before decisions are made at least i hope that is the case so to the question who will win both can be there in five years cbdc's in those countries where they made it because of authority or because of agreements and the cryptocurrencies are not going away so they will be there as well and and on the topic of who will win or is there actually a winner there's the the follow-up question in the long run do we see a coexistence of cbdc's and crypto is that where we're heading at least in the short term um i mean it depends how how central

banks will will finally decide how they live with cryptocurrencies um as i said i think they will not go away for for because it's impossible it's right it's a decentralized i mean those that are really decentralized with with um the users the the miners the nodes uh you will not be able to stop them and then the question is as a country do you simply ban the use of them and force everybody to use your currency or will you try to figure out some way of accepting them and integrating them and of course on the other end of the spectrum

um if if a country is really very forward leaning in in the crypto space they could say well maybe we have also advantages when we embrace um certain certain currencies because of the properties they have also the monetary properties and maybe it makes sense to to use them also for our purposes the central bank needs reserves and um it's not completely outlandish to think about putting cryptocurrency particularly bitcoin into your reserves as a country um yeah next to your gold bars maybe we'll say we'll say let's see for sure you had one great example if i

just can refer back to our event last week where we presented the outlook report from the council about why privacy with the cryptocurrency bitcoin is very advantageous for some place like el salvador yeah exactly i mean yeah we haven't touched it exactly we haven't touched this tonight but financial inclusion and i i can again invite everyone to read the interview with alex gladstein uh one hour it was really really very illuminating so he says that that bitcoin is the only currency today that really fosters financial inclusion and he gave a very very nice

example i think so imagine el salvador a country where 70 of the population is unbanked and a quarter of the gdp comes from remittances so remittances are payments from family members who live abroad in the us or elsewhere and they send money home every month to their families 100 200 small amounts but a lot of small amounts so how does that work well you need one of these money transfer agencies um like western union and moneygram and what they're called and so the the sender has to pay quite

quite a considerable fee and then the recipient has to go into a building an agency's office and to collect the money right it's cash and guess what people in the neighborhood know these places where people enter with empty wallets and come out with full wallets and they get robbed regularly so there are gangs around this system because it's obviously easy to target individuals whom you know just left the building and have more money in the wallet than they had when they went in and then contrast this with the same person sitting at home

in the safety of of their their home with a mobile phone and they receive this amount of money directly on their mobile phone without anyone knowing not even other family members if that's also something that's useful so that makes a huge difference right and you still have 70 people unbanked but they don't need a bank so and el salvador we will see how that how that plays out um they made the first step they onboarded i think three million people in four or five weeks on on to on to bitcoin or lightning i should say um

and let's see there are many more countries that are dollarized around the world that get a lot of remittances from abroad and suffer similar problems so let's see with that i think we'll save any more questions in the chat and now open up the discussion a little bit more i'd like to welcome our two additional panelists for wider discussion first of all sebastian burgle from hopper association he has spent some time in crypto valley in switzerland before traveling i think to my home country the states and coming back which is great um and hopper is working on privacy

as well in a unique way i'll let you maybe explain that in in one or two answers a little bit later we also have costanza gallo with us she works with ethereum swarm ethereum swarm of course the decentralized storage solution and yeah we're going to open it up not only monetary privacy and and some of the things which you highlighted marcus but then a little bit wider and my first question if i could just throw it out to all three of you is now we are here in 2022.

privacy is obviously a hot topic or or is a topic in the era of cryptocurrencies as marcus highlighted well some things in crypto are more private but not necessarily in some ways is it a net positive where we are today with what crypto and its technology has brought or is there still a long ways to go or have we even maybe taken a step backwards if we think about now crypto may be peaking the minds of central bankers to develop a central bank digital currency which can now survey us all the time anywhere we are whatever what would you say net positive net negative sebastian

yeah i think my my little bit sad answer is it's it's so far let's let's start with the positives right so we are so early on that we are fine right like i think there's so few people engaged that you know it doesn't matter it's good enough like you know you and me don't get exploited all the time if we keep the status quo of the systems and the technology that we have we will end up with the privacy nightmare that is worse and i mean much worse than the web 2 is today so we have all these ledgers and public permission as infrastructure which is open for anybody which is great but at the same time it has again not been built with privacy in mind and as such

the potential for data harvesting and for exploiting the individual which might not know what's going on is much bigger than it is on the web 2 today so again if we deploy this infrastructure to the masses going to be definitely worse than the net negative costanzo do you have a point of view on that that was actually an excellent point sebastian thank you um i want to be optimistic um like sebastian said we are still so early on that um like things are better than than perfect and it is i mean we have a very long way before things are going to be perfect and privacy would be perfectly

implemented but even today if we look at what's happening in the ecosystem there are so many new protocols that are being developed to protect um financially users to protect their privacy and their identities so yes like today um a skill hacker can get my interim address or whatever but um thanks to the development and where we're going to um i don't think it's going to be a long time before it would be a full net positive with no drawbacks so technology is still still moving forward fast enough that it can get us to a better position yeah yeah would you agree marcus

yeah i think that that that difference in speed is there and it will stay for probably forever um i mean the question is um real regulation how to say prevent certain directions of innovation for the fear of what's possible if we go that route um and it's interest so for example it's interesting that um projects like like the privacy coins are of course not endorsed by anyone in

the banking system because either they regulate or they are regulated and they cannot endorse them and so it's really niche um bitcoin is different because as i as i showed it's this public ledger and you can look and you can do all kinds of things and audits and like sebastian was saying that it could be much worse worse depending on who is controlling the letter basically um but it's interesting because if that infrastructure is there and running um nobody prevents developers in coming up with new ideas and building then them into the existing infrastructure and then you have this infrastructure

already it's it's there it's used also by by let's say traditional finance and then different groups in this in society and all of a sudden it's also difficult to figure out who is sending money to whom um that's much harder to stop because it's gradual right whereas a project like monero that says everything is like 100 private um it's a bit like like like uh facebook going meter saying we do a virtual currency for everyone on the globe two billion people and every bank goes whoa stop that and what happened it stopped um so maybe they should have tried with loyalty points and call it differently

but missed the chance so let's see if if the cryptocurrency projects can can surf under the radar long enough so so we have to slide along under the radar until things get to to to a widespread level of adoption and that i was just going to come back to that you showed on one of your first slides marcus the the uh you know social logins uh facebook google whatever now it's um you know i have to say it's so easy to use something like that it is it is so user-friendly like that and i know i know sebastian is working on some

things with hopper uh swarm is working on decentralized data but all of these things as tech develops right are still not not user friendly enough to to be as easy as clicking that facebook login so like is it going to actually catch up do people really care about privacy these days really seriously let the entrepreneurs answer sebastian yeah i mean i care right so uh i try to care and even though i'm sometimes surprised by you know what what today's

infrastructure has in stock for me um but i would say two things there's there's kind of in like i think most of us here are seeing that crypto will grow a lot and we will achieve mass adoption so the question is how and i see two possible paths which might overlap one is institutional adoption my claim is that institutional adoption of crypto assets needs institutionally compliant data privacy protections which is i would say largely not in place today and the second one is if we're really thinking about the um anonymous dj and traders who are mostly active and moving the largest amounts of

funds in the crypto space today they are increasingly privacy sensitive partially for good reason right if you're a founder of a d5 project today there's a huge risk um on compliance on regulations you basically cannot play iran especially if you are one of the unlucky ones that happens to be born in north america right um so and and seeing kind of this retroactively uh enacted um regulatory uh measures is just like a huge thing so what we see already happening today is d5 projects well what do they do well founders and the entire funding team start being anonymous right now this sounds insane right why would

anybody invest money in something that's insane like they're just going to run away with the money and we've all seen it happen right in theory if nobody does due diligence that's going to happen but what crypto provides us is with means to build projects that are totally transparent and which can prove that there's no way for me to run around run away with money even though i don't show you my face even though you have no idea who i am or you know need to trust me in any way or form and that's the part which i find extremely powerful so in short yes i see two ends of the spectrum which are very different in nature and both of them are striving for really next level of privacy so for me

again i'm biased right um but for me it is absolutely inevitable that we have privacy across the stack and i think marcus and his presentation touched upon some interesting examples of on-chain privacy coins his other on-chain privacy technologies also but also off chain uh technologies which are required across the stack right it's not just one thing we have to we have to like you know we have to keep it watertight on all levels costanza would you say that like in in ethereum swarm and decentralized storage decentralized data of course this is something that is basically meant to counteract what marcus uh showed in his

presentation where there's huge data leaks and and hacks and your email address gets leaked somewhere all over the internet is this part of what what swarm tries to develop and and tries to build to to to beat this so what is worm is developing is um the centralized storage where um to protect also um through the layer of the fair drive to protect people's privacy and this is one of the core things that we're focusing on is data ownership and making sure that people get back through the data and they get back ownership after home data because

what's happening today is that we're becoming more and more digital like we are spending all our life online and also technology is collecting data at a crazy pace and we even generate data in ways that we couldn't imagine just one year ago i'm pretty sure that um even like in six months everything would be even changed and so what happens is that there are ways to exploit our data that we can't even imagine now um unless you're like following that super closely so and they become way more sophisticated every day and what is

what is fun what is sad mostly is that with the current system we produce data and companies use this data to refine their algorithms become better and sell stuff so not only we are not owner of our own data but we are actually being used to as a product and so we end up like bringing not only the products that was happening but we're being used as consumer of stuff that has been developed with our data so for this reason it's super important to keep the discussion around data ownership um vital

and yes we're still super early and is i don't think it's going to happen because of government regulations if i have to be honest and i don't think that data privacy will be implemented because institutions will adopt it but quite the opposite as a way to protect ourselves against uh mass surveillance and that maybe um i kind of like have a different view from sebastian marcus i think you not to make any comment about your age uh but i think you are old enough to have at some point come across the cypherpunk manifesto

and this was very privacy focused yeah and there is there is a quote from the cypherpunk manifesto published in 1993 right so when i was i wasn't very very old in 93. i was just a little boy so yeah um but but one one quote from eric hughes there is that for privacy to be widespread it must be part of a social contract and and i'd be interested to hear your view and everybody else also sebastian how technology enables that that social contract to help people be private and

cryptography bitcoin but but then maybe we take it a little bit further as well um i fear technology alone is not enough in changing the social contract um it it surely extends our possibilities of of of acting um of doing certain actions that weren't possible before but i mean there's a reason why as you said earlier it's so convenient and easy to click on the facebook google twitter button to log into some new website instead of going through registration getting emails for them back etc and of course on the data sharing side

it's that all of us have been trained to give our data away for free in return for free things you get free email you get free all kinds of services on the web right and and this habit and it's already 20 30 years old this habit of getting stuff for free on the internet and that used to be uh paid before is or well didn't even exist before is very widespread right um and of course the ones offering you the free stuff are not the ones who

who try very hard to tell you what the price really is in terms of your data so and um so technology i mean if we reach a point and i i love to hear sebastian nano costanza say something about about the uui and ux and user friendliness of web 3 applications the apps um when we reach a point where i can with a few clicks but still be the owner of my private keys but still with a few clicks join somewhere and use stuff and it feels not much different to to anything we have today then people may switch over but not

because in their head they change the social contact and say privacy and they wrote it in 93 and i've i've not lived then but it's still important um i don't think that will happen but if the the level of of comfort is at least similar and then i would i would be more hopeful and that's me going through loops um um to to run open source software privately um and and do without a lot of things just because i believe that's more important and so i i do without comfort but but the the majority of the people

yeah they they love to have things in the easy way and then it's understandable but yeah let's let's hear what people think about making easy free is kind of the the uh the the social contract that people have unfortunately gotten used to sebastian is there a way out of that yeah um yeah it's the right three you have to refer to yeah so um i i think it's not just about the social cons contract but i think people at least in in these days are unfortunately maybe a bit more simple minded that

the best ux wins and why is that unfortunate because it brought us into facebook into google into the privacy hell of the web 2. why am i hopeful because as i see the web 3 movement growing and getting what some people might call ridiculous amounts of funding we see the values of self-custody of not just money but also data um how costanza was very very nicely showcasing for example with swarm right these are deeply ingrained values in the web 3 ecosystem and everything that it it grows so i think that we will manage to build

applications that are simply superior to traditional applications because actually many times we think hey decentralization is just crap ux no you know what is crap ux it's the plastic money that marcus showed in his slides that is crap ux if you're trying to book yourself with an international airline from a first world country in switzerland an airline ticket that is just a nightmare and bitcoin is better than that today right so what does it take i don't think it takes like you know a social contract that needs us to rewire our collective brains i think it needs the best ux people on the planet

to work on this very problem and here's why i'm very hopeful and very positive who the hell wants to work in the year of 2022 for a bank if you can work for web 3 startup in our company like everybody is here i do think the smartest brains of our time are working on the space to fix this very problem to build like this trick that just gets people hooked to technology that must win so yeah we will we will totally get there it will still take time because unfortunately ux is something that it just takes time right it took facebook a number of years to be really useful so we're gonna get there like partially we're already there and the rest we will definitely make

that's a very optimistic take um following on that and just branching out a little bit because now we talk about you know well data and and privacy and money but so we talk about free right now bitcoin works to a large extent because there are financial incentives there are incentives which help people to do things which they wouldn't do for free but they do it anyway and i'll give you a chance sebastian to talk about hopper for just a minute because this is an incentive system built in to the protocol but then there are some technical innovations behind that and then maybe we come back to other

technical innovations helping privacy can you explain proof of relay and so on oh yeah okay and i'll i'll try to keep it brief so uh marcus was showing really great solutions for on-chain privacy right monero zcash a bunch of others and this is cool but it is not solving everything as i mentioned earlier it's really about the full stack that needs to be private across the board on all sides and what is not solved so far is the data transmission if you submit a transaction from your monero wallet from a bitcoin wallet from your ethereum wallet to some other place that is stuff that needs to go across the internet right if you are sending

if you are sending data uh into like swarm if you're requesting data like from from some other swarm node in the same way right it's not money it's actual data and that stuff needs to go across the internet one way or another all these decentralized technologies need to send data and that data is visible to your internet service providers and a bunch of others out there today so basically what we add with hopper is on this transport site on this most fundamental layer of how data gets from a to b right from me to ian you know from constanza swarm node to marcus and so on to add privacy to that so that nobody knows from where data is coming and where it's going and this is really kind of at the most fundamental layer something that is uh

yeah required for all sorts of applications on the web too but even more so as i was referring to initially on the web 3 where you know i sometimes say the web 3 is anarchy you cannot rely on you know regulators to have you back because there's kind of pseudonymous kind of other peers on the network that you don't have any contractual relationship with and that's why technology must fix these issues so how do we fix it instead of me sending data to ian directly it's being sent through a peer-to-peer network where data is hopping around and these relay nodes are hopping this data on that's what the name hopper should kind of relate to and by doing so these node operators are providing privacy for ian and myself in

fact ian and myself don't even need to know that we're talking to one another right i'm just sending data to some other servers for example a bitcoin node i'm requesting data for example from this bitcoin node to to give me my balance and um yeah and that's incentivized in this in this peer-to-peer network for all the parties that are relaying data and again providing privacy for enamel itself are getting rewarded in a token for doing so that's in a nutshell what is what is going on there and i think that's that's a really interesting uh innovation as you talk about some layer that people don't think about necessarily just turning back to costanza so i don't know if you are talking to

hopper or not or to others about those shall we call them weaknesses in in what swarm might be doing or is there some other part of of uh what swarm is developing that is this linked to privacy around that actual transfer yes it's that was super interesting um so i will contact you later but basically so the way um that home works um is that um whenever you want to upload um let's say a file on this word network first of all your spire gets divided into chunks

and each chunk gets sent to a different direction so that even though um in this way even if someone finds a way to answer um a chance um you will never know what's gonna happen because it doesn't have the full picture it's like having a small piece of puzzle if you have a small piece of a puzzle you can't complete a picture so it is basically useless and the way that this data um gets sent and then retrieve actually works in a very similar way to harper so with the i'm not sure whether you use maybe the same protocol the academia networking where um

let's say that i want to send data to marcus but i don't know marcos so um i will spend it at the year and because it's closer to marcus then um he's like i don't know marcus but i know sebastian and maybe you will know something so sebastian was candidate to sebastian and then sebastian would be like i don't know marcus either but i know crypto valley association and we'll send it over there until then it will finally get to marcus and this is the way um that communications happens on this web network and in this way um [Music] even the first um [Music]

point of contact so in this case yeah you will never know whether um the request was coming from me or i was acting on behalf of someone else so in this way it is completely anonymous because there is no way to know where the request starts and when it ends so yeah and i can imagine this is going to be very interesting and this is part of what we follow now in the next the next phase of of cryptocurrency of of web 3 finance and defy like the decentralization of financial products financial services peer-to-peer lending and so on where there is a lot

of back and forth and multi-party transfer of data um that's probably something that regulators and or bad actors or mostly bad actors are very interested in getting at and following and tracking and if you're going to build a secure web 3 d5 structure globally that continues to grow privacy has to be a part of that and security and data has to be a part of that just coming back to the technical innovations marcus you talked about taproot we talked about snore signatures mast and so on this was a long time coming for bitcoin actually

or yeah a lot of things in in the in the mind and pipeline and finally now delivered is it going to be used will it be a really revolutionary thing or will it be a slow a slow development that enables more privacy on bitcoin um i wish i would have brought this chart i i was looking at the chart of of taproot transactions uh the other day and it went like of course zero for the longest time and then it went up like this um so i mean everything every every every innovation every new step every upgrade

takes time so at the moment all the wallet providers including ourselves um as you know um are working on making their wallet infrastructure ready for taproot right um being able to to process separate transactions um but that will be done at some point and as you said it's it was long in the making so everybody knows about the technology it's not like surprising how now it's there and now we have to start all the wallet providers were starting before it was activated because they knew it will be activated since summer um and then it's like like with always with everything

every upgrade you have to get it to the people and it has to be at least as comfortable and good as before um and now i may need some technical support from from you guys but i think taproot transactions are smaller than the normal ones and therefore should be cheaper but i'm not 100 sure on that one but i think it's it's the case so there would be an a natural incentive to to use tap root transactions because you've i have something like 11 fee reduction in mind but i'm not i have to check that um but stuff like that you know it's like what sebastian was saying it's it's not just doing the same thing we know from before but making it better and cheaper and faster as well

on top of all the decentralization benefits we we value so highly so yeah i think it will it will come yeah definitely it's it's just a matter of getting the technology updated everywhere and then people will start using it i'm pretty confident and sebastian on ethereum is privacy moving forward as fast as bitcoin yeah i mean there's some interesting developments i would say um comparing the two ecosystems i have a lot of respect for bitcoin first of all um not just for being you know the godfather of it all but also for like a

lot of solid fundamental developments but it's and i think that's not a big argument um it's it's not moving the fastest so i think the uh privacy innovation that we see like and i now mention unchained privacy innovation that we see on top of ethereum is definitely moving like way faster than on on bitcoin so just to um summarize some of the latest uh things that are going on there is there's mixers right so marcus talked about coinjoin uh which is a actually if you if you think about what it does it's like a really fairly primitive mixer so on ethereum we have something that is more advanced than that which is called

tornado cache which is a mixer which is now in its second iteration like really providing a lot of privacy on chain and we are seeing also like fully private evm so this ethereum compatible chains which have privacy baked in and we're seeing a lot of this zero knowledge technology being deployed into production this year and it's really amazing if you're thinking about it this is like not even applied but theoretical maths that have has been in the making for decades and is now reaching its um yeah now actually kind of last year and this year being deployed into production it's like a massive massive thing that is happening there and um

yeah there's there's some of these which are not just more private but also like at least 10 to 100 x way cheaper than layer one ethereum so i would say this on the ethereum ecosystem it's definitely moving faster and we're seeing really crazy privacy um applications and just you know to give one outlook many times when um i was talking to you know lawyers and also the regulator here in switzerland we were talking about well you know um what we can do and black money and white money this whole concept will lose its meaning with the privacy technology that starts being deployed last year we're having fully anonymous fully private tokens that are being transferred you know

so all of this on-chain analytics which you know regulators are are clinging on to is going to be disabled you know people are are deploying technology into production that is disabling all of these on-chain analytics and it's great for the individual right so that is great for you know um people that are that are unjustly uh prosecuted and anyway if we're looking at aml being the least efficient uh thing that you have ever seen on the planet with you know having an efficacy of around one percent of stopping bad actors that's just a joke that we even started talking about it so now we have technology which makes this um absurd regulations

just totally redundant and that's great you know it increases efficiencies on all fronts i won't make any comment to that necessarily but uh very very interesting and definitely i think yeah as you say not an argument that things are also moving very fast on ethereum we have two minutes before we wrap up next year if i'm not mistaken on my math will be 30 years since the cypherpunk manifesto are we speaking well on the way to seeing that come to reality for the individual as you say maybe one or two last uh comments or feelings we keep marcus

at the end sebastian back to you yeah um real quick summary i think technology like what constance is working on with the team at swarm is super important in bringing decentralization decentralization is one pillar towards resilient infrastructure which empowers the individual the other one is privacy tech decentralization and privacy tech together will bring us everything that the cypherpunk manifesto was streaming on that's a pretty good uh advertisement for swarm costanza would you agree we are well on the way towards that can i record sebastian and lucia is warm with

amazing um no yes um also while um most people out of the crypto bible don't care about privacy and are still um completely out of it there is more is more um activists that are focusing on the use right now and that are trying to make it um go mainstream and that are lobbying towards um even at a regulation level um making a more um playing field for privacy and for institutions and against um state surveillance so absolutely yes marcus the last word to you

i think it will happen gradually and then suddenly that means a lot of projects a lot of innovation happens in all these projects in these protocols and it's a it's a beehive and it's really hard to navigate even for the people who are in the midst of it i guess sebastian will agree to to stay up to date on what's going on in all directions really hard and if you're outside that space it's even more it's even harder but then all of a sudden two three things pop up and when they are combined boom you have something that was not possible before and then you have it within months and it's deployed it's open source

everybody takes it they copy it to other protocols and then it's there but until that point you just don't see it and and it's hard to anticipate um today what will be the two three things combined that will give the next boom in 18 months it's really hard but i think that's exactly how it will happen it's gradually and then suddenly and then it's too late for anyone to stop it with that i think we're going to wrap things up thank you again to all three of our panelists great great conversation great discussion again we encourage you to

read the paper which you find in the event where you signed up also visit us at bitcoinswiss.com for other publications the outlook report which marcus mentioned we have our weekly wrap our bitcoin swiss decrypt and fundamentals so all of those things free to read online and we'll see where we are in the next six months or a year in the meantime stay safe stay healthy as we say and thanks again for a great a great event and great discussion everybody thank you thank you very much thank you for hosting us bye bye thanks for being with us bye guys