Why I believe the destigmatization of anonymity (not pseudo-anonymity) is inevitable, privacy coins will stop being a “shady” niche and the only 100% anonymous L1 out there DERO is primed to outperform
The notion of privacy today presumes a right that can be denied the moment an individual becomes a person of interest. Any individual can become/is a person of interest for commercial, political or personal reasons. Online we can become persons of interest to advertisers looking to target a specific demographic depending on where we live, what apps we use, what keywords we search for. If one surfs the web from France they are likely to get ads in French, if we speak with a friend about dog food Google will probably start showing dog related ads. In other cases we become persons of interest to governments depending on our political or religious beliefs, participation in certain events (ie protests), or based on other ad hoc criteria.
We are all persons of interest for a company, a government, or another individual.
A free society is built on the right to choose, meaning when presented with two options A and D we should be free to choose what we believe is best for us in that specific moment in time. We should be free to decide without being subjected to any intimate forms of psychological manipulation that leverage our private information.
When, because of a possible choice, we become a person of interest to another individual with similar resources to ours, the chances of our privacy being invaded are low. For example, the odds that our neighbour can close our bank account, or get us fired, are low. However, if on the other side of this equation we have major forces such as speculative markets, governments, corporations, or a powerful individual who would benefit from the majority of us choosing D(isadvantageous) even if for most of us individually it would be more reasonable/beneficial to choose A, our freedom to choose A(dvantageous) becomes a risk for them. It is in such instances that our privacy is most likely to be violated.
Forcing us to choose D is not possible in a free society. But upon assessing such risk (ie: our likelihood of opting for A over D) our counter party can set up other risk mitigation processes to try to seamlessly interfere with our free will. Powerful and resourceful enterprises will mine as much information as possible (if this is not already available) in order to repackage option D to make it more appealing in our eyes. To minimise the odds of materialisation of such risk for them, we individuals are targeted with ads, PR campaigns, financial incentives, intimidation campaigns, threats and so on that are meant to interfere with our judgement and change the optics of option D to make it appear more convenient for us than option A.
Our freedom to choose can be translated into (market, political) risk for other prominent entities.
In more extreme scenarios where option A, which our judgement tells us is the best choice for us at a specific point in time, constitutes an existential threat for a big company, financial organisation, political class, or a billionaire/powerful individual, then the incentive to invade our privacy to try and condition us will be even higher. What follows, when this is allowed to happen systemically, is the elimination of market or other forms of risk/uncertainty for certain categories of market participants (powerful or resourceful or both) at the expense of the free will of most individuals.
The practice of risk/uncertainty management is ultimately what drives prominent entities to invade individuals’ privacy to try and condition the choices of individuals and decrease uncertainty over the outcome. For example, when an Android phone catches a user talking about dog food the information is fed into a database where it is used by corporates or ad buyers to minimise the risk that we may choose to buy dog food from a competitor of theirs. To mitigate this risk they start sending us ads to make sure our chances of choosing some local or small or emerging brand over them are as low as possible.
Going back to our initial example, when despite conditioning, a considerable group of people opts for A regardless, the organizations hurt by such decision may then engage in even more aggressive forms of risk management. The scope of risk management now would be to make sure the unfavourable outcome leads to as few negative repercussions as possible for them. An overt example of this scenario was the recent case of Canadian truckers, whose privacy was violated to backtrack their data in order to identify them and their affiliations and use this information to make it as painful/inconvenient as possible to exercise their right to protest against what they believed to be an unjust policy.
Anonymity stonewalls data backtracking
One way to see anonymity is as the abolishment of big databases. In a world where anonymity is a right, it would no longer be possible for an entity to backtrack our personal and financial records starting from a choice we made or that we could make (A vs D). It wouldn’t be possible to identify us, contact our employer, get us fired, close our twitter account, shut down our bank account just because, for example, we expressed dissent on social media over a government policy or, generally speaking, because we opted for A instead of D. Commercially, it wouldn’t be possible for resourceful players to outcompete smaller companies and slash their growth prospects by buying access into big databases or decompiling what is supposed to be private information to target huge populations of prospective buyers. The lack of such big databases would lead to more segmentation, which means more risk for big players but also more opportunities for smaller players. Lack of anonymity, on the other hand, leads to a landscape with perennial market/commercial/political leaders that are impossible to dethrone because of their ability to compile and access huge databases to maintain market share by interfering with personal decision trees like those illustrated above to enforce or incentivise outcomes favourable to them.
Why pseudo-anonymity (BTC) doesn’t work
The pseudo-anonymity argument of open blockchains like BTC stands on the ostensible argument that in an open blockchain everything is public to everyone, huge and small, and that by enforcing transparency for everyone we can monitor each other to prevent fraud, corruption, abuse of power etc. Matter of factly however, when 2 entities e and E, where the resourcefulness of E is much higher than that of e (such as a government/billionaire versus a middle class individual) use the same blockchain to operate then E’s activity alone will be private in practice, while enabling E to keep e under total surveillance. Because although blockchains like BTC are open and record transactions from everyone indiscriminately, the process of extracting/decompiling information (via on-chain analysis) is an expensive one that most cannot afford. In any case where there is an asymmetry in resourcefulness, open blockchains facilitate the status quo by enabling the most resourceful players to interfere with the free will of the least resourceful ones. It is for this reason that recently Snowden speaking of btc noted that BTC is really just private to the public, but it’s public to the prominent, shall we say.
Privacy coins and DERO (encryption, obfuscation, ZK proofs, TEE)
Privacy coins are a whole category of blockchains that attempt to tackle the privacy and surveillance issue. The benefits of anonymity would be felt by the least resourceful individuals in the first place and create more opportunities for everyone. The only ones that stand to lose are few too big to fail players whose survival depends on individual decisions being artificially the same en masse rather than having a normal distribution. Anonymity leads to a freer world, more efficient/meritocratic markets and increased social mobility.
The most popular privacy coin is certainly Monero. Monero, like bitcoin, has a blockchain that contrary to bitcoin’s blockchain is obfuscated. In BTC the entire blockchain is public (addresses, transactions). Obfuscation is an algorithm that converts sensible data into some unreadable form. The problem with obfuscation, when compared to encryption (used by DERO), is that because of the nature of the algorithm used, we can’t be sure nobody is actually reading the original obfuscated data. In fact, to decrypt the data one doesn’t need to have the private key but it will suffice to only reverse engineer the algorithm used for obfuscation. There is currently a bounty for cracking Monero’s algorithm for this reason, because it is possible to reverse engineer it. And of course we can’t be sure nobody has already done it just because the bounty hasn’t been claimed yet.
While obfuscation provides a higher degree of privacy compared to open blockchains like BTC, it is still not 100% private because there is no way to know for sure that nobody has already cracked the algorithm and that chain analysis isn’t possible. Zero knowledge proofs, on the other hand, like those employed by ZEC, are algorithms where the sender of a transaction only proves that something has happened without specifying what specifically. When a party decides to opt for this then the transaction data is hidden. However, the privacy function here is not by default and only a fraction of the blockchain is obfuscated. As result of this, the chain analysis surface is still huge enough to allow resourceful players to de-anonymize any obfuscated data on the blockchain through on-chain analysis. Moreover, contrary to ZK proofs, DERO uses homomorphic encryption (HE) which is the only algorithm that allows to change data without having to decrypt them first. Changing data in practical terms means performing actions such as sending a payment. Thanks to HE, on DERO these can be done without having to reveal/share one’s address balance to the network.
Other coins like Secret use TEE (Trusted Environment Encryption), an Intel tech. For scaling Secret uses POS where only 50 nodes are allowed (in total!). Therefore here we really do have a central point of failure in encryption (the Intel dependency since we have to trust Intel’s black box), as well as in architecture (since the network can only have 50 nodes).
The reason why I’m bullish on DERO is that DERO is a blockchain with smart contract capabilities (L1) that uses homomorphic encryption. This means that the entire balance flow is encrypted as all operations during a transaction are executed on encrypted data. So when a transaction is authorised the network never sees the payer’s or payee’s address balance. Payer and payee only know each other addresses, but they don’t know each other’s balances either because all verification is done via encrypted data, without ever disclosing the real balance. Since on top of this DERO uses also ring signatures, where in each transaction up 510 extra decoy addresses can be used, this adds a layer of deniability. In other words, not only can’t you see from the outside where the money is going, but you also can’t verify which addresses are actually transactions. As result, there is zero surface for on-chain analysis on Dero.
DERO mining: egalitarian decentralized mining
The mining algorithm of DERO is AstroBW, this is an egalitarian ASIC/FPGA/GPU resistant algorithm to maximise decentralisation. DERO’s mining is designed in such a way that on one hand there is no incentive for miners to collude with each other to form big mining pools and on the other it guarantees that even very low hashrate miners get some reward (and actually with a better hash to watt ratio than high end gpu miners). The reason why pools are not feasible is that miners work concurrently, they can’t share the work across the network. Mining here is a bit like pregnancy, where even if you bring many pregnant women in the same room, it will still take 9 months for the baby as they can’t expedite each other’s pregnancy. Because of this, since one can mine even with a mobile phone, and due to the lack of incentives for miners to group in large databases, it is effectively impossible for government actors to identify and ban DERO mining.
Conclusion
I believe that as the implications of anonymity will become a subject of public debate, it is a matter of time before the public perception of anonymity changes from something shady associated with cyber crime to something revolutionary and self empowering that leads to fairer markets and societies. I’m bullish on DERO because as this occurs, fully anonymous coins will no longer be a shady niche but will slowly go mainstream. In these circumstances, DERO’s tech, which allows not only for a private cryptocurrency but also for private smart contracts (100% anonymous DEXes, NFTs, stablecoins, dapps), is primed to outperform.
NB: This is not financial advice. I hold $DERO
