There is usually a lot of talk about privacy in Bitcoin. On the one hand, there are regulators and mainstream media coverage talking nonstop about how Bitcoin brings anonymous transactions to its users. On the other end of the spectrum, however, some Bitcoiners make it their life goal by raising awareness in the general public: Bitcoin is not private.
Researcher and builder Eric Sirion joined a longtime miner and developer Casey Rodarmor at the Bitcoin 2023 conference to discuss Federated Chaumian Mints, which the duo believe will strengthen Bitcoin’s privacy in the future.
“The concept of Chaumian e-cash is based on blind signatures invented by [Dr. David] Chaum in 1982,” Rodarmor said.
Chaum pioneered the quest for a private form of digital money, having effectively started the whole cypherpunk movement.
With Chaumian ecash you “take a random message, take [some] bitcoin put [them] in the envelope, give it to the signer,” Sirion said. “They sign [it] and keep the money, and the signature would mean the value is true. Later you can go to the bank, sign a document and they give you back the amount you deposited.
The bank can verify the signature but they have no idea of the customer information.
“It’s a nice improvement over a completely centralized, non-private system,” Rodarmor said. “It’s still centralized and it takes trust, but it’s private. We can do better with a federation.
With a federation, the trust can be distributed among many different people, as the setup would impose a minimum quorum of participants in the federation to move funds. In addition, the composition of the federation can be varied.
“You can have friends and family, or places with favorable regulations, or a black market that exploits them for profit,” Rodarmor said.
Adding the concept of trust to a Bitcoin custody setup could be an instant deal breaker for most Bitcoiners, who strongly believe in Bitcoin’s trustless feature for sending, receiving, and storing BTC. However, Sirion argued that there is a slight form of trust in the Bitcoin network today.
“In bitcoin, we basically believe that miners don’t collude against us” based on economic incentives, he said, adding that network participants believe that the economic incentives of mining of bitcoins will help ensure that this scenario does not occur.
While Federated Chaumian Cash explicitly brings trust into the equation, it is meant to cater to a specific set of users. The setup could work as another tool to provide additional privacy for those who do not wish to keep their bitcoin themselves, Sirion and Rodarmor argued.
“If we can make it so convenient that people want to use it, then we’ll bring more privacy,” to the network and its users, Sirion said.
Notably, however, this federated system for private payments and withdrawals is not auditable, so the user must fully trust the federation in this sense.
Beyond the bitcoin base layer, Sirion and Rodarmor argued that Federated Chaumian Cash with Lightning can provide an additional level of user privacy.
“We have addressed the privacy of depositors having the federation, [but] when you pair it with Lightning and have users deposit and withdraw through Lightning, you get privacy from outside servers and those trying to monitor the system,” Rodarmor said. “It’s kind of a giant CoinJoin with a shared Lightning node that’s very hard to monitor.”
In truth, the future of Bitcoin privacy could be diverse, with users choosing which tool to exploit for their own needs.
“We [envision] a lot of people are doing Federated ecash to make layer two payments, and massive CoinJoins on layer one,” Rodarmor said.
“I can imagine a future where every expense is a CoinJoin,” Sirion said.
Bitcoin 2023 is part of the Bitcoin event series hosted by BTC Inc, the parent company of BitcoinMagazine.