The ban of Tornado Cash, a crypto mixer service, shocked the crypto community. Developers of the project are internationally searched and being prosecuted. This happening underlines the war against privacy and the skepticism of governments towards autonomous individuals. The new technologies; the internet, decentralized ledger technologies and decentralized autonomous organizations are being portrayed as dangerous for society. However, these technologies actually brought new forms of individual autonomy. They secure human rights such as freedom of contract and speech as well as privacy. Author: Julian A. Proft
On August 8., the U.S. Department of the treasury announced their ban of the digital currency mixer service Tornado Cash with the claim that “Despite public assurances otherwise, Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors on a regular basis and without basic measures to address its risks. Treasury will continue to aggressively pursue actions against mixers that launder virtual currency for criminals and those who assist them.” (U.S. Department of the Treasury press release). Tornado Cash is an Ethereum-based service that offers to anonymize crypto transactions. This press release calling users of digital privacy services criminals, opened up a discussion about privacy, free-speech and about the seemingly increasing fight of governments against autonomous individuals. This article explores some political implications of the Tornado Cash ban and why privacy is a necessary aspect of the democratic society. Author - Julian A. Proft
The legacy of crypto assets started with Bitcoin in 2008. Satoshi Nakamoto envisioned a world free of external coercion to free individuals operating in peer-to-peer systems, financial freedom, freedom of speech and thought and freedom of contract so individuals benefit from the value which they created. Bitcoin is a new form of digital money where trust in the network is established through healthy competition and the proof-of-work mechanism. This system would enable full financial inclusion and new forms of financial systems and taxation.
Fourteen years later, this vision became an utopia - a state of the world far from reality. Why has this new system not been adopted yet, if it works so great?
Certainly, Satoshi Nakamoto created an outstanding asset with the aim to solve all of our socio-political problems. Bitcoin was the starting point of the movement, but it’s not perfect. Bitcoin is pseudonymous but not private. The use of Bitcoin creates an abundance of data that can be collected and analyzed as we have seen with the emergence of Chainanalysis and Dust attacks. The lack of privacy in the network turned out to be a challenge that hindered broad adoption and opened doors for censorship. The common on-ramp to cryptoassets are still centralized exchanges that can be regulated (see MICA), and thus in the future potentially turned into bank-like institutions.
Emerging technologies bear as many risks as benefits. All the benefits that the Bitcoin network offers could also be turned around and be used against the network’s users. In 2018, the Office of the High Commissioner for Human Rights issued the Report on the right to privacy in the digital agewhere they highlight the importance of privacy.
Yes, according to Article 12 of the Universal Declaration of Human Rights (UDHR) privacy is a human right!
The report identified that despite the great benefits of data-driven technologies, there are also huge risks involved, such as “both States and business enterprises are able to conduct surveillance, analyse, predict and even manipulate people’s behavior to an unprecedented degree.” So, it seems like tracking and storing people's data even on greater scales seems fine but protecting oneself from the risks of being surveilled is a crime? This is at least true for the suspected developers of Tornado Cash. One of them was arrested in Amsterdam and is investigated on the matter on suspicions of asset confiscation, environmental crime and fraud.
The implication of privacy exists in many instances in individual lives, like the meal that I choose for breakfast. So, why does the world not need to know about my food choices? - Because it does not interfere with anybody else's freedom. The moral principle behind this premise is called Negative Freedomand was developed by Isaiah Berlin. Negative Freedom is a concept of freedom, where one is free in his actions as long as they do not interfere with the freedom of others. Additionally, Negative Freedom is universalizable, which means and works great for the understanding of privacy. A private matter would be thereof any information that does not interfere with the rights of others.
Generally, based on freedom of contract, an individual is free to do with their money as they wish. If I choose to pay 10€ for a scoop of ice cream, and the other party accepts my offer of 10€, we both create a win-win situation, because we both get what we want. Our deal does not interfere with other individuals. Thus, other parties have no obligation to know about it. Instances like the ice cream deal are the usual social-economic situation that should not be interfered with. The same is true in DeFi (decentralized finance). Using DeFi does not pose any immediate threat to society and therefore demanding full transparency is not in balance with the risks involved.
Privacy of transactions was never a huge problem in times of cash because everybody could trade “peer-to-peer” in the analogous world without the need to on-ramp money to a bank account and the BaFin checking those transactions. However, times have changed through the emergence of new technology like Bitcoin and smart contracts. Bitcoin is transparent which is critical for the network. We have to change our perception of privacy in the metaverse, the web, and any digital environments, where data can be collected, stored, and analyzed. Privacy is valuable because data is valuable. But we often choose to throw our own privacy out of the window for added comfort.
Privacy is a human right, which means that the default of every transaction that an individual performs should be private. It is unbelievable that the human right of privacy gets pushed away because of governmental claims of anti-money laundering and financing of terrorism. There is no immediate threat for society that arises through the use of DeFi. Governments have to find another way to regulate DeFi instead of outright declaring war on privacy and banning services with claims of money laundering and financing of terrorism.
Financial freedom is arguably one main pillar that secures individual freedom. In a digital society where states freeze crowdfunding campaigns, the worst case in the future would be a system where every transaction is analyzed and confirmed by the state. Similarly, to the situation at the airport, where travelers have to show their belongings to prove their innocence before boarding an airplane. A complete financial overwatch would mean financial totalitarianism and the end for any individual freedom that is left. So, CBDCs (Central Bank Digital Currency) pose a threat to privacy, because they are issued by central banks which could analyze and interact with the blockchain themselves.
Fortunately, the ban of Tornado Cash is certainly not the end for privacy in the Metaverse. Digital services and cryptoassets like Monero, Zcash, Dark.fi, I2P and peer-to-peer exchanges still form the backbone of privacy services.
Economic transactions always entail some sort of expression. By choosing one service over another, individuals signal their preferences and thus support the cause. We have to actively deploy and use services that support individual privacy to make them widely adopted.
If individual autonomy has to be secured, then we also have to act on it. We cannot expect businesses and governments to beneficially provide our rights when they have reasons to not do so. Collected data is being sold to other businesses as well as governments and such governments use that data to secure control over society. It is alarming that privacy service providers are being called criminals in the first place. Especially if these services are promoting article 12 of the Universal Declaration of Human Rights (UDHR) and help society to minimize the exposure to data collection and analytics with their work.
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