Why is Privacy the Unattainable Carrot?

The notion of privacy has become a conundrum. Modern-day technological innovations have made it possible for the human race to access almost all & every kind of resource from their laptops and mobile phones through the internet. However, accessing these resources or services requires the disclosure of private information. 

How well-protected is this user data? Statistics show that despite our security solutions getting more sophisticated with each passing day, the concerns around privacy have not come down. Let us start by looking at some data that helps us understand the dynamics between privacy and the society of users. 

Concerns around Privacy Growing

An analysis by SAS shows that almost three-fourths of US customers are more concerned about their data privacy than they were a few years ago. Sixty-four percent of the population surveyed during that analysis went a step further in feeling that their data was less secure today than it was a few years ago.

Another study by the Pew Research Center looked into American attitudes toward data privacy, especially in an age decisively shaped by tech companies. The surging use of artificial intelligence, a domain heavily laden with regulations, brings privacy-centric concerns in the forms of data breaches, passwords, cybersecurity, and ever-evolving privacy policies. 

The Pew survey revealed that Americans were largely concerned and confused about how their data was being used. This confusion extended to the US government as well. The survey found that 81% of US adults were concerned about how companies use the data they collect, while a substantial 71% of US adults are similarly worried about government data usage. 

US citizens were also doubtful about the use of AI and its consequences. Among those who”ve heard of AI, 81% said that people would not be comfortable with the ways companies use AI to collect and analyze personal information. 

The survey also raised several operational concerns about the way privacy infrastructure has been built online. For instance, nearly 60% of Americans frequently skip reading their privacy policies, while 69% are overwhelmed by the need to keep up with passwords. Nearly half forgo secure ones. 

This detailed study – therefore – leads us to examine the notion of privacy from multiple perspectives. As our digital lives prosper and expand their coverage, we become or at least perceive ourselves as becoming more and more vulnerable.

Therefore, the question remains: Has privacy become the unattainable carrot?

One of the domains that looked at the notion of privacy with more scrutiny than anyone else and implemented checks and balances accordingly was the blockchain industry. Its assets, popularly called crypto assets or cryptocurrencies, got their name from the fact that they were cryptographically secure. However, the way the blockchain space has been developing in recent times, experts have already started to ask the question, is privacy attainable in 2024?

zkSNACKs Shutting Down it Coinjoin Coordination Service Related to Bitcoin Security

It is perhaps one of the most defining news of recent times when it comes to qualifying the nature of the privacy-security dynamics in the crypto space, with the most representative asset of the domain, Bitcoin. zkSNACKs, the company that pioneered the development of Wasabi Wallet and was unstoppable in its dedication to improving the privacy standards of Bitcoin, decided to shut down its coinjoin coordination service from June 1, 2024, onwards. The company cited its longstanding tradition of always operating under legal clarity and said that it needed to ‘regain more certainty before moving forward.’ 

The wallet said that without the coinjoin coordination service, it would not be possible to obtain ‘complete privacy.’ It would continue to operate as a regular Bitcoin wallet with features like user-side private key generation services, client-side filtering architecture, Tor integration, and custom coin selection. 

It indicated that Bitcoin’s inherent architecture was not enough for users to obtain complete privacy without Coinjoin. 

Is it possible to attain complete privacy, then? The US regulatory battles between the Biden administration and some US senators shed more light on the unique dynamics of the question.

Senator Cynthia Lumis on the US Regulatory Scrutiny over Cryptocurrencies

Two US lawmakers, namely Democrat Elizabeth Warren and Republican Roger Marshall, expressed concerns over cryptocurrencies, especially Tether, being used to bypass sanctions. 

Warren and Marshall, in a letter written to Treasury Secretary Janet Yellen and Defense Secretary Lloyd Austin, said: 

“The national security threat posed by cryptocurrency requires a commensurate response by our country’s defense community.” 

Like the US public’s apparent distrust of security measures adopted by companies and the government, Warren and Marshall were also skeptical about the steps taken by the US government to stop Russian middlemen from using Tether to circumvent Western sanctions to source weapons for drones and other military equipment. 

Although they took note of the sanction put on Tether’s preferred crypto trading platform, Garantex, they were not clear whether these actions were effective in stopping the ‘flow of funds through the platform.’ Responding to regulatory concerns like these, the Biden administration took several steps and came down hard on the crypto sector. 

For example, the SEC issued a notice warning to Uniswap Foundation alleging that the platform was operating as an unregistered alternative platform. It also delivered warning letters to ConsenSys, referring to MetaMask, one of the most well-known decentralized wallets, for their self-custody tools and instruments. The IRS also asked for a significant expansion in the definition of brokers to primarily include unhosted wallets used for private custody purposes. 

Senator Cynthia Lummis criticized the government’s actions, including the DoJ’s labeling of non-custodial software as a money transmission service. Lummis believed that the action not only infringed upon fundamental American property rights but also contradicted the Treasury guidelines. 

Senator Lummis has been advocating for increased clarity in the crypto sector so that there is no scope for regulatory overreach from the authorities. She also introduced the Lummis-Gillibrand bill with Senator Kirsten Gillibrand, which sought a clear regulatory framework for digital assets like XRP to be treated at par with established legal standards.

The back-and-forth between the US administration and its Senators is crucial to understanding the privacy dynamics that we are discussing. Some senators believe that cryptocurrencies need to operate within more tightened security paradigms, which the government has been tightening in many areas. And then there are Senators like Lummis who believe that tightened security often comes at the cost of compromised privacy. 

She reportedly strongly disapproves of the way the Biden administration has decided to approach key Bitcoin and DeFi principles. 

While privacy is crucial, we must also understand that security is something that no governmental authority can take lightly. The recent arrests of crypto mixers reaffirmed the importance of security. 

Cryptocurrency Mixing Service Founder and CEO arrested for Money Laundering and Unlicensed Money Transmission

On April 24, 2024, the Department of Justice issued a press release announcing that it had charged Keonne Rodriguez and William Lonergan Hill with operating an unlicensed money-transmitting business called Samourai Wallet. 

The wallet was accused of executing over US$2 billion in unlawful transactions and laundering more than US$100 million in criminal proceeds. The transactions happened on the dark web, including Silk Road and Hydra Market, a web-server intrusion, a spear phishing scheme, and schemes to defraud multiple decentralized finance protocols.

To evade security enforcers, the fraudsters leveraged the internet’s modern-day benefits and placed their servers in Iceland, which was seized. The law-enforcing authorities also ensured that the Samourai application was no longer available on the Google Play Store in the United States. 

According to FBI Assistant Director in Charge James Smith: 

“Threat actors utilize technology to evade law enforcement detection and create environments conducive to criminal activity.  For almost ten years, Keonne Rodriguez and William Hill allegedly operated a mobile cryptocurrency mixing platform that provided other criminals a virtual haven for the clandestine exchange of illicit funds, the facilitation of more than $2 billion in illegal transactions, and $100 million in dark web money laundering.”

One vital aspect to note here is that these scamsters acted under the guise of privacy. They marketed Samourai as a ‘privacy’ service. This app was developed as a mobile application that users could download onto their cellphones to store their private keys for any BTC addresses they control inside the Samourai program. Although these private keys were not accessible to Samourai employees, the app used a centralized server to supervise and facilitate transactions between users and to create new BTC addresses for these transactions.

The Samourai incident shows that even players who market themselves as privacy services need to undergo stringent scrutiny. In their efforts to keep such dubious players under control, is it possible for the enforcement authorities to keep the promises of complete privacy alive? This dilemma is one of the prime factors leading to the ongoing battle for Bitcoin self-custody. 

Bitcoin Self Custody and the Challenges Surrounding it

Samourai is not the only firm that faces the wrath of law enforcement for its allegedly unfair deeds. The DoJ levied charges against the developers of Tornado Cash, an open-source cryptocurrency privacy tool, while the SEC sent a Wells notice to Consensys for MetaMask, as we have already discussed. These charges arose because several of these services promised self-custody. Therefore, actions against these services were seen by many as an infringement on privacy. 

Self-custody has benefits and is a critical tool for consumer protection. Many believe that enabling consumers to hold their private keys through self-custody mechanisms mitigates problems like fraud, negligence, and regulatory failures. Many also consider it an extremely crucial option in a climate where regulators have failed to prevent large-scale frauds like the FTX debacle. 

The government, on the other hand, is trying to curb these tools to protect the system. The future of crypto transactions, therefore, depends on how much privacy can be attained without compromising safety and security. Banning self-custody, as the regulators are advocating for, will be seen as moving away from complete privacy. 

Apart from Senator Lummis, people like Robert F. Kennedy, Jr., are advocating for Americans to have a right to hold their private keys, recognizing self-custody as a crucial component of financial freedom.  

The 2024 presidential election will be a defining period for the battle between the Federal government’s security and consumer protection concerns versus the advocacy of privacy activists. 

However, it would be unfair to see the battle around privacy as a feud between governmental authorities and the rights or aspirations of private players and citizens. The situation is more nuanced. Amid this, well-known crypto exchanges like Binance have decided to delist privacy tokens like Monero (XMR) and others. 

Click here to learn why holding a private key isn’t enough for digital asset security.

Binance’s Delisting of the Privacy Tokens

Binance, one of the most popular crypto exchanges, decided to delist the privacy token Monero(XMR) along with three other tokens, Aragon(ANT), Multichain(MULTI), and Vai (VAI). 

Privacy coins, by definition, preserve anonymity by obscuring the flow of money across their networks. Earlier, the exchange OKX had announced a similar delisting of XMR and other privacy-focused tokens like Dash (DASH) and ZCash (ZCH). While announcing its decision to delist these tokens, Binance said:

“When a coin or token no longer meets this standard or the industry changes, we conduct a more in-depth review and potentially delist it.”

While it is true that regulators never had an easy relationship with these tokens, it has also become difficult for crypto exchanges to support them. Altogether, the situation appears to be complex as of now. 

Click here to read if privacy coins will survive the regulatory onslaught.

Concluding Thoughts 

Obtaining privacy without becoming a total recluse depends on several aspects of the cyber and crypto world. On the one hand, some services promise complete privacy. Here, the users own their private keys and do whatever is required to keep their customers safe and secure. Many believe that such self-custody is good in a space where regulators have failed more than once in protecting funds. 

Some lawmakers are in support of this proposition. They believe that actions against such systems are an encroachment on users’ rights to privacy and personal freedom. 

However, some lawmakers do not support this idea of fully unchallenged privacy. They see these as traps to circumvent existing laws. Their worries are not unfounded. Some companies take undue advantage, and some commit fraud. 

Therefore, whether privacy can be attained meaningfully and functionally would depend on developing a system that strikes the right balance. User privacy should not translate to committing fraud and running malicious transaction networks in such systems. It would take time to develop, hone, and perfect such a system, but it must not be impossible to accomplish.