Privacy and confidentiality vs anonymity—a key takeaway from The Bitcoin Masterclasses

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On February 22-23, Dr. Craig Wright will host a second set of The Bitcoin Masterclasses workshops aimed at exploring core ideas and principles related to Bitcoin. In anticipation of the upcoming event, it’s worth looking back at some of the key takeaways from his previous seminars that took place over two days in London at the end of January.

The first day of the Masterclass focused on confidentiality, privacy, anonymity, and ‘party-to-party,’ while the second day covered the concepts of private identity and identity proofs related to Bitcoin.

One concept Dr. Wright spent significant time on was clearing up the confusion that often exists between, on the one hand, the concepts of confidentiality and privacy, and on the other, the contentious subject of anonymity.

In essence, the fundamental difference between these often confused and wrongly conflated ideas boils down to transparency and lawfulness, which privacy and confidentiality can include, but which anonymity, as it is used in the digital asset world, does not.

As Dr. Wright did back in January, diving into the subject in more detail can help further illuminate this distinction and serve as a good groundwork for those hoping to catch the next of Dr. Wright’s Masterclasses.

The problem with anonymity

While anonymity might be important for certain specific activities, such as medical research or voting, even in these situations, it must be provably linked to a real identity, and there is no such thing as an anonymous signature. You can have a pseudonym, but it must have an identity attached to it.

During the Masterclass, Dr. Wright was at pains to point out how the concept of anonymity is much misunderstood and misused, particularly in the online and digital asset spaces, “anonymity isn’t the function that many in the cryptosphere try and make it out to be.”

Many see the idea of being anonymous as the best way to keep your personal identity, information, and data out of the hands of others who could misuse it. However, when obtained, anonymity often results in abuse, whether that be an illegal activity such as black market dealing and fraud or abuse of ‘free speech’ such as trolling.

“Anonymity doesn’t give you the right to go out there and troll other people, and it doesn’t give you transparent free speech. Anonymity takes away free speech,” explained Dr. Wright. This might sound contradictory, as surely anonymity can allow someone to say and do anything they want, consequence-free, but if you require anonymity to act without restraint, that act is by definition not free.

In the case of some activity or speech, it is not free because it is illegal, and Dr. Wright highlighted this as another key differentiator between privacy and anonymity, and one which “no one wants to talk about in cryptocurrency worlds.”

Dr. Wright went on to explain how, often, when people in these ‘worlds’ use the term “privacy coin,” they actually mean “anonymous illicit use coin.” Thus, they are misusing the term privacy, which in reality is dependent on the laws of the land and—in most common law countries, at least—for a good reason. Trolling is a classic example of abuse of anonymity, but Dr. Wright also spoke of the importance of incorporating law into online identity when it comes to more serious issues such as sexual abuse.

Privacy and security

Privacy, as opposed to anonymity, can be maintained by keeping personal data confidential where possible, but it allows access to authorities and institutions when necessary as well. As Dr. Wright pointed out, “if we want privacy, we need people to be accountable for their actions. That doesn’t mean I need to know who you are; pseudonyms allow for privacy, but if they tie back to an identity.”

Pseudonyms that can be provably (when required) linked to a real identity have a certain amount of transparency. This is what privacy offers over anonymity, a commitment to linking a real identity to a pseudonym.

When it comes to Bitcoin and the blockchain, these ideas are crucial for the purposes of security, which needs three core elements: authentication, integrity, and confidentiality. No identity, or complete anonymity, would mean not being able to authenticate people, which would take away one of the fundamental principles of security.

This effectively undermines the utility of any digital asset or blockchain that allows anonymity, as authenticating people is essential for many transactions and contracts and is made impossible by anonymity.

In fact, Dr. Wright suggested that 30,000—“at least”—attempts at Bitcoin before Bitcoin failed due to trying to be anonymous. This is why he advocates for Bitcoin to have data integrity, individuals’ authentication, and privacy rather than anonymity, and this is also where the idea of confidentiality comes into play.

Confidentiality over anonymity

Confidentiality, as Dr. Wright stated, is “ensuring that the right people have private information.” This means letting go of the notion of total anonymity as “identity is firewalled from the blockchain, but firewalling identity doesn’t mean that it doesn’t exist, it’s not anonymous.”

It also doesn’t mean providing all your private information to everyone, or even anyone, only the necessary information in any situation.

“Confidential means we share with the right people,” said Dr. Wright. He used the example of buying a television to demonstrate why you wouldn’t want complete anonymity in a normal business/commercial transaction—Where would you deliver it without providing an address? How would you return it or get a warranty without being able to prove you bought the item?

However, this doesn’t mean you would need to give all your information over, only what is required—in the example of the TV, it might be providing your address, but only to the delivery company as they’re the only entity that needs it.

In the context of the blockchain, the totality of a person’s identity can be spread out amongst different keys, which can then be used in different transactions and circumstances to verify a person’s identity without them ever having to give their full information/details to anyone—only revealing what is necessary and what they want to for any particular situation.

This is possible using PKI certificates, which contain attributes such as personal information and can be linked to registered, certified keys. Thanks to Merkle trees in Bitcoin which allow selective disclosure, you can verify certain specific information, such as an address, without necessarily revealing anything else.

This, Dr. Wright suggested, is a preferable situation to the one in which we currently find ourselves, where either substantial personal and private information and data is shared freely by institutions and companies who receive it for verification purposes, or anonymity exists and fuels illicit activities.

By breaking our identity and private information down into its constituent elements and only ever giving out what is necessary, we can keep the majority of our identity and data private and confidential whilst also avoiding the pitfalls and controversies that come with complete anonymity.

So privacy and confidentiality, with transparency and authentication, over lawless anonymity.

Join the discussion

Clearing up some of these confusions and correcting the misuse of core concepts and terms is part of the goal of Dr. Wright’s The Bitcoin Masterclasses series and fosters conversation in the Bitcoin space more broadly.

The next two-day event will focus on the basic constructs and networking foundations concerning both IPv6 and the use of multicast, and you can attend in person if you happen to be in Ljubljana, Slovenia, on February 22 and 23, or watch via livestream. Register your attendance with nChain here.

Watch: The Bitcoin Masterclasses – Identity & Privacy