What's Behind Crypto's Privacy Curtain

In a first for the Weiss Crypto Sunday Special, host Chris Coney welcomed two special guests this week — Alex Benfield and Juan Villaverde.

They’re talking about some interesting, cutting-edge stuff: private finance, or PriFi.

What the heck is that?

Basically, it’s private, decentralized finance (DeFi), but with a focus on anonymity and privacy.

Though most finance folks aren’t even talking about PriFi yet, Chris, Alex and Juan aren’t not jumping the shark in this interview. That’s because — as you’ll hear Chris explain — he believes PriFi is an extension of DeFi. Meaning, as the DeFi revolution continues, PriFi could rise as well.

Juan, Alex and Chris discuss the pros and cons of privacy measures on the blockchain, as well as regulatory obstacles those measures may face.

You can watch their roundtable here or read on for the full transcript ...

Chris Coney:

Hi there, guys, and welcome to this week's edition of the Weiss Crypto Sunday Special. With me, your host, Chris Coney. I have two guests today. I have Alex Benfield and Juan Villaverde.

Juan, first of all, welcome back to the Sunday special once again, sir.

Juan Villaverde:

Thanks for having me back, Chris.

Chris:

And Alex, welcome back to the Sunday special to you as well, mate.

Alex Benfield:

Glad to be back.

Chris:

Good to have you both in the house.

Today, this is another topic that I chose, I'm calling this one “The Emergence of PriFi,” which is private finance, or private decentralized finance (DeFi), whichever way you want to call it that. And it is probably quite early to talk about this, because this is super, super cutting edge stuff. Most people haven't got their head around DeFi yet, let alone private DeFi.

But to me, this is the blend between … we had a whole attempt in the first generation of cryptos with private cryptocurrencies, with [coins like] Monero (XMR, Tech/Adoption Grade “C+”) and all that malarkey. And then we've got all the smart contract stuff. But the privacy stuff was left behind, and seems to just be the realm of the cryptocurrencies.

But the PriFi movement is almost like combining the two things together, where you've got smart contract DeFi transactions, but totally anonymized.

So, we know Bitcoin (BTC, Tech/Adoption Grade “A-”) is pseudonymous in the sense that it is a public network; everything is public, but not personally identifiable. Whereas the Moneros of the world — the Dash’s (DASH, Tech/Adoption Grade “C+”) PrivateSend feature and Zcash (ZEC, Tech/Adoption Grade “B-”), we'll get into that stuff in a second — that is actually totally anonymous, except for the people sending and receiving the transactions, or the person that has permission to view them, which is a whole other thing.

So, credit to this episode goes to Hartmann Capital, because I've read this article they've got called Optimizing DeFi Privacy. And that really pushed me over the edge in terms of like, okay, this is a serious sector to be considered. And I'll bring you guys in, in just a sec. But they break down the blockchain innovation into three generations.

First generation is what I just mentioned, decentralized currencies and store of value. The second generation is decentralized finance and apps. That's kind of where we are now in DeFi. And then, the third generation is a combination of the two, decentralized finance combined with, interestingly, optional privacy that affords the user ownership of their data.

I'll bring you guys in at this point just to comment here. And I think Juan's been in crypto slightly longer than Alex, but Alex I'll bring you in first. Were you in crypto when Monero was one of the darlings of cryptocurrencies in the earlier days?

Alex:

Yeah. Yeah. I mean, I guess I started really paying attention to the space in 2017. And I don't know if I would call Monero one of the darlings of the industry, but it was definitely-

Juan:

I definitely would.

Alex:

It was definitely talked about a lot more than it is now, as was Zcash. Zcash was a lot more popular back when I first got in than it is now. And, yeah, I would say that privacy coins are not considered as highly as they used to be.

Chris:

Sure, sure. Yeah, I agree. It used to be kind of in the forefront. I suppose maybe that's a … I say a generational thing, but I don't mean generational terms of technological or even in age. I mean in how much of an OG you are in terms of crypto.

Because the first gen of crypto people were kind of the cyberpunk types who were very, “let's build a new system” types. And those folks really were pro privacy, because it was a cryptography movement, which is by definition a technology that obfuscates communications. That's what encryption is, right? So it's got privacy built into the base layer.

But perhaps, as the space grew and the big numbers started flashing up, the privacy thing and that generation of folks was overcrowded or ... What's the word I'm looking for here? There was more noise for speculation. And that population of crypto people outnumbers the purists, that's probably the explanation as to why privacy is now sat there in the corner quiet.

Juan, what do you reckon?

Juan:

I agree 100%. I think that the issue with privacy is not that ... I personally think it's super valuable. And not just to protect your own privacy, but also because I think you cannot guarantee that you're going to have a fungible token if it's not fully private, because eventually you're going to have all these tracking tools that separate and that label certain coins.

For example, we've seen this discussion in Bitcoin: There's a lot of chatter out there that certain verging coins — coins that have just been mined with no transactions associated with them — would trade at a premium.

The flip side of that is that tainted coins — coins that have gone through addresses that are associated with, I don't know, drug dealers or terrorists — might trade at a discount.

And this threatens the fungibility of the Bitcoin token. And the only way to guarantee that this will never happen is to make it more like cash: You don't know where cash came from. You don't know who used it before.

I personally believe that crypto's weakest link in the whole chain is the lack of privacy because that could allow in the future regulators or hostile actors to start labeling assets and essentially stripping value from them.

For example, if this is a tainted Bitcoin, then this Bitcoin is worth 20% less, 30% less. Maybe it's completely worthless, no one wants it. I don't think we want to live in this world. And this could happen if you have a blockchain that's fully transparent. So privacy is a big issue

But here's the problem: It's a big issue no one is paying attention to.

And I just don't think people are going to start paying attention all of a sudden. I mean, look at social media; the lack of privacy in social media is a glaring issue. At least most people should be aware this is a problem they have. They have completely exposed their lives to algorithms and bots.

Chris:

And you mean no one seems to care?

Juan:

To be exploited. No one cares.

Chris:

No one seems to care anyway, even if they say so.

Juan:

No one seems to care. I guess if you ask people, "Hey, do you know that your phone is spying on you?" I guess most people would care. A lot of people would say, "I don't care, I have nothing to hide."

Chris:

But then they would carry on.

Juan:

But then they would carry on. And also, there are a lot of advantages with basically giving up your privacy. For example, your phone can know where you're at, at all times. Your social media apps can better target you as a customer and feed you advertisements that probably makes sense to you. This is all because they know who you are. They're spying on you, essentially. You have no privacy in these applications. And so people also value those things. So how do you square that circle? I don't know.

Chris:

That's a good point. That's a good one. The whole point about, it's not all bad though. There's an app on my phone for my office. And if I leave the GPS on, which I never do, you don't have to check-in, you just walk onto the premises. It's like, Chris Coney's in the building, logs in, logs out. For fire safety and all kinds of ... I don't use that feature. I actually open the app, pull up the QR code and show it to the tablet in reception. And then it checks me in and out. So that's-

Juan:

You can do that with your knowledge proofs though, probably. Nobody knows who you are, but your phone knows when you're close to a location that it shouldn't lock a certain key. And that can be fully private.

Chris:

Sure, I'm totally with you.

Juan:

Right? I mean, you can do all these things with privacy, it's just a bit more complex. And my concern actually with privacy is that people don't care enough. If people, customers, really valued full privacy, I guess it could become the next big wave in crypto.

I, for one, think that, yeah, private DeFi sounds amazing. I hope it becomes a thing, but I don't know if it will. Simply because, again — like I said, I keep coming back to this — people don't value it enough.

Alex:

Can I jump in here?

Chris:

I know you were going to say something. Go for it.

Alex:

 So just jump back to what we were talking about earlier with privacy coins being much more popular in 2017, and even earlier than that. I think, Chris, you're right a little bit; the attention shifted, right? There was a new generation of investors that came in, which was less concerned with the cyberpunk core and more concerned with, how to get rich with cryptocurrency.

Not that that's necessarily wrong way to think, either. But I think they entered the space, attention shifted away from privacy coins into more lucrative projects. Layer-1 became much, much more popular over the last four years. And just slowly, attention trickled away from these privacy coins. They're not any worse than they were, in fact they're probably a little bit better than they were in 2017.

And I think the people that used to care about privacy coins, they don't care about them any less. It's just, the percentage of people in crypto now, it's a smaller percentage of people that care about privacy than what it used to be. But that's only because a lot more people entered the space.

And then to touch on privacy's popularity, or people's concern with privacy: I would think that actually right now, there might be a lot of forces going on that might shift people's attention back towards privacy. Now, there's talks in the U.S. that the IRS is going to monitor every transaction of $600 or more, right? These are the kinds of things that worry people. And perhaps a compounding of events like that, could perhaps shift people's attention back toward privacy, to privacy coins. Perhaps people might find out about PriFi, or private DeFi, because of this. There is a building up of social sentiment that is very much against financial tracking right now.

Chris:

It's a good one. It's a good one. Actually, this discussion already is changing or challenging my case for DeFi being ... sorry, for PriFi being the next big wave.

In my notes, I wrote about this flock of users going to PriFi platforms because of that value proposition of being able to own your own financial data. And I say that because ownership of your online data is already an existing wave that is going to give private finance a tailwind.

However, you both very kindly have just thrown a big spanner in the works there. Because it still boils down to the question:  Will people care? And I'll split that into two. It seems to me that PriFi became more popular than privacy and social networks. Because what that means is that people value privacy of their financial data more so than they do their personal data. So comment on that, guys.

Juan:

This is true. Absolutely. Speaking for myself, yes. I value my financial privacy a lot more. And it bothers me that if somebody came to know my [crypto] addresses, then they basically know everything I'm doing on the blockchain. They can just look at what I'm doing, and this bothers me quite a bit. So this became a thing.

And I think the same thing would be true for especially large institutions — they don't want other people to know what they're doing with their money. I know that there's a lot of people who trade in crypto, and basically their entire trading strategy revolves around tracking certain addresses, certain whales as they call them, to see what they're doing to piggyback on them, maybe try to front run them.

So, actually, front running is another issue. It's a big issue, because all these transactions are public on the blockchain. So this is a big problem for Ethereum (ETH, Tech/Adoption Grade “A-”), for example, for Uniswap (UNI, Tech/Adoption Grade “B”), for bots. If I'm a normal user trying to do a trade on a decentralized exchange, there's a large number of bots that are going to try and jump in front of that transaction. And they're going to try to steal value away from me as the person who posted this trade. These are all of issues that stem from a complete lack of privacy. Probably solved if we had PriFi.

The issue, I think, is that users prioritize other things. For example, cost. Transactions have to be cheap, and they have to be fast. This convenience is always going to be more important in the minds of users than full privacy. I don't think people even understand that they're being front run by bots when they trade on Uniswap; they don't even realize this.

So yes, you have these rent extractors extracting value away from them, but they're not even aware this is happening. The same thing is true in traditional finance. I mean, there's a lot of bots that try to front run certain large orders. And users, for the most part, aren’t aware of that. It could be solved with privacy. But again, if that privacy comes at a high cost — for example, your transactions are much more expensive — they’d take a lot more to confirm. I don't see people valuing this enough. I think they're just say, "Hey, I'd rather get front run by bots and have everybody know what I'm doing with my money if they learned my addresses than, pay tenfold, twentyfold for my transactions and wait longer.”

I think the other issue with privacy is regulation, actually, since Alex touched on that. Regulators do not like privacy coins. They just don't like Monero, especially.

Zcash is kind of like in this gray zone, [and] you can see that in regulated exchanges like Coinbase Global (Nasdaq: COIN). Alex can correct me if I'm wrong, but as far as I know, Zcash is still listed, but you can’t do any private transactions on it. You cannot use shielded addresses for Zcash. And Monero's a no-go.

Actually, when the U.S. authorities started cracking down on Zcash, certain exchanges delisted Monero because they saw the writing on the wall. They said, "Hey, if regulators don't like this, they certainly will hate to learn that we're also supporting this asset where privacy is not optional." It's on by default and you cannot shut it down.

So Monero has lost popularity because the companies dealing with crypto understand that regulators do not like people hiding what they're doing with their money. In fact, they're going in the exact opposite direction. Like Alex said, they're trying to track $600 transactions or more in the U.S., it's ridiculous. How are they going to react if the entire crypto space just went fully dark for them? Untrackable?

Alex:

Well, I think perhaps crypto space would go fully dark as a reaction to the regulators.

Juan:

I think it has to.

Alex:

... might have it backwards.

Juan:

That's a different discussion. I personally think it has to. Like I said, I think Bitcoin has to go fully private. I think they need to implement MimbleWimble, period. MimbleWimble being best privacy technology that I'm aware of. I think they need to just go ahead and do it.

Alex:

I think it's more likely to happen that way as privacy as a reaction to the regulators than the flip side. And I would say, you're talking about the cost of privacy over the cost of cheaper transactions, but who knows how PriFi gets implemented or gets solved. Perhaps privacy rolls out as a Layer-2 solution, or side chain type solution, and your transaction costs are similar to what you're operating on Polygon (MATIC, Tech/Adoption Grade “B-”).

Juan:

True. True.

Alex:

So you could have transactions that are significantly cheaper than your Ethereum base layer transactions.

Juan:

Absolutely. It's just my thought is that anybody working on privacy enhancing technologies needs to keep in mind that the large majority of users are going to value other things, or they're going to value things other than privacy more.

Chris:

It's because it’s kind of hard. What the hell is privacy, and what's the tangible benefit to me?

You talked about the front running, Juan. The idea of monitoring unconfirmed transactions and then going, "Oh, looks like someone's going to buy loads of Bitcoin, I'm going to buy some in front of him with a higher transaction fee." And that reminded me: That's how the existing financial system is structured. Retail traders are the last in the daisy chain. So front running in traditional finance is almost built into the very architecture, right? Whereas at least now, we can see it happening because everyone's on a flat network. It's just a case of who pays the highest fee, rather than the cotillion effect — whoever's closest to the central bank or whoever's closest to the market.

Juan:

Agreed. But even though you can see it, there's nothing you can do about it. Because these front running bots have better technology than you do and they're willing to pay a higher fee than you are. So there's not much you can do to stop them unless all these transactions are in the dark pool that nobody can see.

But then again, I don't even know if you can sell for that, because some of these people have direct relationships with the miners. So it's really the miners that are tipping them off, saying, "Hey, there's a transaction coming." They have this software, obviously, that does this. But they have a direct relationship with the miner, the people who are including these transactions, the validators. And they're the ones collaborating with the bot, with the front running bots. So how do you stop all that? I guess-

Alex:

Well, how does that happen? How would that work on proof of stake?

Juan:

It's the same thing. I mean, you would still have memories on the mempool [an open-sourced explorer developed for Bitcoin]. And as long as you have transactions on the mempool and somebody can see them, I guess ... Again, part of this private DeFi could be, well, that the mempool is no longer public. Then again, miners and validators need to be aware of them. So I don't know how you solve for this.

Alex:

And would you see this as more of an entirely new blockchain, or is this a potential side chain or additional layer on top of an existing blockchain?

Juan:

I think it's an additional layer. And I think it's been discussed for Ethereum already. And it's basically your knowledge proofs. It's basically what Zcash does to shield transactions. You can use this potentially to obfuscate all manner of transactions, all manner of smart contract interactions using your knowledge proofs.

I know that Cardano (ADA, Tech/Adoption Grade “B”), for example, is working on this. I know Ethereum is working on this. When I say Cardano, Ethereum, I mean the teams that build on these blockchains. I haven't heard a lot of buzz around those projects. It's like most people, like I said, don't care. They care more about speed.

Alex:

Well, listen, you're talking about if that is a side chain solution or an additional layer. But if you zoom out of just this privacy discussion that we're having, you could have Ethereum with many different side chain solutions for many different purposes. Right? You could have a cheaper, faster side chain. You could have an even more secure side chain somehow. Or you could have a private side chain, right?

Chris:

Yes.

Alex:

So you can focus on each aspect across different side chains.

Chris:

I'm with you.

Juan:

That's a good point.

Chris:

Let me take the ball, because I've got some notes on this. Back to this Hartmann Capital article, they've categorized this privacy landscape into five different categories: privacy coins, standalone private DeFi, on-chain mixers, Layer-2 PriFi and Layer-1 PriFi.

So, we've already covered the first one, privacy coins like Zcash. I'm personally, not a fan of it, never have been. Zcash gives you the option of, like Juan just said, basic old on the blockchain transaction that everyone can see, versus shielded addresses, which is fully private. Monero doesn't have that option, it's just private.

And then MimbleWimble coins, like Grin (GRIN, Tech/Adoption Grade “C”), for example, that don't actually store any transaction details. All the transactions in every block, if you like, are just pulled together and it looks like one massive transaction and then it's never stored. So that's pretty interesting technology.

I was actually very, very disappointed by the performance of Grin, because I thought, “oh my God, this technology is amazing. I think this is going to go to the moon.” But it’s just kind of been like a wet fish really. So that's-

Juan:

That's like we said, people don't care about privacy. I wasn't surprised at all. I think MimbleWimble technology is amazing. I think it's fantastic actually, because you have enough data to verify that the coins are real and nothing else, just like cash. It works just like cash.

When you take a dollar bill, you can see the mint and you can see the signature and you can verify that this paper bill is real, but you know nothing else about it.

Chris:

The history isn’t retained.

Juan:

I think that's a flaw in the public blockchain that can be solved with MimbleWimble, for example. But to your point, Grin's performance is lackluster because people don't care. Now Litecoin (LTC, Tech/Adoption Grade “B”) is implementing a MimbleWimble side chain. I don't know-

Chris:

Who is?

Juan:

Litecoin, they're going to have a MimbleWimble side chain, which is beautiful. It's great, actually. I'm excited to see if people are excited about it, but my guess is they probably aren't.

Alex:

I think the big reason why people aren't excited about privacy right now is that, when you look at Zcash and Monero, and potentially a MimbleWimble layer on Litecoin, the big thing is that no one accepts Litecoin, Zcash or Monero as payment. I guess some people accept Monero as payment, but those are dark web merchants or something.

Juan:

Litecoin too.

Alex:

The only thing that would make these useful is if people would accept those as currency. Or payment, I should say, I guess. But if there aren't people accepting that as payment, then it doesn't matter if my transaction is private.

Juan:

I mean, I suppose a privacy-focused Layer-2 solution on Ethereum that also supports smart contracts could potentially be a hit, but let's wait until they build that one.

Chris:

Okay. Let me carry on with my little list here. That was the first category, which is privacy coins. The second category is standalone private DeFi. And I’ve got two projects listed here. First is Secret Network (SCRT), which is a full-blown smart-contract platform. Secret Network is basically like if Ethereum, Monero and Cosmos (ATOM, Tech/Adoption Grade “C+”) had a child.

And then you've got Haven protocol, which is PriFi derivative assets. I'm actually considering a position in Haven (XHV, Tech/Adoption Grade “D-”) right now, just because the chart looks amazing.

Alex:

That's interesting.

Chris:

That's just by the way. And then [the third category is] on-chain mixers, which are services for existing coins. You can get on-chain mixers for Ethereum and Bitcoin where you put all the coins in the middle of the table and mixed them all up. And then you don't know where each input and output went.

So, it's an obfuscation technology, but it's kind of primitive. It's been around for a while and it's not properly approved by any means. And the biggest drawback of mixers is [they’re dependent] on how many people are participating in the mix. The larger the pool of people and the larger the pool of capital, the more private it is. The smaller it is, the easier it is to de-obfuscate it. That's not really an option, it's kind of old technology.

Alex:

It is.

Chris:

The other two categories were Layer-2 PriFi, such as Aztec protocol, who are credited with inventing EIP-1724, which is a confidential token standard on Ethereum. But at the moment, because it's a new project, I think Aztec protocol is not fully decentralized. But they've got credit for creating a confidential token standard, so good for them.

Alex:

That's quite interesting.

Chris:

You guys got a comment on that? Have you ever heard of Aztec protocol?

Juan:

No, I have not.

Chris:

No? Okay.

Juan:

No.

Chris:

Cool. Then what else we got? What did I put here? An immediate privacy solution is to use an Ethereum bridge to deposit funds into a different address on Layer-2. I kind of came with this myself when I was messing around with moving assets across Ethereum bridges to Polygon and Binance Smart Chain (BSC) and stuff like that.

By default, if you just move an asset across a bridge from Ethereum to Polygon, it goes from this same wallet address ending in 9999, to the exact same Ethereum address on the second layer. But in the advanced options, you can send from one Ethereum address on Layer-1, but have it deposit to a different Ethereum address on the Polygon network, or Layer-2. So it sort of breaks the daisy chain of the link between transaction on Layer-1 and transaction on Layer-2.

That's still not foolproof because everything is timestamped, right? And the amounts are timestamped and all that kind of stuff. So it wouldn't be too difficult to relink those together. I don't think that idea is that great.

Juan:

Not at all. I agree. I mean, for example, in that case, if you can just look at the amounts and figure out which address received this payment then ... Because, I mean, privacy matters if someone's looking for you specifically, right? So yes, they're going to do the work. They're going to take the time to look at the time stamp on these transactions and look at the amounts and match them. I mean, this is something that anybody who's looking to track someone is absolutely going to do.

Chris:

That's true.

Juan:

Yeah, like I said, I keep coming back to my original point: I don't think people care enough about privacy.

I worry that this could undermine certainly Bitcoin and ones like it, especially. I don't think the same is true of Ethereum. It could be, but Ethereum is a smart-contract platform and there are apps running on it, so I'm not as concerned. But I am concerned if this whole tracking the blockchain becomes a thing — becomes so popular that it becomes cheap, fast and easy to label these points, to see how clean they are — it’ll destroy the fungibility of the Bitcoin token. I don't know if it can act as a safe haven. I think it's actually pretty critical that Bitcoin especially takes care of this issue of privacy, or lack thereof. But I don't see it being taken too seriously.

In fact, I've had discussions with people who think, “No, no, no, they absolutely should not do that because then institutions are not going to want to come in.” And I'm like, yeah, I don't know if I care about that. I just care about the survivability of this new stored value. I don't even think that gold has this issue because you can just melt it down and clean it that way. How do you clean a tainted Bitcoin when you know its entire history, and you know for a fact it's been used by drug dealers and terrorists?

Chris:

Oh, there's an interesting point in what you just said. Which is, Bitcoin is designed exactly like gold in the sense that it is melted down and remolded in every transaction. So this is what doesn't make sense to me about the whole idea of a tainted Bitcoin. Which bit is tainted?

Let's say Alex uses 0.5 BTC in an illicit transaction, right? So 0.5 BTC comes out of his wallet and into mine, right? That's fine. But then that's now Bitcoin as a UTXO model, it's an unspent transaction output. It came into my wallet, but it's not unspent output. If I then spend 0.1 BTC with Juan, that five BTC goes out, 0.4 comes back as change. And 0.1 goes to Juan. Now, what the hell's going on here? Is it all tainted, the 0.4 and the 0.1?

Juan:

Ask the regulators, I wouldn't know.

Chris:

Because in your wallet, if you've already got 0.9 BTC and my 0.1 comes in, because that's now 1.0 BTC. If you then send that 1.0 BTC to Martin Weiss as a whole coin, well 90% of that gold bar, if you like, is clean, and 10% of it is dirty. Is the whole thing tainted? Like, it's impossible.

Juan:

Maybe.

Chris:

You get what I'm saying though.

Juan:

I absolutely get what you're saying. And I don't know because I'm not a regulator, so I don't know how they're going to see this. I don't know how they're going to look at this. I know that right now, they're flagging addresses; you cannot take deposits for certain addresses, and that applies to any crypto asset. But for Bitcoin specifically, tainted outputs are what they would be looking for. And perhaps a transaction that involves any tainted output gets automatically rejected.

Chris:

Okay. So that means that if I have any Bitcoin in my wallet that contains even one Satoshi that touched an illicit transaction, it's all tainted. That's kind of like they say that all... What is it, Alex? Maybe you know this. You know they say that every dollar bill has a trace of cocaine on it.

Alex:

Yes. Well listen, this discussion is completely ludicrous, right? I mean that's just because trying to decipher what is a tainted Bitcoin is ludicrous. Right? So we all agree that it's a stupid thing. Regulators are not going about Bitcoin or cryptocurrency as a whole in a very educated manner. Right? So this-

Juan:

Could happen.

Alex:

We can chalk this up to a stupid act by people that don't understand enough about the space. Right?

Chris:

Exactly.

Alex:

So, do we even need privacy on Bitcoin? I don't know. Is this such a stupid act, or is it something that they're going to do?

Chris:

Sorry, mate.

Juan:

I think this is something that could happen. They could just suddenly decide if there's any tainted outputs in this transaction, or inputs rather, then yeah, the whole thing is invalid and the whole Bitcoin is tainted. I could see them do this. They want to track $600 transactions or more, I mean, this is absurd as well.

Alex:

I would not put it behind them, yeah. It's crazy. But it is, I guess, something that they could end up doing.

Juan:

They could do it. That's my point, that's my concern.

Chris:

That was cool, man. So blockchain analytics was what you were talking about there, right, Juan? Which is now becoming a big business for software companies, big data companies who troll the blockchain. And then on behalf of whoever, governments mostly, financial regulators will provide them these rich datasets and say, “Look, we've connected all this together and we can de-anonymize these transactions and create some meaning out of these transaction flows that may be useful to you in whatever pursuit you wish to pursue.”

All right, so let's do the final category here. Which, that was layer to private finance, right? So there's another one, Layer-1 private finance. There are two projects I'm looking at, Railgun (RAIL) is one of them, that's an amazing name for a project, and Offshift (XFT) is another.

These benefit from inheriting existing DeFi liquidity on smart-contract blockchains like Ethereum. And they're also protocols, so they can be multichain. Railgun, in particular, is in the process of deploying to Binance Smart Chain and Polygon. So, there we go. That is some serious news right there.

Alex:

My big concern with these is that if it's not private at the base layer, how do regulators treat it, right? So, if I have 10 Ethereum in a regular Ethereum wallet and I send it off to a Layer-2 or a side chain solution, regulators are just ... If they can't track it after that point, they're just going to consider that a sale, right? So, I'm going to end up paying sales tax on that 10 Ethereum right away, even if I don't touch it.

Chris:

Good call.

Alex:

If they can't track it, they're going to treat it as harshly as they possibly can.

Chris:

Absolutely. Yeah.

Juan:

Yes.

Chris:

Biggest punishment, they'll have to assume the worst. Yeah. That's good, mate. That was genius.

Juan:

And that's how they discourage privacy, which is why I don't think it's going to become the next big thing. I hope it's a thing, but I don't know if it's ... Yeah.

Alex:

Just, to me, I really like privacy. I always thought that this is one of the coolest aspects of cryptocurrency. It's just, there have to be so many other factors to play out before this becomes big. Like we're talking about, there has to be major pushback by U.S. citizens against the IRS tracking $600. Which, I think this news has been up for a couple of weeks, and I haven't heard a single person complain about it outside of crypto Twitter. So, I don't think that the masses really care about privacy at all.

Chris:

Well, the reason people aren't complaining about it, what was the justification for this $600-

Alex:

Oh, it's going to help billionaires pay taxes.

Juan:

Yeah.

Chris:

That's the one.

Juan:

To tax the rich.

Chris:

And obviously people must have bought it. They must have bought the story.

Alex:

Okay, well obviously the three of us, and probably anybody listening to this, understands that tracking $600 transactions is not going to help billionaires pay anymore in tax. Right? But there are enough people who accept that excuse at face value that there isn't a big pushback against this move. So until there's big pushback against government monetary tracking, against people stealing your financial information, essentially, I don't see privacy really becoming one of the main concerns of the space.

Chris:

Okay. All right.

Juan:

Sadly, I agree.

Chris:

So one question-

Juan:

To the detriment of all of us.

Chris:

To the detriment of all.

Juan:

Privacy is not that important.

Chris:

There's always the minority that's looking at the majority, I suppose, in this context anyway.

Juan:

In crypto, 100%. It was a small group of people who created Bitcoin, and back then nobody cared. And look what it is now, a $2 trillion space. So, absolutely, this can happen. Small minorities can change the world. As Satoshi proved and his acolytes.

Privacy's going to be an uphill battle because regulators do not want it. And there's one thing we know now in late 2021: they're going to regulate the space as best they can. And they're going to come in with a hammer as harshly as they can. Well, yeah. Okay. That can be debated. But the point is, these regulations probably … a lot of them, most of them maybe, won't make a lot of sense. Because these people who are regulating this space, they don't really understand what it is they're regulating and they don't care.

Alex:

Juan, these are the same people that think tracking $600 transactions will help billionaire pay taxes.

Juan:

Yeah. Which, yeah, that is just ludicrous.

Chris:

Well, it may be ... I mean, let's give them a break. Maybe it's just a function of the cognitive load to understand it.

Alex:

What is that? What kind of excuse is that?

Chris:

Not a very good one. Well ... And you made me laugh, I was trying return the favor.

Alex:

I don't mean to slam you on that one.

Juan:

This is about control. Tracking $600 transactions is about controlling people and knowing everything they're doing with their money. The excuse to tax the rich is basically thrown in there because they know that's a popular slogan and they know that people do not see the cognitive ... What is the term I'm looking for? I don't want to get too political, but like Rep. Alexandria Ocasio-Cortez (D-NY) going to the Met Gala in a $10,000 dress that said, "Tax the Rich" — lady, you are the rich. It's amazing that people don't realize this. So are they going to realize that $600 transactions … tracking those has nothing to do with taxing the rich? No, probably not.

Alex:

Well, is it ignorance or ill will?

Chris:

All right.

Juan:

We'll never know.

Chris:

I'm going to wind up in a second, but I got one last little topic here. Now, we've dumped on PriFi a little bit here — which is much to my dismay because I was excited about it — but I can't leave this without answering the question of, well, what, in all this PriFi stuff, can you invest in?

Well, quite a few of them actually.

Monero, we know you can already buy that if you want to. Zcash, you can buy. Grin, you can buy. Secret Network has a token, SCRT. Haven you can buy. Offshift you can buy. And Railgun you can buy. Some of them you have to get on Uniswap; some of them, like I think Secret Network, is available on Binance. That's interesting.

So they all have tokens you can buy, if you want to do that/ But this is not trading or investment advice. That's just a short list of assets for you to look into and do more research on. But that's all I've got. So guys, you got anymore closing comments before we wind this up?

Alex:

Juan, please go first.

Juan:

Closing comments, okay. I hope privacy becomes a more important topic of discussion in this space, especially when it comes to Layer-1 protocols like Bitcoin. That's my hope. And there are some technologies that are pretty good, like MimbleWimble. I hope to see more adoption of this technology going forward. I'm not going to hold my breath, that's my closing comment.

Chris:

Okay.

Alex:

I'll leave you on something I heard on crypto Twitter the other day. I don't remember who said it, but in crypto, when you think that you're too late, you're still very early. And when you think that you're very early, you're a full cycle too early.

Chris:

I like that one. All right. Mic drop. Bombshell. We'll leave it there.

Juan:

Nicely said.

Chris:

So that's going to do it for this week's edition of the Weiss Crypto Sunday Special. Thanks very much Juan and Alex for being with me once again today.

So, keep your eye on your inbox for the next episode of the Weiss Crypto Sunday Special. Until then, it's me, Chris Coney, saying bye for now.

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