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The Deaf Conversation on Privacy

Several weeks ago, I was disappointed to see this headline in the American Banker:  “Banks' Privacy Concerns Shaping Blockchain Vendors' Strategies”. Most of my dismay came from the fact that I had hoped the deaf conversation on privacy, whereby both sides are unclear about what the other is saying though they aren’t aware of this confusion, had evolved.
 
Some background on myself: in April of 2015, when I worked for a management consulting firm, I started to participate in many business conversations on “blockchain” both inside and outside of the firm. I was invited to present at meetings and information sessions since I had unusual bona fides as someone who was familiar with the basics of cryptocurrencies and capital markets.
 
Inevitably, my early meetings would entail some version of this conversation:
Business: Well, we’re really looking into [vendor]’s solution, we think they have something really awesome.
KB: Oh, have they told you how they address privacy?
Business: Excuse me?
KB: Well, the naive instantiation of a blockchain doesn’t preserve the privacy of transactions – parties privy to a transaction are pseudonymous but the transactions themselves are public. If they’re using something derived from the Bitcoin codebase or another type of blockchain, they need to use additional cryptographic methods to ensure the privacy of transactions is preserved.
Business: Wow, no, they didn’t mention that.
 
There are a number of reasons that this deaf conversation took place among vendors and institutions. Some of it might have been ideological; perhaps some people think it would be a good thing for an institution’s records of transactions to be public and they saw that as a feature which didn’t have to be solved for. Some of it might have been rooted in confusion of clients thinking that a blockchain is “encrypted." Either way, this was one of the more obvious flaws in implementing the technology that I saw as a potential barrier for it to ever find mainstream success.
 
As the summer of 2015 moved along, quite a few of the financial services practitioners I met wised up to this privacy issue and some of the vendors I encountered in the spring adjusted their approach. It was then that another deaf conversation emerged about what it means more precisely to preserve privacy. I recall one vendor in particular which proposed creating new identities for each transaction so that the associated trades could not be tied to one particular actor. Though that approach might be adequate for a less sophisticated organization, it would still expose the open interest, or pending potential transactions, of a financial firm – information that could be valuable to the marketplace and not something you’d want to reveal. This is something that a cryptographer might not consider* if they are not a capital markets expert but this vulnerability is also something that might be difficult for capital markets experts to identify if they do not understand cryptographic methods.
 
From the American Banker article, it still sounds like there is quite a bit of misinformation and confusion about privacy solutions. For example, it’s unclear to me what new or revolutionary benefits can be derived from this technology if it essentially acts as a timestamp (basically a solved problem, see also) – by omitting the inclusion of any valuable information to the ledger. Our approach is one way to ensure privacy and I believe other solutions will emerge by engaging critically with the problem we are trying to solve.
 
* - Though, to be clear, good cryptographers have an extremely high bar for privacy generally and I respect the work being done in academic cryptography right now immensely.