Introduction
How one’s focus can shift in just two weeks! While today everybody in the Bitcoin space seems more concerned with price fluctuations in response to the global financial panic (understandably so), it’s important to remember perennial issues that never go away, like the importance of maintaining your privacy when you transact in bitcoin. Throughout this month especially, we’ve been hearing reports of KYC/AML-compliant exchanges freezing user accounts due to suspected use of CoinJoin software (more on that later), followed by yet another case of a famous and respected early Bitcoin proponent promoting his new illiquid altcoin[1] as something that “will replace Bitcoin, which isn’t private enough!”
If you want to take a short break from global pandemics, financial meltdowns and price volatility, here’s an attempt at analyzing claims, facts and context of this latest “Bitcoin drama.” To begin with, in Part 1 of this two-part series, we’ll start by looking at the fundamental relationship between Bitcoin and privacy by going back to the beginning with the whitepaper. Then, in Part 2, we’ll focus on some the ways that Bitcoin privacy is being maintained and improved upon — and strike down a few “red herrings.”
Money Needs Privacy
Bitcoin is designed to perform monetary functions, and money needs a strong separation of personal identity from specific monetary units and transactions in order to work sustainably at scale. There are at least two fundamental components to this separation.
Deniability
We could call the first component “deniability.” This describes the possibility for an individual using a monetary tool to credibly deny any connection with it later on.
The reason for this is that money has been developed to facilitate individual saving and voluntary exchange among people. But the positive-sum game of voluntary exchange is not the only way to
