One of the common arguments for cryptocurrency is the ability to anonymously make transactions. This capability is often misinterpreted as private and touted as a benefit of cryptos over traditional forms of money. The characterization of cryptocurrencies as private is false, and becomes important as we consider the implications of a global monetary system linked to your social profile. It’s worth exploring the difference:
Anonymous stems from the Latin root onym, meaning name. Anonymous means “without a name” and was borrowed from “anonymus”, which referred to manuscripts whose author was unknown.
Private stems from Latin’s privus, meaning individual and privare, to separate. Private refers to things which are, by definition, intentionally kept out of the public eye.
Many cryptocurrencies are designed to be public spaces. Each transaction is broadcasted to a public ledger and verified by updating the shared record. When an independent party examines the transaction history of a public blockchain, they are able to see a copy of every transaction, as well as the origin and destination of the funds. Without a way to link these transactions to an individual, the transactions remain anonymous; you know that it was done and you can inspect the result, but the system does not inherently tell you anything about the owner.
Contrast this with a system that allows for private transactions. A system focused on privacy would not reveal the origin or value of a transaction; instead it would simply facilitate the transfer between the two involved parties.
Anonymity is a way to achieve personal privacy, but it’s not the same thing as being truly private. The ability to send transactions anonymously means that only with careful consideration can your identity remain private. Anonymity requires separating all transactions from anything that could link you as the originator in the real world. Do you visit the same coffee shop every morning or buy certain foods from a particular grocery store? Combined with other information about the real you, these transactions quickly become a unique identifier of your history.
Wanting to be anonymous without being private is not just for drug dealers and criminals. Consider someone making a large donation to a controversial charity, or purchasing a gift for a loved one. There is nothing inherently wrong with the transaction, but it would cause social repercussions if linked back to you.
Right now we have a way to deal with these types of interactions. We keep a separate bank account. Better yet: we pay with cash.
There are multiple cryptocurrencies that deal with this issue including: Monero, Zcash, and Ethereum’s research into private transactions. For most people, the usability tradeoffs that come from these types of solutions mean they are seldom used.
There is a gap today in the feedback loop the drives our online advertising. When you see an ad for a product, the act of purchasing is separated from the viewing experience. Tech-savvy organizations have implemented solutions to track conversion, but these often have giant holes. If I see an ad online but purchase in-store, then the marketing team cannot close the loop. Even worse, if I purchase a product from a competitor then this information rarely makes it back to the group that paid for placement.
How does Libra fit into this?
Libra offers a solution for consumers to directly transfer funds through a digital wallet. The first solution being created is a Facebook subsidiary called Calibra that will focus on an integrated payment experience within Facebook. David Marcus leads the Calibra team and previously ran Messenger with a long history of creating products within the payments space.
From the white paper:
Facebook teams played a key role in the creation of the Libra Association and the Libra Blockchain, working with the other Founding Members. While final decision-making authority rests with the association, Facebook is expected to maintain a leadership role through 2019. Facebook created Calibra, a regulated subsidiary, to ensure separation between social and financial data and to build and operate services on its behalf on top of the Libra network.
The details are unclear, but David has indicated that Libra will not support private transactions. Without private transactions, the ability to maintain anonymity while using Libra becomes vanishingly small. In the case where social and financial data is invariably comingled, then the loop is closed and your entire transaction history is available for targeted advertisement purposes.
The value of Libra lies in the fulfillment of the web’s original vision to facilitate frictionless value transfer. For those of us who live with stable financial infrastructure then the capability may not seem like much. Venmo and AmEx work pretty well — what’s the big deal?
For the rest of the world, this will be the first time that the storing value outside of government control is possible. If you don’t have a bank or a formal identity, then Libra is an enabler for a better life. Instead of being passive consumers of information, billions of people will be able to participate in a global economy and receive compensation for their contributions. Within this group, the comparatively minor concerns over privacy will seem insignificant to the potential that it unlocks.
Privacy is the organic food of the digital world; it’s better for you, but only if you can afford it.