6th September 2022 > > BTC privacy.

tl;dr

Privacy protocols are coming to the Trezor.

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Curious Cryptos’ Commentary – BTC privacy

Hard on the heels of the Tornado sanctions comes news of a privacy initiative from Trezor, CoinJoin, and Wasabi Wallet but let us start by understanding the constituent parts.

First up, Trezor (https://trezor.io/) is a cold wallet that signs transactions offline. It does this by storing private keys in a small plastic interface that connects to your PC using USB.

Cold wallets are generally considered the safest way of accessing your cryptos, but please note that this does not mean your cryptos are stored offline – cryptos are only ever stored on the blockchain. Trezor, and its main competitor Ledger, are a barrier between the internet and your private keys.

Regular readers already know that the CCC rates Ledger over Trezor, for both ease of use and security, but I will admit it is simply an opinion of mine and plenty of people – as ever – disagree with me.

Secondly, CoinJoin (https://coinjoin.io/en) is a BTC mixer. All BTC transactions are clearly shown on the blockchain. The movement of coins can be traced, if one has enough patience and computing power, leading to fears of a lack of financial privacy. Mixers were created to obfuscate the source of coins going into a wallet:

“CoinJoin is an anonymization strategy that protects the privacy of Bitcoin users when they conduct transactions with each other, obscuring the sources and destinations of BTC used in transactions.

CoinJoin requires multiple parties to jointly sign a digital smart contract to mix their coins in a new Bitcoin transaction, where the output of the transaction leaves the participants with the same number of coins, but the addresses have been mixed to make external tracking difficult.”

Note that privacy is a right and does not confer an automatic assumption of nefarious activity, despite the dramatic screeching one hears in some popular newspapers about cryptos only being used by terrorists and drug dealers.

Thirdly, Wasabi Wallet (https://wasabiwallet.io/) is a desktop, non-custodial wallet – commonly known as a hot wallet – that has incorporated CoinJoin to fight against what it sees as the true state of the world:

“We live in an Orwellian surveillance society where your information is being used to typecast and manipulate you. Bitcoin projects are being pressured to collect more and more data, if possible.

This is why Wasabi Wallet is programmed to be a zero-knowledge software. Developers can't collect any sensitive information about you. What you do with your bitcoin is your business.”

This justification is nearly as dramatic and screechy as the newspapers referred to above, so in the light of journalistic balance, I must report that though I believe privacy to be paramount, my reasons for believing so are not the same as those espoused by Wasabi Wallet.

Moving on.

The three companies have announced a collaboration which will bring CoinJoin privacy to your Trezor hardware wallet in the new year. Wasabi contributor Rafe had this to say:

"You will be able to join our zkSNACKs WabiSabi CoinJoin rounds with your hardware wallet in the Trezor Suite application."

I am not convinced that this explanation is overly helpful.

…

The press conference looked like this:

The recruitment policy appears to be skewed somewhat towards white, male, and beardy but as far as gender goes, the camera angle is such that we cannot read any of the preferred pronouns on the ID badges, so I guess we should not jump to conclusions.

I assume that one can also self-identify as non-white and clean shaven if one so desires, despite all photographic evidence to the contrary.

…

An interesting element to this story is one that has not yet played out – how will the authorities react?

The code for Tornado Cash was sanctioned after it was claimed that the protocol was used by crypto hackers to launder their ill-gotten proceeds.

I do not see any way that CoinJoin can ensure that their protocol is ring-fenced from such people, and I do not see any way that Trezor can prevent drug dealers, for instance ordering a hardware wallet off Amazon.

As always, the concepts and motivations for decentralising the world, pose fundamental and far-reaching problems and issues for the legacy centralised world.