Philosophy & Economics of Bitcoin

Andrew M. Bailey, Bitcoin Policy Institute

---

---

Week 6: Financial Privacy

Lecture: What They Know

Key Themes

• What privacy is, why it matters, and how it differs from secrecy or hiding; threats to financial privacy that stem from the prevalence intermediated digital payments; how financial privacy relates to other forms of privacy
• Varieties of financial privacy, and how they are achieved in traditional cash payments
• Why bitcoin’s architecture enables privacy tools, and how to assess their effectiveness

Focal Readings

• Resistance Money, Chapter 6: 'Privacy in Public'
• Brito, ‘The Case for Electronic Cash’
• Rogoff, The Curse of Cash (selections)

Secondary Readings

• Berg, ‘Financial Privacy’
• Herskind, Katsikouli, and Dragoni, ‘Privacy and Cryptocurrencies - A Systematic Literature Review’
• Sharma, Gosain, and Diaz, ‘On the Anonymity of Peer-To-Peer Network Anonymity Schemes Used by Cryptocurrencies’
• Ficsór, et. al., ‘WabiSabi: Centrally Coordinated CoinJoins with Variable Amounts’
• Rachels, ‘Why Privacy is Important’
• Bailey and Luther, ‘Why Privacy Matters for Digital Money’; ‘The U.S. Needs Digital Cash, not Digital Money’

Reflections

1. 100 words or less: using your own examples, explain the difference between secrecy and privacy. Is secrecy valuable in the same ways privacy is? Why or why not?
2. 100 words or less: using your own concrete examples, describe how protecting financial privacy can also protect other kinds of privacy. Be specific about what kind of financial privacy you have in mind (privacy in acquisition, forward privacy, backward privacy, etc.)
3. 150 words or less: in your opinion, which are the most significant barriers to achieving significant financial privacy when using bitcoin? Do you think it likely that bitcoin achieves or will achieve cash-like privacy assurances for its users? Why or why not?
4. 100 words or less: prepare exactly two critical discussion questions about any of the focal readings. For each question, be sure to include a specific quotation or citation to indicate how the readings prompt it, and one sentence about why it matters.

Practicum

• Make or monitor the making of a specific cash transaction in person (e.g., buying breakfast at a kopitiam). In less than one page, give an estimate of one relevant anonymity set associated with that transaction. Be specific about your assumptions. What steps could the transactor take, if any, to increase that anonymity set or achieve better financial privacy?
• Using a block explorer, find an output from either a coinjoin or a submarine swap transaction. In one page or less, do a little analysis on that transaction and its purpose and origins. Give your best guess about origin and destination, and be specific about the on-chain evidence that supports your guess and its degree of certainty. Then, do a similar analysis on either a monero transaction or a shielded Zcash transaction. What similarities and differences do you notice?

Schedule

Tuesday 20 February
Readings	Read Chapter 6 carefully and in its entirety; skim 'The Case for Electronic Cash'.
Reflections	Complete one of Reflections 1-2, and one of Reflections 3-4, and submit by midnight before class.
Friday 23 February
Readings	Read the Curse of Cash selections in their entirety.
Practicum Assignment	There will be no ordinary class meeting today, but groups may use that time to complete practicum assignments. Post your findings to our Practicum document by the end of the day