Security Notes: Privacy for Sale

The Biden administration dashes ahead with an interdepartmental effort to design a digital dollar, following the European Union and China, which are very excited about the tight surveillance power given to government through the emerging technology of digital money. The U.S. effort, which was kicked off by a presidential executive order in March 2022, is formally exploratory. But when you listen to the planners, the objective is quite clear.

You can’t fault a government for striving to know more and more about its citizens. But you can fault citizens in a democracy who do not defend their privacy, dignity, and aversion to being minutely observed.

It’s a big historic irony. Digital money lingered as a theoretical curiosity developed by academic pioneers (e.g., David Chaum, Gideon Samid), but in 2009 it swept into the public arena with the emergence of Bitcoin, where privacy was the big attraction of the new technology. Central banks, shaken and daunted, bounced back quite soon, turning the new technology from a privacy bastion to a privacy slaughterhouse.

Privacy advocates are few and feeble. For a long while, payment privacy appeared to be a lost cause.

And just then, the clouds receded. Good old capitalism rose to the rescue. “People want payment privacy,” argued some payment analysts, “hence, they will be willing to pay for it.”  In the free-market economy, this implies an incentive to develop a means to sell privacy for profit. Forget about expensive Washington advocacy groups, hold off on congressional hearings and top-down campaigns. Build a bottom-up payment- privacy product and present it to the market.

This is exactly what is happening—taking a privacy-assuring money-trading protocol (e,g., BitMint*LeVeL), and getting it implemented by a dedicated privacy-selling enterprise. The enterprise will offer the public, say, a $100 digital coin with a surcharge for, say, $103.00. This post-quantum digital coin could be traded with cryptographic privacy, which is quantum resistant.

When the coin owner wishes to pay for a meal in a restaurant, she hands the coin to the waiter, who instantly verifies with the mint that the coin is redeemable for its nominal value ($100), and so accepts it. The diner never identifies herself to the restaurant owner, nor to a card company, nor to the government. It’s cash-equivalent, only without the banknotes. The restaurant gets paid, and the diner enjoys her privacy for the $3 surcharge. The privacy vendor is the money maker.

The public, then, will make a choice. If privacy is not important, there’s no need to use privacy coins. But if it is, for whatever reason, then it is available. The government would probably lay its heavy regulatory paw on these privacy vendors, but, being a bottom-up movement, the trend would  be hard to stop.

Some astute investors believe that enough people value privacy so much that a very high surcharge will be sustainable. A recent idea called for privacy coins marked with an expiration date that would rush their redemption. That could give rise to another round of privacy coins (bringing more business to the privacy vendor). The product might even impose a surcharge on the merchant, since, by making it unnecessary to identify the payor, the merchant would no longer need the credit card companies.   In this scenario, how much will a merchant be willing to pay?

I am still gathering thinkers from all around to shape this concept into a business plan. The technology is good, but behavioral issues and regulatory thinking are not yet well covered. So privacy may be the hottest topic in digital payments for the second half of this decade.

—Gideon Samid gideon@bitmint.com