“[M]ajor regulatory agencies are acting as if banks have more right to launder criminal money than a blockchain service.” Instead, I think Occam's Razor might suffice. Major regulatory agencies are acting as if banks are less likely to face serious criminal prosecution than a blockchain service. The DOJ going after two guys instead of a global entity with likely an entire department for fighting/avoiding these problems might simply be… because it is easier.
With finite resources, I think it likely they will go after those for whom they can more easily win a conviction. This doesn't make it right. It just makes it less about crypto and more about our current dual legal systems, one for the rich and resourceful and one for everyone else. When you hear about harsher sentences for cocaine convictions against blacks than whites, do you think it's the courts saying white people have more of a right to use cocaine? Or, more appropriately, that they can simply get away with it better?
Also, I realize the mentioning of HSBC and Credit Suisse is to highlight hypocrisy and unfair standards. But it's dangerously close to putting them in the same category as mixers. To use a gun control analogy, mixers and banks are as much in the same category as swap meets and the NRA. When the resources available to fight legal action are vastly different, it is hard to infer much about how a legal opponent feels about the culpability (or “right”) of either.
That said, Samourai (and Tornado) do bring up tough questions of what does each crypto enthusiast value more: transparency or privacy. There are technologies that make it so it doesn't have to be a completely mutually exclusive choice, but often it seems like it is. And when it is not, generally there seems to need to be concessions on one side or the other.
I think the first question a crypto enthusiast should ask themselves is what they like/want most about/from crypto. And from there decide which of the two matters most to them.
For me what I like most about crypto is the /potential/ to avoid another 2008 Financial Crisis, and what I want most is for that potential to be realized. /If all transactions/ had been on a distributed ledger technology in 2008, then there would have been warning signs and time to mitigate. If even the directly related transactions (subprime mortgages, collateralized debt obligations, etc.) were transparent to all, we might have been able to avoid it. More warning signs and less TradFi shenanigans-in-the-shadows is the future I want to see.
So that strongly puts me in the transparency camp.
However, I also believe certain transparency, like the public at large knowing generally how much money you have and at the same time who you are, is really a luxury of the truly rich for whom the benefits of vast wealth outweigh any worries about XKCD antifragile wallet exploit technology https://xkcd.com/538/.
Based on the number of Arkham bounties for people far more interesting than the average crypto enthusiast, we're not there yet.
But on a theoretical level, if all transactions were on chain, then even those who maintained the highest Op Sec would be doxxed–along with the amount of wealth one could “wrench” out of them. But of course, if /everything/ was on chain, there would likely be a lot more wrenchable targets, which should reduce the concern for any one particular person.
Regardless, right now, not only can the rich and powerful be safer when transparent, they can also be private more easily. So for those who aren't rich nor powerful, if transparency should be slow and uneven, is it fair they should be first to be transparent? Especially when they definitely did not cause the 2008 Financial Crisis?
Then there are other reasons we might want to protect (at least the code of) mixers. The argument that “code is free speech and should be protected as such” is not a bad argument. There is nothing wrong, as far as I can immediately tell, with developing the code for mixing and making it open source, especially as any potential for criminality with that code is both subjective and directly non-violent. Making that code open source might even be integral to making a comparable tool that isn't/can’t be used for criminality, which then actually helps put an end to tools with a criminal use, because mixing is less effective with less users. And, in addition, that hypothetical tool might be the one to split the Gordion Knot, keep privacy for those who are not rich and powerful and keep transparent that which can prevent financial crises.
So, quandaries. And in oppressive regimes: even more.
But here is something that at first glance seems like a perfectly good alternative to a mixer if you are American. Let's say you are planning to do your taxes like a normal law-abiding individual, and simply do not want the general public to be aware of your net worth. Well that's what a highly regulated on-ramp/off-ramp might be good for. Perhaps a highly regulated centralized exchange. Seeing as there is no clear path to a highly regulated centralized exchange, then at least a centralized exchange that has tried to be compliant..
Instead of Samurai, an American deposits Bitcoin into Coinbase, then splits/buys/sells/trades/waits as needed, then withdraws to new account(s). The intermediary step would provide a bit more anonymous than a single transaction of 1.63516 BTC into Coinbase followed immediately by a single transaction of 1.63516 BTC out into a different wallet. This way you're a bit better off than keeping all your funds in the same wallet you just used to pay for some sketchy motel in some sketchy area. (Unless the IRS starts using wrenches, as you'll probably still need to report all those transactions.)
But! While that might make Uncle Sam happier, you are still doing the same thing: you're breaking the chain. And with each breaking, perhaps closer to another financial crisis. Well, at least you aren't helping to prevent one by taking the flow of funds off chain. Because it is not like the agencies that you provide that information to are going to then use it to prevent a financial crisis–as far as I know, but I doubt there is that much coordination. So from that perspective, it is not much better than a mixer.
Caring about two things often at odds with each other in both good and bad. On one hand, it can provide needed nuance and balance to a position. But on the other, it can lead to believing contradictions, which can lead to cognitive dissonance. By choosing ad hoc what we care about, we can provide convenient excuses for our own bad behavior as still somehow being ethically acceptable. For example, wanting transparency from others but wanting privacy for yourself. It hasn't escaped me that I espouse possible privacy for the poor and weak, when I am more likely in that group. Or picking whichever of the two most profits you at any particular time. Which if you are poor/weak you might consider only fair. And if you are rich/strong you might consider what all the other rich/strongs are doing and, similarly, only fair.
But, again, maybe there is a nuanced position. I'm still not sure there needs to be a dichotomy. Because maybe there is good privacy and bad privacy. Maybe there is good transparency and bad transparency. Maybe there are solutions that have only the good versions of both.
What about zk proofs to verify we're not bad without saying who we are? What about mixing only among allowed addresses? Or mixing with all but forbidden addresses? What about anonymity, but only up to a certain dollar amount? $600 or more is often thrown about in TradFi as a significant amount, if tech can determine no sybillism or batching, would that work?
What if we use provenance even for seemingly fungible tokens, such as tokens recently mined or emitted into fresh addresses, to be used in special cases? What if we first figure out the transactions we need to know about to prevent another financial crisis, then require only those to be transparent and of proper provenance? And then simply add more to the list of stringent transparency as they become apparent?
Anyway, I had been drafting this comment for a few days now, and it is a long way to say: I don't know how I feel. But I find it fascinating to think about.
“[M]ajor regulatory agencies are acting as if banks have more right to launder criminal money than a blockchain service.” Instead, I think Occam's Razor might suffice. Major regulatory agencies are acting as if banks are less likely to face serious criminal prosecution than a blockchain service. The DOJ going after two guys instead of a global entity with likely an entire department for fighting/avoiding these problems might simply be… because it is easier.
With finite resources, I think it likely they will go after those for whom they can more easily win a conviction. This doesn't make it right. It just makes it less about crypto and more about our current dual legal systems, one for the rich and resourceful and one for everyone else. When you hear about harsher sentences for cocaine convictions against blacks than whites, do you think it's the courts saying white people have more of a right to use cocaine? Or, more appropriately, that they can simply get away with it better?
Also, I realize the mentioning of HSBC and Credit Suisse is to highlight hypocrisy and unfair standards. But it's dangerously close to putting them in the same category as mixers. To use a gun control analogy, mixers and banks are as much in the same category as swap meets and the NRA. When the resources available to fight legal action are vastly different, it is hard to infer much about how a legal opponent feels about the culpability (or “right”) of either.
That said, Samourai (and Tornado) do bring up tough questions of what does each crypto enthusiast value more: transparency or privacy. There are technologies that make it so it doesn't have to be a completely mutually exclusive choice, but often it seems like it is. And when it is not, generally there seems to need to be concessions on one side or the other.
I think the first question a crypto enthusiast should ask themselves is what they like/want most about/from crypto. And from there decide which of the two matters most to them.
For me what I like most about crypto is the /potential/ to avoid another 2008 Financial Crisis, and what I want most is for that potential to be realized. /If all transactions/ had been on a distributed ledger technology in 2008, then there would have been warning signs and time to mitigate. If even the directly related transactions (subprime mortgages, collateralized debt obligations, etc.) were transparent to all, we might have been able to avoid it. More warning signs and less TradFi shenanigans-in-the-shadows is the future I want to see.
So that strongly puts me in the transparency camp.
However, I also believe certain transparency, like the public at large knowing generally how much money you have and at the same time who you are, is really a luxury of the truly rich for whom the benefits of vast wealth outweigh any worries about XKCD antifragile wallet exploit technology https://xkcd.com/538/.
Based on the number of Arkham bounties for people far more interesting than the average crypto enthusiast, we're not there yet.
But on a theoretical level, if all transactions were on chain, then even those who maintained the highest Op Sec would be doxxed–along with the amount of wealth one could “wrench” out of them. But of course, if /everything/ was on chain, there would likely be a lot more wrenchable targets, which should reduce the concern for any one particular person.
Regardless, right now, not only can the rich and powerful be safer when transparent, they can also be private more easily. So for those who aren't rich nor powerful, if transparency should be slow and uneven, is it fair they should be first to be transparent? Especially when they definitely did not cause the 2008 Financial Crisis?
Then there are other reasons we might want to protect (at least the code of) mixers. The argument that “code is free speech and should be protected as such” is not a bad argument. There is nothing wrong, as far as I can immediately tell, with developing the code for mixing and making it open source, especially as any potential for criminality with that code is both subjective and directly non-violent. Making that code open source might even be integral to making a comparable tool that isn't/can’t be used for criminality, which then actually helps put an end to tools with a criminal use, because mixing is less effective with less users. And, in addition, that hypothetical tool might be the one to split the Gordion Knot, keep privacy for those who are not rich and powerful and keep transparent that which can prevent financial crises.
So, quandaries. And in oppressive regimes: even more.
But here is something that at first glance seems like a perfectly good alternative to a mixer if you are American. Let's say you are planning to do your taxes like a normal law-abiding individual, and simply do not want the general public to be aware of your net worth. Well that's what a highly regulated on-ramp/off-ramp might be good for. Perhaps a highly regulated centralized exchange. Seeing as there is no clear path to a highly regulated centralized exchange, then at least a centralized exchange that has tried to be compliant..
Instead of Samurai, an American deposits Bitcoin into Coinbase, then splits/buys/sells/trades/waits as needed, then withdraws to new account(s). The intermediary step would provide a bit more anonymous than a single transaction of 1.63516 BTC into Coinbase followed immediately by a single transaction of 1.63516 BTC out into a different wallet. This way you're a bit better off than keeping all your funds in the same wallet you just used to pay for some sketchy motel in some sketchy area. (Unless the IRS starts using wrenches, as you'll probably still need to report all those transactions.)
But! While that might make Uncle Sam happier, you are still doing the same thing: you're breaking the chain. And with each breaking, perhaps closer to another financial crisis. Well, at least you aren't helping to prevent one by taking the flow of funds off chain. Because it is not like the agencies that you provide that information to are going to then use it to prevent a financial crisis–as far as I know, but I doubt there is that much coordination. So from that perspective, it is not much better than a mixer.
Caring about two things often at odds with each other in both good and bad. On one hand, it can provide needed nuance and balance to a position. But on the other, it can lead to believing contradictions, which can lead to cognitive dissonance. By choosing ad hoc what we care about, we can provide convenient excuses for our own bad behavior as still somehow being ethically acceptable. For example, wanting transparency from others but wanting privacy for yourself. It hasn't escaped me that I espouse possible privacy for the poor and weak, when I am more likely in that group. Or picking whichever of the two most profits you at any particular time. Which if you are poor/weak you might consider only fair. And if you are rich/strong you might consider what all the other rich/strongs are doing and, similarly, only fair.
But, again, maybe there is a nuanced position. I'm still not sure there needs to be a dichotomy. Because maybe there is good privacy and bad privacy. Maybe there is good transparency and bad transparency. Maybe there are solutions that have only the good versions of both.
What about zk proofs to verify we're not bad without saying who we are? What about mixing only among allowed addresses? Or mixing with all but forbidden addresses? What about anonymity, but only up to a certain dollar amount? $600 or more is often thrown about in TradFi as a significant amount, if tech can determine no sybillism or batching, would that work?
What if we use provenance even for seemingly fungible tokens, such as tokens recently mined or emitted into fresh addresses, to be used in special cases? What if we first figure out the transactions we need to know about to prevent another financial crisis, then require only those to be transparent and of proper provenance? And then simply add more to the list of stringent transparency as they become apparent?
Anyway, I had been drafting this comment for a few days now, and it is a long way to say: I don't know how I feel. But I find it fascinating to think about.