All Bitcoins are trackable on the blockchain, and these days you won't go far before transactions can be connected to an identifiable wallet.
If you've ever said anything like "Donations accepted at $ADDRESS", then everyone can see if anyone ever sent anything, and from there it doesn't take much work to see if you ever spent that money on anything and what else you do with it.
You can obscure things some, but the records are permanent and anything people can figure out stays known. If the authorities are after you, then they can get information from exchanges, which at this point require giving them personal information.
Cash is much more private. It takes much more effort to figure out who you gave your cash to.
This is also transitive: if I get bitcoin from you and two weeks from now the cops show up at my door asking to know why I had a funds related to some crime, I have to convince them that I had no knowledge of the transaction a couple of steps back and even if I do I might find that vendors stop accepting anything in that chain or start buying insurance to protect them. That’s going to sour people on the experience real quickly.
Variations of that show up everywhere: your employer can review your political donations or decide you spend too much money at the local bar, casino, or anywhere else they don’t approve of.
It isn't hard to accept money on an address that is known to be associated with you and then transfer it to an address that is not known (cannot be proven) to be associated with you. An extreme form of this is called coin mixing or coin joining, but for most of us, I would think, that level of address obfuscation will not ever be necessary. Or if it is then you can imagine it will be automated.
Think about what that means: people are expected to maintain multiple accounts, pay people to launder money between accounts, and never make a mistake, or fail to predict what financial activity today will become a problem later (did you donate to Planned Parenthood when Roe was the law of the land? Better figure out how to remove that from the blockchain before your employer transfers your job out of a free state. Oh, wait, it’s not possible - better just hope nobody ever thinks to look!).
Major criminals get caught making mistakes on that kind of thing, there’s no way normal people aren’t going to make mistakes – and that’s before you think about what using a mixer actually means: lighting a neon sign saying “something about this transaction is dodgy, examine it!”
You are overstating how easy it is to track and how hard it is manage multiple addresses. As more addresses are used it gets harder and harder to track. Your employer will not have the resources to do it. Hierarchical wallets make it really easy to use and keep track of multiple addresses today, and more privacy schemes are in progress, see: https://river.com/learn/what-are-schnorr-signatures/
It's true that it is not completely anonymous, but it is a huge improvement over the current system we are discussing here. Add that to the other benefits Bitcoin has and I still feel like it's a huge win.
Here's also a flip side benefit to the public ledger. Businesses can, if they choose, cryptographically prove that they have the funds they say they have. Think of the value of that
> As more addresses are used it gets harder and harder to track. Your employer will not have the resources to do it.
First, following a chain is not as hard as you’re making out and there are existing companies which provide that service, which they’d pay just like they do credit reporting agencies - made easier by the fact that they’d be providing most of your income so it’d be starting with a known point. Mixers can be defeated but simply using one is a red flag.
Second, ordinary people are not going to perfectly follow a complicated setup – it’s not just that they make mistakes, although that’s a certainty, but also that they already aren’t interested in Bitcoin’s higher costs and slower transaction speeds so making those characteristics worse will not increase adoption. “Harder to use, costs more, still less secure than cash!” is not a compelling ad.
> Businesses can, if they choose, cryptographically prove that they have the funds they say they have. Think of the value of that
You mean they can make the same statements which businesses have been making since ancient times? The problem with all of these systems, as FTX customers can attest, is that the hard part isn’t counting what’s in your ledger but dealing with the real world outside – even if you can see all of my Bitcoin, you can’t know whether I have unrevealed debts or am about to be sued, etc. Since businesses run on credit, that means you still need auditors and courts to deal with the parts of the problem which aren’t simplistic enough for a blockchain.
Yes, following the chain of addresses is pretty easy, but proving who owns which address is not.
Using the new tech like Schnorr signatures is not "a complicated setup" that "has to be maintained perfectly." It is (or will be soon) built-in to the wallet software. You won't have to think about it. Maybe you read a lot about early Bitcoin wallets that didn't even provide unique addresses for each transaction (was that ever even a thing?) but times have changed. The ecosystem just gets better and better.
Also, did you read the article I linked to? In another thread I provided some more explanation and links:
All the chain analysis you have heard of is based on likely patterns and typical behavior of address use in common Bitcoin wallet software. New signature and script schemes have been added to Bitcoin in the past several years that disrupt those patterns and make it even harder to find connections between addresses.
On the business transparency, you seem to completely ignore the cryptographic proof businesses can provide, that's not the same statement that businesses have been making since ancient times. It's a mathematical guarantee. All the rest you point out is true though, and so you are right that it's not a total elimination of potential fraud.
> On the business transparency, you seem to completely ignore the cryptographic proof businesses can provide, that's not the same statement that businesses have been making since ancient times. It's a mathematical guarantee.
It’s a mathematical guarantee in the same way that a bank statement is. It’s extremely rare for the problem to be counting things rather than undisclosed debts, embezzlement, etc. and that kind of thing is just as much of a problem for a Bitcoin user because the real world isn’t on the blockchain. If I look at your balance now, that doesn’t mean that you didn’t borrow 90% of that balance from someone else, neglect to mention that you have paid taxes, transfer it the instant after I signed a contract with you, etc. In all of those cases, we end up in a courtroom where a napkin with the CEO’s signature saying “IOU $1,0000,000” and a witness has the same legal weight as the Bitcoin network.
And sorry, I know I should but I can't just let this go. You keep comparing Bitcoin to cash, as if cash is the solution to the unbanking problem we are talking about. You say this about Bitcoin vs. cash:
“Harder to use, costs more, still less secure than cash!”
None of those are absolutely true. For a local transaction in small amounts, yes, cash is easier and cheaper. For large transactions or for transactions with someone who is geographically far away, cash loses on all three of those, big time. I don't even need to explain why do I?
People do track cash by serial number, each and every bill has a unique one. However in practice it doesn't happen a lot. I would think that's because:
- There are a whole lot of bills to keep track of
- The serial numbers are not easily stored and compared with computers (at least not for private individuals)
That second point, bills not being on computers, is why cash isn't the easy answer to the banking problems we are discussing here. You can't pay someone across the country very easily using dollar bills.
With Bitcoin, there actually aren't any bills or tokens with serial numbers attached to them. There are however, as you point out, unique addresses for each transaction. Like the vast number of paper bill serial numbers, there are a lot of possibly Bitcoin addresses. Far, far more than there are paper dollar bills, sands in the sea, and stars in the sky, actually.
It is, however, somewhat possible to track Bitcoin going too and from the addresses because it is all on computers and this is a trade off of Bitcoin being permission-less and not controlled by a single entity that can decide to unbank you, and online so that you can send it to people across the country.
So, as you point out, if someone publicly associates themselves with a Bitcoin address, and if they reuse that address over and over, you can see how much Bitcoin is going into and out of that address, and if the other addresses in these transactions are also known, then you can easily see that Bob sent Alice some Bitcoin. Address reuse and publicly associating yourself with an address was unfortunately common in the early days of Bitcoin, but practically it never never happens anymore. Instead each and every transaction uses a new unique address, and as I said before, there a vast huge number of possible addresses.
As for exchanges, yes, they do have identities associated with Bitcoin addresses. You can easily accept bitcoin from an exchange and then transfer it again to other addresses that have not been publicly associated with you.
Also, hopefully someday exchanges won't be necessary.
> It is, however, somewhat possible to track Bitcoin going too and from the addresses because it is all on computers and this is a trade off of Bitcoin being permission-less and not controlled by a single entity that can decide to unbank you, and online so that you can send it to people across the country.
It's not "somewhat" possible, it's 100% possible because the history is public and permanent. If you make a mistake once in your entire life Chainalysis will see through anything you previously did to obscure a transaction.
There is no personally identifiable information stored in the public ledger. Just addresses, scripts, and Bitcoin amounts. If someone that knows you (like an employer or a Bitcoin exchange) sends you Bitcoin, they will know addresses that you claimed were yours. As soon as the Bitcoin moves from those addresses to another address then the provable link to you is broken.
All the chain analysis you have heard of is based on likely patterns and typical behavior of address use in common Bitcoin wallet software. New signature and script schemes have been added to Bitcoin in the past several years that disrupt those patterns and make it even harder to find connections between addresses.
"Addresses" are personally identifiable information if you're associated with one, or if you use an exchange, which you'd want to because most people providing goods and services (and also your local tax authority) want the local currency.
If you're claiming these upgrades made Bitcoin anonymous in 2021, that's obviously not true, since multiple people who stole billions of dollars of bitcoins from exchanges have been caught with chain analysis since then.
Ok, first off, let's take a step back here. We are discussing a solution to this unbanking problem, but you and I have gotten off into the weeds a little about hiding actual criminal activity. Bitcoin is not 100% private, but it did take 10 years and this guy inviting the police into his home where they found his physical bitcoin wallets in order for him to get caught. That only supports the point I'm making that Bitcoin anonymity, though not perfect, is still pretty damn good. Good enough to fix this current unbanking problem.
Bitcoin is not magical and perfect, trade-offs have to be made in any endeavor. I personally think the ones Bitcoin has made are good ones. Maybe you still disagree.
Nah, the real issue (which it shares with every other crypto project) is that it invented a kind of decentralized network that doesn't get better with more nodes but still manages to use more energy.
Of course, all later ones are funnier. People think Ethereum is a distributed computer! But the whole network runs at the speed of a single node.
If you want to trade numbers with people over the internet, I recommend using Google Sheets. Maybe ban people if they edit it wrong.
If you've ever said anything like "Donations accepted at $ADDRESS", then everyone can see if anyone ever sent anything, and from there it doesn't take much work to see if you ever spent that money on anything and what else you do with it.
You can obscure things some, but the records are permanent and anything people can figure out stays known. If the authorities are after you, then they can get information from exchanges, which at this point require giving them personal information.
Cash is much more private. It takes much more effort to figure out who you gave your cash to.