Report: Bitcoin enables unprecedented financial privacy and security
Traditional electronic payments require that we give too much access to our personal information.
The past year was frightening for consumers and retailers alike. Data breaches at major companies led to huge caches of personally identifying information becoming available to malicious actors. Breaches can be devastating to a merchant’s customers, their reputation, and overall consumer confidence. But why are these troves of data available to steal? In short, it is because traditional electronic payments require that we give too much access to our personal information.
In Bitcoin: Our Best Tool for Privacy and Identity on the Internet, I explain the problem:
Financial data security is the ability of individuals to maintain principal control over the credentials that enable them to engage in financial activities. The technological breakthroughs of the 20th Century, particularly credit card networks, have eroded security in the name of countervailing virtues: speed, interoperability, universality, and ease-of-use. . .
. . . The Target scandal has been costly. Target’s own estimate is $148 million lost from this single breach. Across the entire American economy, the losses from similar security breaches are profound. The Bureau of Justice Statistics estimates that identity theft cost Americans over $24.7 billion in 2012. That’s $10 billion more in losses than all other property crimes combined.
And outline how Bitcoin already provides solutions:
A cryptocurrency like Bitcoin provides a consumer the means to reliably and provably pay without the use of intermediaries. …[C]redit card payments necessarily involve sharing the payment credential with at least four other parties: the merchant, the merchant’s card processor (merchant acquirer), the card network (e.g. Visa or Mastercard), and the card issuer (usually the customer’s bank). With a Bitcoin payment, by contrast, none of these parties get access to the credential; the entire transaction can take place without the customer sharing her payment credential with anyone.entire transaction can take place without the customer sharing her payment credential with anyone.
Technology should grant us greater control over our personal information, and yet in the 21st Century we find our credentials increasingly out of our hands, shuffled across a multitude of vulnerable databases. The problem goes deeper than just payment systems, as the report details, it stems from an outdated approach to identity itself:
A person seeking to drink at a bar need only prove that she is over 21 years of age, she shouldn’t need to share her name, drivers license number, and home address to do so. A person seeking a credit card need only prove she has a positive credit rating from a reputable credit monitoring agency, she shouldn’t need to give her social security number and birthdate to a stranger to do so. A person seeking to transfer large sums of money to an overseas address shouldn’t need to share her intimate personal details, even if there is a slight risk that such a transaction might be financing terrorism, she should only need to show that she and the recipient have a clean criminal record and are upstanding citizens of some country or another.
At present each of these proofs of identity or proofs of entitlement is performed using a bevy of personal information that, especially when aggregated, can reveal any and all personal details. Even if this data is used for and only for the intended purpose, that information may be stored, sold, leaked, aggregated, misplaced, or hacked. Cryptocurrency and blockchain technology provides an alternative.
The report goes on to discuss how cryptocurrencies, such as Bitcoin, can be used to create tokenized certificates attesting to a person’s attributes or entitlements without leaking the full monty—name, address, and social security number. It’s a speculative future use-case, but one that logically follows from the original utility of the protocol:
One way to look at Bitcoin is as a system that allows an otherwise anonymous individual to prove that they have a certain amount of funds without revealing any other personal details about themselves. The same technology could be leveraged to prove all sorts of attributes.
To find out how, read the full report here.