Blockchain Revolution

Breakthrough: Satoshi installed no identity requirement for the network layer itself, meaning that no one had to provide a name, e-mail address, or any other personal data in order to download and use the bitcoin software. The blockchain doesn’t need to know who anybody is. (And Satoshi didn’t need to capture anybody’s data to market other products. His open source software was the ultimate in thought leadership marketing.) That’s how the Society for Worldwide Interbank Financial Telecommunication works—if you pay in cash, then SWIFT doesn’t generally ask for identification—but we’re guessing that many SWIFT offices have cameras, and financial institutions must comply with anti–money laundering/know your customer (AML/KYC) requirements to join and use SWIFT.

Additionally, the identification and verification layers are separate from the transaction layer, meaning that Party A broadcasts the transfer of bitcoins from Party A’s address to Party B’s address. There’s no reference to anyone’s identity in that transaction. Then the network confirms that Party A not only controlled the amount of bitcoin specified but also authorized the transaction before recognizing Party A’s message as “unspent transaction output” associated with Party B’s address. Only when Party B goes to spend that amount does the network verify that Party B now controls that bitcoin.

Compare that with using credit cards, a very identity-centric model. That’s why millions of people’s addresses and phone numbers are stolen every time a database gets breached. Consider the number of records attached to a few of the more recent data breaches: T-Mobile, 15 million records; JPMorgan Chase, 76 million; Anthem Blue Cross Blue Shield, 80 million; eBay, 145 million; Office of Personnel Management, 37 million; Home Depot, 56 million; Target, 70 million; and Sony, 77 million; and there were smaller breaches of airlines, universities, gas and electric utilities, and hospital facilities, some of our most precious infrastructure assets.³⁵

On the blockchain, participants can choose to maintain a degree of personal

anonymity in the sense that they needn’t attach any other details to their identity or store those details in a central database. We can’t underscore how huge this is. There are no honeypots of personal data on the blockchain. The blockchain protocols allow us to choose the level of privacy we’re comfortable with in any given transaction or environment. It helps us to better manage our identities and our interaction with the world.

A start-up called Personal BlackBox Company, LLC, is aiming to help large corporations transform their relationship to consumer data. PBB’s chief marketing officer, Haluk Kulin, told us, “Companies such as Unilever or Prudential are coming to us and saying, ‘We’re very interested in building better data relationships. Can we leverage your platform? We’re very interested in reducing our data liability.’ They’re seeing that data is increasingly a toxic asset inside of corporations.”³⁶ Its platform

gives clients access to anonymous data—much like a clinical trial, where pharmaceuticals know only the relevant aspects of patients’ health—without taking on any data security risk. Some consumers may give away more information in exchange for bitcoins or other corporate benefits. On the back end, PBB’s platform deploys PKI so that only consumers have access to their data through their private keys. Not even PBB has access to consumer data.

The blockchain offers a platform for doing some very flexible forms of selective and anonymous attestation. Austin Hill likened it to the Internet. “A TCP/IP address is not identified to a public ID. The network layer itself doesn’t know. Anyone can join the Internet, get an IP address, and start sending and receiving packets freely around the world. As a society, we’ve seen an incredible benefit allowing that level of pseudonymity Bitcoin operates almost exactly like this. The network itself does

not enforce identity. That’s a good thing for society and for proper network design.”³⁷ So while the blockchain is public—anyone can view it at any time because it

resides on the network, not within a centralized institution charged with auditing transactions and keeping records—users’ identities are pseudonymous. This means that you have to do a considerable amount of triangulating of data to figure out who or what owns a particular public key. The sender can provide only the metadata that the recipient needs to know. Moreover, anyone can own multiple public/private key sets, just as anyone can have multiple devices or access points to the Internet and multiple e-mail addresses under various pseudonyms.

That said, Internet service providers like Time Warner that assign IP addresses do keep records linking identities to accounts. Likewise, if you get a bitcoin wallet from a licensed online exchange such as Coinbase, that exchange is required to do its due diligence under AML/KYC requirements. For example, here is Coinbase’s privacy policy: “We collect information sent to us through your computer, mobile phone, or other access device. This information may include your IP address, device information including, but not limited to, identifier, device name and type, operating system, location, mobile network information and standard web log information, such as your browser type, traffic to and from our site and the pages you accessed on our website.”³⁸ So governments can subpoena ISPs and exchanges for this type of user data. But they can’t subpoena the blockchain.

It’s also important to know that we can design higher levels of transparency into any set of transactions, application, or business model, should all the stakeholders agree to do so. In varying situations we will see new capabilities where radical transparency makes a lot of sense. When companies tell the truth to customers, shareholders, or business partners, they build trust.³⁹ That is, privacy for individuals, transparency for organizations, institutions, and public officials.