Confusing Venmo decision turning payments into a social media feed where public transactions are the default has rightly been met with criticism. But at least it’s always been possible for Venmo transactions to be private. Now imagine a financial system that is not only public by default, but can never be made private and nothing can be removed or deleted.
This is how crypto works. And for years, it was too rarely recognized as a problem – largely because systems like Bitcoin, Ethereum and other crypto platforms are technically “anonymous”. Specifically, unlike a banking or financial application, you do not need to attach your real name, address or other identifying information to the wallet. Of course, anyone can see what a random wallet is doing, but they don’t necessarily know WHO it does.
NFTs, however, radically undermine this already tenuous anonymity.
Public blockchains are low privacy environments
With any new technology, one supposedly useful feature often comes at the expense of another. For example, one way to describe an immutable blockchain that contains a public record of every transaction is that it is a transparent way of maintaining accurate records.
Another way to describe it is as a low-privacy environment that gives, among others, law enforcement access to the entire network’s transaction history—as was the case when the US Department of Justice arrested two individuals accused of stealing $4.5 billion worth of cryptocurrency. At the time, Assistant Attorney General Kenneth A. Pollitt Jr. said, “Today, federal law enforcement demonstrated once again that we can follow money through the blockchain.”
Crypto wallets may be pseudonymous, but many exchanges have Know Your Customer protocols and collect tons of other user data. Also, transactions necessarily require sharing your wallet with another party. As software engineer Molly White writes, once someone knows your wallet address, privacy can be difficult, if not impossible, to maintain: “Imagine when your Tinder date Venmoed your half of the meal, they can now see every other transaction you’ve ever made—and not just on Venmo, but those you’ve made with your credit card, wire transfer, or other apps, and without an option to set the transfer’s visibility to ‘private’.’
The main way to combat this public control is with obfuscation methods, such as using unique wallets for each transaction or using a stirrer or mixer service. The latter pools many people’s money into one pool and then redistributes it so as to hide which money goes where. While this process itself isn’t inherently illegal or even suspicious, you’d be forgiven for thinking it sounds a bit like money laundering, because that’s what it’s sometimes used for.
