The Bitcoin Masterclass (London) Day 1: Confidentiality and Anonymity

Overview:
• The article discusses the difference between confidentiality and anonymity in the
context of Bitcoin.
• The author emphasises the importance of distinguishing between the two and highlights
the need for authentication in certain types of transactions.
• Confidentiality involves sharing identity only with appropriate entities, while
anonymity involves hiding one's identity altogether.
• The article suggests methods for maintaining privacy in a fully traceable system,
such as refraining from reusing addresses and distributing payments across 
multiple wallets.
• Dr Wright argues that determining who needs to know about a transaction is crucial
for maintaining privacy, and selective disclosure can be used to verify specific
information without disclosing other details.
• The article also discusses the limitations of traditional bank accounts and highlights
how Bitcoin is similar to withdrawing cash, as it allows for maintaining privacy
regarding where the money goes and for what purpose.
• The use of PKI certificates and Merkle trees in Bitcoin enables linking of personal
information to certified keys and selective disclosure of specific information.

Dr Craig S. Wright, Chief Scientist at nChain, recently held the first of his Bitcoin Masterclasses at an exclusive venue in London. The two-day immersive course forms part of a monthly series aimed at helping attendees understand the fundamentals of Bitcoin and the technology behind it.

Bitcoin Masterclass will give you a comprehensive overview of the history, the theory and the design of Bitcoin. Wright discussed the future of Bitcoin and the unbounded scalability of nChain’s blockchain solutions with potential use cases across several industries.

In the first workshop, Wright explains the true concept of identity and privacy concerning Bitcoin and digital cash systems. This first session helps set up the understanding of Bitcoin and navigate all the multidisciplinary parts of this space. With so much misinformation and generalised information out there, this is your go-to resource for Bitcoin and Blockchain Technology.

Bitcoin: confidentiality vs anonymity

The first session focused on confidentiality, how it differs from anonymity, and why it’s crucial to distinguish between the two. He added that a secure system needs three elements:

Authentication;
Integrity;
Confidentiality.

Wright explained that identity is firewalled from the blockchain in the Bitcoin white paper, but that this should not be confused for anonymity and that authentication is still necessary for several types of transactions. He cited several instances where this is the case such as proof of receipt, returning items, warranties and proof of ownership.

Confidentiality entails sharing our identity only with the appropriate entities, such as governments and those we interact with, ensuring that only the necessary people have access to private information. This principle does not involve losing information or remaining anonymous.

In a fully traceable system, privacy can be maintained through several methods, such as refraining from reusing addresses and distributing payments across multiple wallets. To further enhance privacy, individuals or companies can even randomly send transactions between different wallets. While these transactions may not be discernible to others, the transacting parties will still have records of the transactions if needed. Additionally, it may be necessary to prove one’s identity in certain situations without divulging personal information on the public blockchain.

Dr Wright emphasises the importance of determining who needs to know about a transaction to maintain privacy. For instance, when purchasing a car, it may be necessary to share information with relevant government agencies and insurance firms.

Using PKI certificates and Merkle trees in Bitcoin, personal information can be linked to registered, certified keys, and selective disclosure can be employed to verify specific information without disclosing other details.

Why bank accounts are problematic

Dr Wright highlighted several issues with bank accounts, including:

The tendency to scrutinise finances and require explanations for transactions;
They are less private than cash;
There are regions where individuals lack access to bank accounts;
Joint account holders may view each other’s transaction history.

Wright noted that Bitcoin is similar to withdrawing cash from a bank account. Although traceable, one can maintain privacy regarding where the money goes and for what purpose.

For instance, paying for an item on Amazon from multiple wallets enhances privacy while allowing both the buyer and seller to provide proof of purchase. The linking of addresses through a key enables verification in court while preventing third-party observers from accessing transaction details.ods, depending on the level of privacy desired and the specific requirements of the transaction.

Comparing confidentiality and anonymity

Confidentiality and anonymity are often used interchangeably, but they are different concepts. The following is a comparison of confidentiality and anonymity based on Dr Wright’s Masterclass presentation.

Confidentiality	Anonymity
Refers to the sharing of personal information only with relevant parties, such as governments and those with whom we interact.	Refers to hiding one’s identity altogether, such that no one knows who the person is.
Involves restricting access to personal information to only necessary individuals, while still maintaining a record of the transaction.	Involves keeping personal information completely private, such that no record of the transaction exists.
Can be achieved in a fully traceable system through methods such as distributing payments across multiple wallets and selective disclosure of specific information.	Can be achieved through methods such as using anonymous wallets and randomising transactions.
Does not involve hiding identity altogether, but rather controlling who has access to private information.	Involves complete privacy and no record of the transaction, but may not be necessary or desirable in all cases.
Authentication is necessary for certain types of transactions, such as proof of receipt, returning items, warranties, and proof of ownership.	Authentication may not be necessary in anonymous transactions, as the goal is to hide one’s identity altogether.

In summary, confidentiality is about controlling who has access to personal information, while anonymity is about hiding one’s identity altogether. Both confidentiality and anonymity can be achieved through different methods, depending on the level of privacy desired and the specific requirements of the transaction.