Finextra interview with IBM architect about Bitcoin

[gendal]

Hi everybody,

I recorded an interview with Elizabeth Lumley of financial website Finextra last week.  It went live today:

http://www.finextra.com/Video/Video.aspx?videoid=513

I'm increasingly convinced that the mainstream media is completely missing the point with Bitcoin and I took the opportunity in this interview to make this argument and focus on the non-currency implications.  I focussed on the possibilities enabled by colored coins rather than, say, talking about programmable money/transaction scripting (I didn't have time), but hopefully made the case that finance and enterprise IT audiences should be viewing Bitcoin as more than just a currency and payment system.   

It's my first video interview on this topic (or any other for that matter) - I'd be interested in feedback and comment.... is this approach to spreading the word to a mainstream finance audience about Bitcoin helpful?

Richard G Brown
@gendal (here and on twitter)

[gendal]

Sorry - finextra seems to be down / very slow. Will repost when they sort it out.

[cypherdoc]

well done Richard.  nice to know we have someone from IBM onboard and who's as articulate as you.

one point.  i believe you said that b/c SR was able to be taken down, it proves that Bitcoin can be regulated.  i disagree with this.  it only proved that DPR made a mistake in his personal dealings leading to his downfall.

nothing to do with Bitcoin.

other than that, job well done.  you're a credible source.

[gendal]

Thanks!

Any yes, you're right. I let my voice get ahead of my brain in that section and mistakenly implied that DPR was tracked down through Bitcoin. I stand by the statement that it is possible, in general, to walk the blockchain to break through the veil of anonymity but you are, of course, correct that this is not how Silk Road was taken down.

Thanks for taking the time to view the video.

Richard.

[btceic]

Can you post it to YouTube? The site is still experiencing issues.

Edit: for those that wish to watch the video.

http://edge.media-server.com/m/p/m9rpowdj/i/knagizdm/?token=45cfd4bd3ed0171cf39ffd7ad87255c52672345

Excellent video and great questions and answers, I tweeted it if that's ok.

[cypherdoc]

Thanks!

Any yes, you're right. I let my voice get ahead of my brain in that section and mistakenly implied that DPR was tracked down through Bitcoin. I stand by the statement that it is possible, in general, to walk the blockchain to break through the veil of anonymity but you are, of course, correct that this is not how Silk Road was taken down.

Thanks for taking the time to view the video.

Richard.

is that really true?

lets say you send 1 BTC to my sig address and i go and spend 0.5 BTC on candy with the other 0.5 BTC going to change.  then, the candy dealer goes and buys drugs on the next SR's web account.  does that mean i was involved in the drug deal?

[Izerian]

Thanks!

Any yes, you're right. I let my voice get ahead of my brain in that section and mistakenly implied that DPR was tracked down through Bitcoin. I stand by the statement that it is possible, in general, to walk the blockchain to break through the veil of anonymity but you are, of course, correct that this is not how Silk Road was taken down.

Thanks for taking the time to view the video.

Richard.

is that really true?

lets say you send 1 BTC to my sig address and i go and spend 0.5 BTC on candy with the other 0.5 BTC going to change.  then, the candy dealer goes and buys drugs on the next SR's web account.  does that mean i was involved in the drug deal?

It means the money you previously possessed was involved in a drug deal. Similarly, if you're a father giving your son $20 on a friday night and he buys some substance with it... Your $20 was involved in a drug deal. That's my view at least.

[pletharoe]

Good interview Gendal.  All well put and it was nice to hear a non financier's spin on crypto without getting bogged down in protocols and maths.

[gendal]

Good interview Gendal.  All well put and it was nice to hear a non financier's spin on crypto without getting bogged down in protocols and maths.

Thanks for the feedback.  My hope is that we'll soon reach the point where there is enough "base knowledge" in the population that more conversations can be about applications and use-cases rather than explaining the core technology or economic model.    I'd love to see a sample of articles and vendor charts about the web in, say, 1994.  I bet a huge amount of them focussed on HTTP, web servers, HTML, etc - whereas we, rightly, assume all that as a given (or, rather, an irrelevance) when discussing the web with mainstream audiences today.

[waxwing]

It is not correct to say, as you do in the video, that you can "trace a Bitcoin's ownership" (I paraphrase but you made this point more than once).

Any particular transaction can have multiple inputs and multiple outputs, and crucially, it's possible to create transactions with more than one wallet owner contributing to the inputs.
Here is a quote from gmaxwell on his proposal "CoinJoin":

The signatures, one per input, inside a transaction are completely independent of each other.  This means that it's possible for Bitcoin users to agree on a set of inputs to spend, and a set of outputs to pay to, and then to individually and separately sign a transaction and later merge their signatures. The transaction is not valid and won't be accepted by the network until all signatures are provided, and no one will sign a transaction which is not to their liking.

Please note this is NOT future technology - Bitcoin was designed this way.

The outputs of a transaction are specified *independently* of the inputs.

Taking all this together, if Alice inputs 0.43 bitcoins into a tx and Bob inputs 0.58, and there is one output of 0.2 to Charlie and one output of 0.8 to D (thus with a tx fee of 0.01), nobody can EVER know whether Alice paid Charlie or D - because it doesn't even make sense to ask the question. (Obviously scale this up to N users for interesting behaviour).

So basically you're wrong about anonymity being impossible at the level you think.

[gendal]

I stand by the statement that it is possible, in general, to walk the blockchain to break through the veil of anonymity.

is that really true?

lets say you send 1 BTC to my sig address and i go and spend 0.5 BTC on candy with the other 0.5 BTC going to change.  then, the candy dealer goes and buys drugs on the next SR's web account.  does that mean i was involved in the drug deal?

I think it could be useful to make a distinction between what is true legally and what is *achievable* by motivated law-enforcement agencies.

In your scenario, it's clearly the case that I am not implicated in or responsible for the illegal activity that takes place several transactions downstream of my transaction.  But that's not to say that the visible linkage is not helpful to law-enforcement.

For example, imagine the police believe the downstream address is owned by a drug dealer but don't know for sure and certainly don't know who it is.    It seems entirely feasible to me that a motivated investigator could walk the chain backwards until they find an address they *do* know (perhaps the exchange where I bought my Bitcoins).  Now they can walk forwards:  serve a subpoena on the exchange to find out who I am.   Turn up at my front door with a scary-looking dog and a menacing manner.  It may not be legitimate to ask, but I suspect I'd probably reveal the name of the candy vendor if I felt sufficiently threatened.   The cops can then move one step further and visit the candy retailer.

Again, there may be no legal justification for demanding the information they want but that doesn't mean it won't be done.

So my argument nets down to:  Bitcoin may not be as easy to trace as other electronic transactions but it's MUCH more helpful to law-enforcement agencies than physical cash.

[gendal]

It is not correct to say, as you do in the video, that you can "trace a Bitcoin's ownership" (I paraphrase but you made this point more than once).

Any particular transaction can have multiple inputs and multiple outputs, and crucially, it's possible to create transactions with more than one wallet owner contributing to the inputs.
Here is a quote from gmaxwell on his proposal "CoinJoin":

The signatures, one per input, inside a transaction are completely independent of each other.  This means that it's possible for Bitcoin users to agree on a set of inputs to spend, and a set of outputs to pay to, and then to individually and separately sign a transaction and later merge their signatures. The transaction is not valid and won't be accepted by the network until all signatures are provided, and no one will sign a transaction which is not to their liking.

Please note this is NOT future technology - Bitcoin was designed this way.

The outputs of a transaction are specified *independently* of the inputs.

Taking all this together, if Alice inputs 0.43 bitcoins into a tx and Bob inputs 0.58, and there is one output of 0.2 to Charlie and one output of 0.8 to D (thus with a tx fee of 0.01), nobody can EVER know whether Alice paid Charlie or D - because it doesn't even make sense to ask the question. (Obviously scale this up to N users for interesting behaviour).

So basically you're wrong about anonymity being impossible at the level you think.

Agreed.  It's possible to make it extremely difficult to walk the blockchain in the linear, simplistic manner I describe. Indeed, the FBI compliant against Silk Road makes a similar point, noting that mixing services are a big threat to their ability to trace transactions.   But, even here, I think it's important to distinguish between what can be *proved* and what can be used to support an investigation by narrowing down a search space or revealing a list of candidates for further investigation.

[LiteCoinGuy]

very good interview, thank you!

[waxwing]

Agreed.  It's possible to make it extremely difficult to walk the blockchain in the linear, simplistic manner I describe.

I don't think we actually agree here

My point was that it's possible to make it *impossible* to prove the flow of funds, not that it's possible to make it difficult.
I am aware of the existing blockchain analysis that's been done by various researchers and how far it can go. But that method will never work against mixed inputs with mixed outputs, for the reason I described in the previous post. It could make a probabilistic connection between two addresses, but those probabilities will dwindle to zero after a few transactions, if they're all implemented the same way with N users.

You're more describing how it works now; people mostly don't do anything to hide their tracks, and some people use mixers,which *largely* work in hiding, but not perfectly.

CoinJoin I believe is just a slightly more sophisticated way to use the existing Bitcoin transaction design (honestly I'm a bit surprised that it's only being discussed now and not 2 or more years ago - I think the problem is not the idea, but that there's SO much functionality to develop within Bitcoin and so few skilled people to do it).

[gendal]

Agreed.  It's possible to make it extremely difficult to walk the blockchain in the linear, simplistic manner I describe.

I don't think we actually agree here

My point was that it's possible to make it *impossible* to prove the flow of funds, not that it's possible to make it difficult.
I am aware of the existing blockchain analysis that's been done by various researchers and how far it can go. But that method will never work against mixed inputs with mixed outputs, for the reason I described in the previous post. It could make a probabilistic connection between two addresses, but those probabilities will dwindle to zero after a few transactions, if they're all implemented the same way with N users.

You're more describing how it works now; people mostly don't do anything to hide their tracks, and some people use mixers,which *largely* work in hiding, but not perfectly.

CoinJoin I believe is just a slightly more sophisticated way to use the existing Bitcoin transaction design (honestly I'm a bit surprised that it's only being discussed now and not 2 or more years ago - I think the problem is not the idea, but that there's SO much functionality to develop within Bitcoin and so few skilled people to do it).

All fair points.  I was, indeed, talking in the video about "as-is" rather than "could-be".  And I was also implicitly assuming that there will always be enough people who use the system naively or employ lax security practices that there will be a "way in" for sufficiently motivated law-enforcement agents.   

I also think you make an excellent point about the power of compounding/exponentiation with chained N:N mixing...  you rapidly reach a point where the set of potential suspects is the set of all Bitcoin users.  If such an approach were widely deployed then my statement that Bitcoin is more traceable than cash may well prove unfounded.   But I sense we're a long way from there.

[Zomdifros]

This was an excellent interview, you certainly seem to know Bitcoin quite well. I like your focus on coloured coins as this is still somewhat uncharted territory as far as media attention goes. Could you, from your professional experience, give an estimation as to which steps need to be taken before this could be used in a real world application?

[davidgdg]

That was a very impressive debut. Public speaking is difficult (I speak from experience) and you performed as though you had been doing it for years. Your remarks about the use of the blockchain as a distributed asset register (i.e. colour coins) were also very though-provoking, even if they went straight over the head of the nice but dim interviewer.

Just one criticism however.  I thought your remarks regarding the Silk Road take-down lacked nuance (to put it kindly). I appreciate of course that as an employee of IBM it is not your place to take any particular position in public on controversial libertarian issues. Equally, as a statement of fact, the notion that  the likelihood of mainstream adoption of BTC by financial institutions  is increased as BTC ceases to be associated in the public eye with the sale and purchase of illicit substances, is probably correct.

BUT your answer also implied that  the crushing of Silk Road was inherently a good thing ("unambiguous good"). Many (myself amongst them) would vehemently disagree. I personally regard it as a disgusting event - the crushing of a safe, voluntary, private market by a bunch of jack-booted thugs.

So I think you need to distinguish in future presentations very clearly between on the one hand the factual impact of such events on the future mainstream adoption of bitcoin and on the other hand the moral issues associated with such events. At a minimum I suggest that you adopt a neutral stance regarding the latter.

Best regards

[gendal]

That was a very impressive debut. Public speaking is difficult (I speak from experience) and you performed as though you had been doing it for years. Your remarks about the use of the blockchain as a distributed asset register (i.e. colour coins) were also very though-provoking, even if they went straight over the head of the nice but dim interviewer.

Just one criticism however.  I thought your remarks regarding the Silk Road take-down lacked nuance (to put it kindly). I appreciate of course that as an employee of IBM it is not your place to take any particular position in public on controversial libertarian issues. Equally, as a statement of fact, the notion that  the likelihood of mainstream adoption of BTC by financial institutions  is increased as BTC ceases to be associated in the public eye with the sale and purchase of illicit substances, is probably correct.

BUT your answer also implied that  the crushing of Silk Road was inherently a good thing ("unambiguous good"). Many (myself amongst them) would vehemently disagree. I personally regard it as a disgusting event - the crushing of a safe, voluntary, private market by a bunch of jack-booted thugs.

So I think you need to distinguish in future presentations very clearly between on the one hand the factual impact of such events on the future mainstream adoption of bitcoin and on the other hand the moral issues associated with such events. At a minimum I suggest that you adopt a neutral stance regarding the latter.

Best regards

Hi there.

Many thanks for the feedback and thoughtful comments.  I gave some considerable thought about how to address the Silk Road topic as I knew it was bound to come up.  In the end, I concluded there just wasn't any room for equivocation...  if one accepts the rule of law (as the employee of a major corporation surely must!) then one must also conclude that the prosecution of lawbreakers is a good thing.  Now I completely agree that there is room (lots of room) for debate about *whether* certain activities should be illegal but I didn't think it appropriate to raise it in that forum, and certainly not given that I was speaking as a representative of my employer rather than as an individual.

Richard

[vandeam]

Thanks for this post 

[davidgdg]

That was a very impressive debut. Public speaking is difficult (I speak from experience) and you performed as though you had been doing it for years. Your remarks about the use of the blockchain as a distributed asset register (i.e. colour coins) were also very though-provoking, even if they went straight over the head of the nice but dim interviewer.

Just one criticism however.  I thought your remarks regarding the Silk Road take-down lacked nuance (to put it kindly). I appreciate of course that as an employee of IBM it is not your place to take any particular position in public on controversial libertarian issues. Equally, as a statement of fact, the notion that  the likelihood of mainstream adoption of BTC by financial institutions  is increased as BTC ceases to be associated in the public eye with the sale and purchase of illicit substances, is probably correct.

BUT your answer also implied that  the crushing of Silk Road was inherently a good thing ("unambiguous good"). Many (myself amongst them) would vehemently disagree. I personally regard it as a disgusting event - the crushing of a safe, voluntary, private market by a bunch of jack-booted thugs.

So I think you need to distinguish in future presentations very clearly between on the one hand the factual impact of such events on the future mainstream adoption of bitcoin and on the other hand the moral issues associated with such events. At a minimum I suggest that you adopt a neutral stance regarding the latter.

Best regards

Hi there.

Many thanks for the feedback and thoughtful comments.  I gave some considerable thought about how to address the Silk Road topic as I knew it was bound to come up.  In the end, I concluded there just wasn't any room for equivocation...  if one accepts the rule of law (as the employee of a major corporation surely must!) then one must also conclude that the prosecution of lawbreakers is a good thing.  Now I completely agree that there is room (lots of room) for debate about *whether* certain activities should be illegal but I didn't think it appropriate to raise it in that forum, and certainly not given that I was speaking as a representative of my employer rather than as an individual.

Richard

I think the problem is that you did end up raising the issue. It would have been quite possible to confine your remarks to the effects upon the adoption of bitcoin, rather than impliedly venturing into the wider question of whether drug laws ought to be enforced. I would be surprised if IBM had any corporate position on those sorts of issues or indeed wanted to have one.

That is why neutrality is surely the appropriate course. Nobody could have had any complaint if you had simply said: "As an employee of IBM it would obviously not be appropriate for me to express an opinion on the issues surrounding the enforcement of drug laws, but what I can say is that the closure of Silk Road was undoubtedly a good thing in terms of the likelihood of  bitcoin being more widely adopted amongst financial institutions"

That is not equivocation. It is merely confining your remarks to the issues for which your opinion is being sought (which do not include the morality or otherwise of the War on Drugs)

Anyway, there it is. No offence intended and otherwise, as I say, an excellent presentation.