BTC Needs A Privacy Layer

[PrivacyG]

If a government wanted to discriminate it wouldn't make any difference if your coins were mixed or not. They could even do it for virgin coins (freshly created coins in a coinbase transaction, ie. the block reward). (..)

I see your point, but it makes the problem even worse.  Bitcoins coming from anonymous sources like obfuscated Bitcoins from a Coin Join are seen as bad coins already.  If virgin coins are banned too, it gets even worse and Bitcoin is definitely not fungible anymore!  Are exchanges not discriminating even today by banning anonymous coins from entering the markets?  Anyone visiting Binance, Bittrex, Kraken or any other Centralized Exchange today and depositing a Coin Join output will have their assets seized immediately with no rights of ownership for them unless they provide personal documents.  If you deposited a transaction from a regular person's wallet however, you would have no issues depositing and withdrawing.  The discrimination is already here.  While for you one Bitcoin equals one Bitcoin, for centralized institutions and exchanges it does not anymore.

(..) Same thing here. The centralized place could be under pressure by government to make anon coins (such as Monero) illegal and anybody who has ever deposited these coins in their account in the past would be under discrimination.

The solution to problems you are describing is not changing bitcoin protocol that is working fine and is providing enough privacy. The solution is avoiding centralization and petitioning your government about their unreasonable laws.

Is the Bitcoin protocol providing enough privacy?  Most transactions successfully get debunked through blockchain analysis.  Besides, the average user will either not have enough knowledge about Bitcoin privacy or enough time or care to keep their privacy at a constant level.  Staying private with Bitcoin requires a lot of attention and timespan many users can not afford.  As long as the majority of users will not care anyway, I will never have my promised privacy.

The discussed issue goes even deeper.  The less privacy we will have, the more discrimination there will be and in consequence the closer towards black markets anonymous coins have to move.  If there is no room for anonymous coins on normal exchanges anymore, black markets become the norm.

Moreover, I see this Monero argument everywhere around yet I do not understand it.  Monero has probably been deemed illegal on less markets and in less countries than Bitcoin.  Do you think having more privacy is that bad or why does almost everyone seem to hate or be scared of the idea of having privacy nowadays?

Also, I honestly believe the best petition against unreasonable governmental laws is Monero.  And by Monero, I mean private transactions they cannot debunk.

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Regards,
PrivacyG

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[o_e_l_e_o]

If virgin coins are banned too, it gets even worse and Bitcoin is definitely not fungible anymore!

Bitcoin is already not fungible for the exact reason you point out - some exchanges and other centralized services will lock accounts and freeze deposits if the coins can be traced to darknet markets, coinjoins, etc., despite having no idea if the coins were in the possession of the user depositing them at the time. It is possible to sell "virgin" coins at a premium.

I have never experienced an issue with this, despite all my coins being mixed, coinjoined, or otherwise obfuscated, as I simply refuse to use any centralized exchange or service, or use a payment processor such as BitPay which discriminates against certain coins. I'm under no illusion that this will last forever though. If the merchants I use want to use a centralized exchange, then they won't want to accept my "tainted" bitcoin either, regardless of how stupid the blockchain analysis which "tainted" them in the first place is.

With some mining pools now only mining "whitelisted" transactions, we need more on-chain privacy urgently, before "tainted" bitcoins won't be accepted anywhere, can't be sold, or maybe even can't be moved at all.

[BlackHatCoiner]

Moreover, I see this Monero argument everywhere around yet I do not understand it.  Monero has probably been deemed illegal on less markets and in less countries than Bitcoin.  Do you think having more privacy is that bad or why does almost everyone seem to hate or be scared of the idea of having privacy nowadays?

Privacy is a “virtue” that is nowadays omitted. Its violation is being taken for granted. What people don't get is that the more privacy shouldn't be bringing fear, at least not from the government. It's the relation between the people and the government that forms this bad-shaped opinion.

Bitcoin/Monero/Tor wouldn't destroy a healthy functioning state. It's already working unhealthy and Monero is a way for people to actually escape from the whole system. Bitcoin did it and it's being censored a million times in the past. Having a block chain that operates completely equivalently for each unit is a genius move. I don't want to offend the guy behind Bitcoin, but this is actual cash. I won't be surprised if Monero reaches in the triad by market cap.

Bitcoin is already not fungible for the exact reason you point out - some exchanges and other centralized services will lock accounts and freeze deposits if the coins can be traced to darknet markets, coinjoins, etc.

I didn't know that they do that for coinjoins too. Now this is getting serious...

[Quickseller]

While i want to see more privacy features and privacy layers on Bitcoin, the problem mentioned on the news can't be solved by technology. The proposal will be applied to any legal business/service which uses cryptocurrency. For this case, lobbying to make regularization about cryptocurrency less strict is more practical.

When responding to the two articles in the OP, this is really the correct answer. The referenced articles are talking about mandatory reporting of transactions (deposits/withdrawals) exceeding thresholds to the government for the purpose of enforcing tax laws. Making on-chain transactions private will not result in more privacy. If anything, it would result in more mandatory reporting by exchanges, having a net effect of reducing privacy.

Exchanges have vast amounts of data on their customers bitcoin holdings. Taken with data from other exchanges, someone could probably deduct who owns the majority of addresses.

[pooya87]

I see your point, but it makes the problem even worse.  Bitcoins coming from anonymous sources like obfuscated Bitcoins from a Coin Join are seen as bad coins already.  If virgin coins are banned too, it gets even worse and Bitcoin is definitely not fungible anymore!  Are exchanges not discriminating even today by banning anonymous coins from entering the markets?  Anyone visiting Binance, Bittrex, Kraken or any other Centralized Exchange today and depositing a Coin Join output will have their assets seized immediately with no rights of ownership for them unless they provide personal documents.  If you deposited a transaction from a regular person's wallet however, you would have no issues depositing and withdrawing.  The discrimination is already here.  While for you one Bitcoin equals one Bitcoin, for centralized institutions and exchanges it does not anymore.

Every single thing you said here are the problems with centralization which bitcoin set out to eliminate not to mitigate. Have we already forgotten why bitcoin was created?
Also we should solve the actual problem where it exist not somewhere else. For example if centralized exchanges are discriminating then we should solve the actual problem by either replacing CEX with DEX or adding more CEX that don't do the same thing maybe in other jurisdictions so that those CEXes that discriminate lose business and lose enough money to either have to shut down or be forced to change their rules.
That also doesn't change anything about bitcoin's fungibility as a currency. 1 bitcoin is always 1 bitcoin whether it is virgin coin, mixed coin or a "regular" coin when you want to use it as a currency not in some centralized service like for trading.

Monero has probably been deemed illegal on less markets and in less countries than Bitcoin.

First of all any country that sees bitcoin as illegal sees all cryptocurrencies as illegal.
Secondly monero's usage and adoption is far less than bitcoin so it should also be less on their radar for discrimination.

[o_e_l_e_o]

For example if centralized exchanges are discriminating then we should solve the actual problem by either replacing CEX with DEX or adding more CEX that don't do the same thing maybe in other jurisdictions so that those CEXes that discriminate lose business and lose enough money to either have to shut down or be forced to change their rules.

We can add as many DEXs as we like, but if people continue to be happy to sacrifice their privacy and security to centralized exchanges then it achieves nothing. We need to move the users, which is a very difficult thing to do. And if you want CEXs to stop spying on you then you need to stop the government from demanding that CEXs spy on you or be shut down, and you'll have an easier time brute forcing Satoshi's keys than you will convincing the government to stop their mass surveillance programs.

1 bitcoin is always 1 bitcoin whether it is virgin coin, mixed coin or a "regular" coin when you want to use it as a currency not in some centralized service like for trading.

At the moment, maybe. But at any point, merchants/traders/other users could decide that cashing out "tainted" bitcoin via an exchange is too much of a risk and so they will only accept "clean" bitcoin.

[NeuroticFish]

That also doesn't change anything about bitcoin's fungibility as a currency. 1 bitcoin is always 1 bitcoin whether it is virgin coin, mixed coin or a "regular" coin when you want to use it as a currency not in some centralized service like for trading.

Bitcoin is not fungible. There is already a pool that only mines "clean" transactions. Of course, it doesn't matter much yet for its small hash rate and the only block I know they've mined was not perfectly "clean" too (by their rules), but it can be a dangerous trend for 5 or 25 years from now.
Monero is fungible, hence it's a problem for governments and it faces a lot more barriers Bitcoin had. It's still difficult to foresee what will its future look like, if any.

[ajs316]

That also doesn't change anything about bitcoin's fungibility as a currency. 1 bitcoin is always 1 bitcoin whether it is virgin coin, mixed coin or a "regular" coin when you want to use it as a currency not in some centralized service like for trading.

Bitcoin is not fungible. There is already a pool that only mines "clean" transactions. Of course, it doesn't matter much yet for its small hash rate and the only block I know they've mined was not perfectly "clean" too (by their rules), but it can be a dangerous trend for 5 or 25 years from now.
Monero is fungible, hence it's a problem for governments and it faces a lot more barriers Bitcoin had. It's still difficult to foresee what will its future look like, if any.

XMR needs to get it's UX/UI better and I think it would have serious potential.  It's just too much of a pain to transact with for the average Joe who has little-to-no tech skills.  It's a great piece of tech though.



One thing that's for sure is that the tentacles of the trad banking system are going to try to wrap themselves around BTC more and more in the coming years.  I just hope the devs and people working on BTC are aware of that and thinking about what adjustments or upgrades the protocol might need in order to maintain it's initial vision of sound money outside of any centralized control.  Saylor even hosted a meeting with Elon and N. America BTC miners to try to move towards a "greener" mining opperation.  https://twitter.com/michael_saylor/status/1396915801492439044?s=20

[pooya87]

We can add as many DEXs as we like, but if people continue to be happy to sacrifice their privacy and security to centralized exchanges then it achieves nothing. We need to move the users, which is a very difficult thing to do.

I agree but the problem is not with lack of DEX it is with lack of good truly decentralized exchanges. What we have right now is either not decentralized at all (despite being called that) or is partially decentralized and using it is a hassle.
So we first need to make them 100% decentralized and then we have to improve the user experience so that they could use it just as easily as they use CEX.

At the moment, maybe. But at any point, merchants/traders/other users could decide that cashing out "tainted" bitcoin via an exchange is too much of a risk and so they will only accept "clean" bitcoin.

We circled back to the root of the problem which is centralized exchanges are the problem, and also treating bitcoin as not-a-currency otherwise there is nothing more tainted that fiat, specially certain fiats such as US dollar and yet everyone is happy accepting it even though they could get in trouble accepting "dirty money"!

[NeuroticFish]

XMR needs to get it's UX/UI better and I think it would have serious potential.  It's just too much of a pain to transact with for the average Joe who has little-to-no tech skills.  It's a great piece of tech though.

Did you check XMR in the last years, or you've just read some extremely old news on this?
Monero has GUI wallet for quite some time and I find it super friendly. I've even looked up a guide for you, which, although it has the images in Spanish, I think, can give you quite a good idea.

One thing that's for sure is that the tentacles of the trad banking system are going to try to wrap themselves around BTC more and more in the coming years.  I just hope the devs and people working on BTC are aware of that and thinking about what adjustments or upgrades the protocol might need in order to maintain it's initial vision of sound money outside of any centralized control.

For years people were expecting institutional investors come and put their money into Bitcoin. Now they have come. Banks are inevitable in this.
But the devs are just fine. They did well and they know that community has to also consent the changes, else chaos can come out i.e. a lot of forks.
On the other hand, LN is seen by many as a way too big step towards centralization, so the future won't be all nice and shiny. Still I think that LN can be more private than on-chain tx.

Saylor even hosted a meeting with Elon and N. America BTC miners to try to move towards a "greener" mining opperation.

This is off-topic, but I'll answer:
It's known fact that 2/3 of mining is OK. And the rest of the miners will most probably don't care. All in all this is a strangely weak PR move and basically that's all.

[o_e_l_e_o]

What we have right now is either not decentralized at all (despite being called that) or is partially decentralized and using it is a hassle.

I don't disagree with that, but we already have Bisq, which fulfills all those criteria and is truly decentralized. Adding more exchanges doing the same thing will only serve to spread the already low DEX volume even more thinly. Bisq can be used by anyone, at any time, anywhere in the world. Adding more DEXs doesn't solve the issue of people not using them.

we have to improve the user experience so that they could use it just as easily as they use CEX.

I don't disagree with this, but it mirrors the old fiat v bitcoin argument. How do you get people to start setting up their own wallets and storing their own keys when they are so used to just swiping a bank card and having a bank deal with all the complicated stuff? How do you get people to start running their own Bisq client and setting up their own trades when they are so used to just hitting "buy" and having a centralized exchange deal with all the complicated stuff?

Using a DEX is, by definition, always going to be more complicated than trading on a CEX, and it can only be simplified so far.

[dkbit98]

I don't disagree with that, but we already have Bisq, which fulfills all those criteria and is truly decentralized. Adding more exchanges doing the same thing will only serve to spread the already low DEX volume even more thinly. Bisq can be used by anyone, at any time, anywhere in the world. Adding more DEXs doesn't solve the issue of people not using them.

Bisq exchange is far from perfect, people need to have Bitcoin security deposit to use it and is it almost unusable when fees are high, not to mention they will soon move to fully centralized Liquid blockstream as their base protocol.
Dex exchanges can actually work very well as we saw in case with other altcoins despite high fees, so we know it's possible for people to switch from centralized exchanges to dex.
There is nothing bad in having a competition with more dexes or improving something and making it better, since this is opensource space afterall.

[o_e_l_e_o]

Bisq exchange is far from perfect

I know, but that's kind of my point. Any DEX is going to be inherently more complicated to set up and use than a CEX where you can just create an account and hit "buy". The method to getting more people using DEXs is to address that imbalance rather than just create more DEXs. I'm kind of out of the loop here because I've only ever used DEXs and I've used them for so long that they just second nature to me now. What are the biggest hurdles to a newbie using a DEX for the first time? How do we address that?

they will soon move to fully centralized Liquid blockstream as their base protocol.

They are implementing support for it, not moving to it altogether. Bisq as it exists currently will continue to exist and still function as it does (and actually with some improvements to the high fees you mentioned by reducing the number of on-chain transactions required): https://twitter.com/wiz/status/1385980688428507143

Dex exchanges can actually work very well as we saw in case with other altcoins despite high fees, so we know it's possible for people to switch from centralized exchanges to dex.

I should clarify when I'm talking about DEXs I'm talking about DEXs which allow trading between fiat and bitcoin (or some other cryptocurrency). Bitcoin to altcoin trades are easy to perform in a decentralized and private manner.

[dkbit98]

I should clarify when I'm talking about DEXs I'm talking about DEXs which allow trading between fiat and bitcoin.

I am following AtomicDex project, there is no website to use, just download wallet for atomic swaps between Bitcoin with bunch of other altcoins, and they are going to add Fiat trading soon.
Let's see how that works in real life, but it looks very simple to use, there should be no kyc verification, it's much simpler to use than Bisq and there is no need for Bitcoin security deposit.

They are implementing support for it, not moving to it altogether. Bisq as it exists currently will continue to exist and still function as it does (and actually with some improvements to the high fees you mentioned by reducing the number of on-chain transactions required)

As I said Liquid (that is not decentralized) will be used as base protocol and Bitcoin main chain will only be used as alternative option.

[o_e_l_e_o]

I am following AtomicDex project, there is no website to use, just download wallet for atomic swaps between Bitcoin with bunch of other altcoins, and they are going to add Fiat trading soon.

I've never used AtomicDex because I don't have any interest in the vast majority of altcoins, but it certainly looks like a nice design. Can you provide any links I can read about them adding fiat support though? I quick search of their website, github and subreddit doesn't turn up anything relevant.

As I said Liquid (that is not decentralized) will be used as base protocol and Bitcoin main chain will only be used as alternative option.

It will be used as a base layer, alongside bitcoin. Bisq has supported other base layers in the past, such as LTC and Doge. You can read the relevant github discussion here:

Bisq already supports multiple/alternative base currencies to Bitcoin for forks of Bitcoin such as Litecoin and Dogecoin. However, since nobody used LTC or DOGE as base trading pairs, they were dropped and Bisq is currently Bitcoin Only. Since the Elements project is a fork of Bitcoin, Bisq could potentially add L-BTC as a base currency.

See also:

the Bitcoin base layer would still be available for Bisq users. Liquid isn’t going to be “the base layer”, Bisq will support multiple base layers and users can choose to keep using Bitcoin blockchain if they want

[dkbit98]

I've never used AtomicDex because I don't have any interest in the vast majority of altcoins, but it certainly looks like a nice design. Can you provide any links I can read about them adding fiat support though? I quick search of their website, github and subreddit doesn't turn up anything relevant.

I don't have any links with more information but I can see that Fiat option is coming soon in their desktop wallet, like you can see in screenshot I made below.
Not sure how all this will work in real life situations, but I saw that Visa Payment Solution Gleec made partnership with them few days ago.

[pooya87]

I don't disagree with that, but we already have Bisq, which fulfills all those criteria and is truly decentralized.

Bisq is probably the most decentralized exchange but it is not truly/fully decentralized.
In a fully decentralized exchange (just like a fully decentralized cryptocurrency) there is no server to connect to and there is no middle man who receives exchange fees (Bisq doesn't check these boxes).
Instead everything happens 100% peer to peer where traders connect to each other and execute scripts (smart contracts) that ensure their safe trade and the only fees they end up paying are the transaction fees (whether it is on-chain or on second layer like lightning network).

[o_e_l_e_o]

I don't have any links with more information but I can see that Fiat option is coming soon in their desktop wallet, like you can see in screenshot I made below.

Well, it will be interesting to see what they manage to come up with. As I say, I don't follow the project, but please keep us updated if they make any changes or announcements. I'd be very keen to check out whatever they implement, especially if they do manage to implement decentralized and peer-to-peer fiat-to-crypto trades without requiring KYC.

In a fully decentralized exchange (just like a fully decentralized cryptocurrency) there is no server to connect to and there is no middle man who receives exchange fees (Bisq doesn't check these boxes).

Bisq doesn't have centralized servers. The software that you run connects peer-to-peer directly to other users over Tor. I'll concede the point about the middle man and fees, though, although I'm not sure how you eliminate them when one side of the trade is using fiat. The only way I can see is if you place complete trust in the other party to release the bitcoin after they have received your fiat payment.

Instead everything happens 100% peer to peer where traders connect to each other and execute scripts (smart contracts) that ensure their safe trade and the only fees they end up paying are the transaction fees (whether it is on-chain or on second layer like lightning network).

This would be the ideal world. It is easy to do when trading between cryptocurrencies, but how do you do it when one side of the trade is fiat? Maybe there will be a way to trustlessly swap between bitcoin and central bank digital currencies in the future, although I doubt very much that governments are going to like or permit that.

[pooya87]

Bisq doesn't have centralized servers. The software that you run connects peer-to-peer directly to other users over Tor.

You're probably right because I'm not good at reading Java but the "seed nodes" and the way they are being used all over the code always seemed to me like servers that aren't just used to find peers but also to coordinate trades (so they receive all trade information).

I'll concede the point about the middle man and fees, though, although I'm not sure how you eliminate them when one side of the trade is using fiat. The only way I can see is if you place complete trust in the other party to release the bitcoin after they have received your fiat payment.

For trading with fiat, sure. But that should require and escrow fee not an exchange fee.
For trading with cryptocurrencies however this additional fees shouldn't exist.
This also proves the existence of the centralized servers that you connect to and are fully aware of all your trades (is not 100% P2P, there is a middle man who knows everything).

[o_e_l_e_o]

For trading with fiat, sure. But that should require and escrow fee not an exchange fee.

But then you are no longer decentralized, since there is a third party (the escrow) who has complete control over your coins. The advantage of a platform such as Bisq or LocalCryptos is their non custodial escrow set ups: 2-of-2 multisig between buyer and seller in the case of Bisq, and a locking script requiring codes from both buyer and seller in the case of LocalCryptos. The only way to cut this out altogether is to trade directly with another person, which is fine if you know and trust them, but often that isn't the case. I don't see how a fiat supporting DEX wouldn't become a haven for scammers if it had no escrow.