Privacy has always been an important part of the crypto industry. Bitcoin’s earliest adopters often thought of the system as truly private, digital money. It wasn’t until Mt. Gox went bust and Chainalysis was founded to investigate where all those missing coins went that the illusion of anonymous transactions on Bitcoin was shattered. This was a tough lesson for many to learn, and part of the impetus to develop different chains that put privacy first.
Monero is one of the oldest of those projects, founded in 2014, and one of the most used. Although many people still use Bitcoin for transactions they’d rather keep secret, those that are truly concerned about privacy know that a permanent, immutable and forever-traceable blockchain is not the best option. Monero keeps many of Bitcoin’s best attributes, but essentially shields the addresses. Like Bitcoin, Monero had a fair launch, and at this point is developed by a diverse community.
Justin Ehrenhofer is a speaker at CoinDesk’s Consensus 2023 conference in Austin, April 26-28.
Justin Ehrenhofer, the vice president of operations at Cake Wallet, is one of the most prominent Monero backers. He found the monero cryptocurrency, XMR, after developing an interest in cryptography and online data security, while growing up gay in the not-always-friendly Midwest. He's one of the sharpest minds on Crypto Twitter regarding privacy, and is a board member for an organization that pays grants to people maintaining public payments systems.
CoinDesk caught up with Ehrenhofer ahead of Consensus, where he's scheduled to talk about policy in a post-Tornado Cash world. We cover the state of global privacy regulations, the beef between Zcash and Monero as well as the “technical debt” the latter has accrued over the years.
What are topics you think are under-covered or under-explored in crypto?
I think that there are several areas that are under-explored. The industry is massive now. People can specialize in anything from tokenomics to compliance. If you're working in a very niche field, you probably always feel like that particular thing is underreported. For instance, I tend to think privacy is often under-reported.
Did you have an “aha moment” where you realized the importance of privacy?
I arguably did. In high school I needed to use Tor in order to bypass firewall restrictions on my network about LGBT content – back then and possibly still now, a bunch of the family filters would block that type of content. That got me interested in privacy at a very early age. When I heard about Bitcoin, I just thought it would be very interesting to combine money and privacy. My first private payment was when I used cash to buy a Walmart gift card which I used to redeem for a VPN – back in 2013, or so.
That's funny. Where do you think the privacy debate is heading in 2023 – especially considering Tornado Cash?
I think each country is going to do its own different thing. Of course, the United States’ actions are going to have the most influence, but there are going to be some jurisdictions that will try to ban anything they consider to be a privacy enhancing tool completely. The international bodies that discuss anti-money laundering probably won’t oppose bans. Other jurisdictions may try to redefine what money transmission is to cover a broader scope. And there's going to be misses along the way. I hope that in the United States we continue to have very clear lines of what money transmission is so people know when they need to register and know specifically what activities apply.
See also: The Coming Privacy Wars (2022)
One thing I really hope for as well is that “regulation as enforcement” is less often done on an optics basis. Whether an asset is considered by optics to be a privacy coin or not, that's generally pretty arbitrary.
What is the role of private money? Is it always going to be a niche?
I don't want it to be a niche. I worry that if it's continuously pushed to the side that we're going to lose important parts of our identity. Most practically, I worry that less private money – something where some third party has high degrees of control over it, or some governments or regulators – will be politicalized. That’s how you end up with discrimination. There are many things under the guise of "public safety" – risk indicators and risk scoring that are attributed today to cryptocurrencies that label some addresses as riskier than others. When we rely on third parties to track this information and provide services it really has a high possibility of being discriminatory, whether that's intentional or not because they’re written by humans. So I do think having basic privacy protections for money is extremely important. Even those who aren't members of marginalized communities need to push for higher privacy protections by default, so everyone is better off.
Over the last decade are there design decisions that you would have made differently for Monero?
Monero as a network when it launched in 2014 was totally different from the network today. It did not hide things like amounts, and ring signatures were very poorly implemented. They initially tried to denominate amounts [being spent] and that was best described as a disaster. Privacy is a very complicated thing to do well, and it was awful. So that was learned pretty early on, to switch from that type of system. And that type of mindset has really stayed with Monero. If I was to relaunch Monero today or reboot the ethos of Monero today on a separate blockchain, it would be very convenient to get rid of a lot of the technical debt that has accrued over time. It has pretty messy code at this point. There are some efforts to rewrite portions of it in advance of the next large comprehensive change that's currently being proposed but has not yet been accepted by most people.
You hear stuff like that a lot in crypto – are there specific ways this impacts development?
Absolutely. There are many things that we learned over the years. One thing that keeps coming up is that privacy is always a battle – you always have people that are getting better and better about tracing. They will always develop new techniques to counter whatever you do to protect yourself. As this relates to data that you store on a public database and a permanent record [i.e., a blockchain], it's not going away, so your adversaries really have until the end of time in order to investigate that information. So privacy needs to keep getting better and better. The tools need to keep getting better and better. You can't just stand still because if you stand still you become obsolete. That's one of the most interesting things between the Bitcoin and Monero communities. They have many similarities, but one huge difference is that Bitcoiners generally require strong backwards compatibility properties – they want to be able to open a wallet and essentially use the same exact software that they set up 10 years ago. This certainly has some advantages, but as it relates to privacy, you kind of need to force people to keep using a better opsec.
Forcing people to use the latest reasonable privacy standard is one thing the monero community decided to do right. However, large changes aren’t considered unless they bring significant benefits. The key is being open to them.
This is probably a stupid question, but considering you made a comparison to Bitcoin: Could you explain the rivalry with [privacy system] Zcash?
Some members of the Monero community definitely dislike Zcash and vice versa. There was definitely a rivalry when Zcash first started. Members of the early Zcash community were typically from academia, so you had these academics that have really interesting cryptography that they implemented in Zcash. Arguably what Monero was offering at the time was significantly worse. If there was no “trusted setup” with Zcash and no dev tax and, you know, let's say it was a fair launch, meaning Zcash launched similarly to how Monero launched, then maybe a large portion of the Monero community actually would have switched over. You know, if there weren't those types of drawbacks.
There’s more to say but it boils down to Monero proponents think Zcash sucks at implementation, and the zcash community talks for hours about trademarks and other nonsense that shouldn't be a worry in this space. Zcash does have a sustainable way to get money from the block reward in order to continue to fund all these cool developments and things. And I would say there definitely are members of both communities who are far more interested in how both projects advance transaction privacy
Are you familiar with the idea of solarpunk – the idea that crypto transparency, or maybe data transparency generally is a better route?
I'm not familiar with that specific ideology, although I do think that maybe I'm too pessimistic at times. As it relates to transaction data, there's certainly some benefit that comes with transparency. We see that for charities that offer transparency – it can be a very good thing. But I'm just too worried about mass discrimination, and how data will be used against people.
As someone building a crypto wallet, could you give an overview of the type of advancements being made?
Yes, I work for Cake Wallet. It is an open-source and noncustodial wallet that initially launched in 2018 as a monero-only wallet for iOS. Since then, it’s added bitcoin [BTC] and litecoin [LTC] and other assets and has expanded to Android and desktop as well.
Some wallets will be tailored to specific audiences.
Custodial wallets generally prioritize user experience. They prioritize onboarding, and usually can integrate things like direct [paycheck] deposits or support a debit card. Those usually are trying to onboard less sophisticated, less technical users who often have a more investment-driven focus.
Then you have what I would say are the most common type of noncustodial wallets where you have your own access to funds and keep your keys. Even a lot of those are investment focused, so design their experience to look very similar to an exchange interface and gives easy options to buy and sell coins.
Then there are wallets that are much more specific. In Cake, we've kind of made our niche around payments. It shouldn't be surprising that monero is often used for payments rather than being held like bitcoin as an investment. We hope to keep growing this niche.
See also: Choosing Your First Crypto Wallet
Then you have other, certainly very specialized wallets like very specific Lightning wallets. They're specific in the support that they have for certain cryptocurrencies or entirely designed around certain asset classes like [non-fungible tokens].
One interesting thing is that many of these wallets are open source, and many of them have permissive licenses. So it does empower communities to start with a good design or a good existing project and run in their own direction. It also makes sure that everyone is on each other's toes and always innovating because if you're going to stagnate someone else could come around and pick up where you left off doing it better.
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