Wisdom Engine

Bitcoin is pseudonymous as it is about honest money. Private has to be traceable. It is not drug money, it is not money for bucket shops and it is not money for crime.

Bitcoin is pseudonymous by design. This allows for privacy and excludes anonymity. Privacy is important; it is required to have a working legal system, and Bitcoin, in fact the entire concept of “blockchains” is a system built on law. In contracts, you have an exchange, and that requires the ability to prove consideration and the ability to record and recover the contract across time and space.

Bitcoin is an open immutable ledger. It is not anonymous, it is private. There is a huge difference, and it only works when it is not anonymous. Privacy requires traceability, in a way that allows you to have a way to access and validate a transaction. To be fungible, money needs to be linked to records — even cash is; we have invoices and audit trails.

When explaining the differences between privacy and anonymity, it can seem simpler to take the short route and not go into the details, as they can lose people. The problem of course is that although you gain in the short term, you spend much more time in the long term fixing up mistakes. I’ve used the word anonymous when I’ve meant private in the past. Most people have. Yet, it is not what Bitcoin is about. Bitcoin leaves an audit trail, and for honest people provides a system that is private but will never be anonymous.

The Bitcoin white paper notes the use of a digital signature algorithm and its need to prevent the deployment of trusted third parties or alternative systems. Yet, in systems such as the BTC Core network, alternative systems have been developed, including the Lightning Network (Antonopoulos et al., 2021) and SegWit (Pérez-Solà et al., 2019), whereby the requirement for a third party has been reintroduced (Faltibà, 2018, p. 16).

I recently read a post that was distributed throughout some of the forum postings where a few people discussed a possible attack against SegWit if it activates. In this article I’m not going to discuss this as an attack, I’m going to take a slightly different approach to the speculation that has been floating around, I’m going to discuss this from the point of law and economics. The technical promoters of change seem to overlook these areas so I will take it upon myself to explore some of the less savoury aspects of a SegWit hard fork. I say hard fork, for the reality is the SegWit soft fork as they try and call it is far less reversible than anything else in Bitcoin’s history. This makes it harder than a diamond in a comparison scale.

The fee for Lightning payments is paid by the sender. It is a requirement that the sender creates a transaction that contains adequate funds above the intended base transaction to pay fees to all lightning nodes along the route. Each hub in a channel acts as a paid money forwarder. It is interesting to note that Lightning is a form of security itself. The use of a promissory note has long been held to be a security, and a long history of judicial review covers this topic.

In 1937, social security came into effect. Designed to “help”and to ensure people had a safety net in case they lost their job, well the initial result was a large scale loss of jobs with a system that had nothing in it to actually fund people for many years. This was followed by a scheme that constructed upon a pyramid built on the notion that the population will always increase sufficiently to fund it into the future.

It is truly amazing that people still stick to the aged concept that data can be completely controlled from all angles. We have many people still remaining wary of using social media. Other who think anonymity is either desirable or possible. Note, privacy and anonymity are separate. A private and confidential system is not an anonymous system.

Over the past 2 decades, Anonymous and the related splinter groups that this has spawned have been attacking business and more. This moral crusade seems laudable to some, but the reality is that this was detrimental in many ways. No group or individual has the right to say how a company should act other than to not use that company or to compete with it as long as the company is acting within the law.

The argument about nodes has been designed purely to mislead and allow the attempt of creating an anonymous system. Bitcoin is pseudonymous and private. It is nothing like anonymous. The false narrative on selling full verifying nodes is a simple lie that is easy to dismiss and disprove, and yet, it is not discredited for the sole reason that the desire is to create a system that is not Bitcoin or anything like it. All they seek to do is to capture the value that is already stored in Bitcoin and move it to a system that allows them to buy and sell illicit material, to continue to run bucket shops, and to flaunt the regulations and law with a seeming impunity.

10 years ago when I created the site and released Bitcoin, I didn’t always check who and where I gave credit to. The problem that I never really thought about was that everyone in the space seems to have wanted an anonymous system. The issues created with an anonymous system is exactly what Bitcoin solves. Bitcoin provides pseudonymous transactions, and removes anonymity altogether. The source of the problem goes a long way back as to why any anonymous system won’t work. There was a paper done as a quick montage in 1997 titled the Unintended Consequences of eCash. The notion of an anonymous system barely scratches the surface of the issue and others have gone far deeper in tracing and recovery and how this impacts a monetary system.

More importantly, it can be done with privacy whilst ensuring an audit trail and means to track any attempts to compromise the system. When it comes to one’s home security, false cries of anonymity fall on deaf ears. With the digital lock, you do not want an anonymous trail but rather one that is private and not available to the general population. We can achieve such an end with Bitcoin. Every time an individual logged into a digital lock, your front door for instance, your whereabouts could be traced in a manner that retains privacy. Doing so is valuable for insurance and for the security of your home. It allows you to know who’s been in and out of your property, and yet stops the rest of the world from understanding what has occurred or even being able to map any transaction or log.

Funny enough, most of the lawyers I speak to get it. When you actually explain the technology behind Bitcoin, those who have a grounding in law and economics start to see the system. Privacy and anonymity are polar opposites. I am Wesleyan. If you understand that, you’ll start to understand my philosophy on wealth. If you read Andrew Carnegie’s The Gospel of Wealth, and not just the title without moving forward, you may start to understand my long-term plans. Unlike Andrew Carnegie, I don’t plan to retire in my 50s, nor in my 60s, nor in my 70s, nor even in my 80s.

It is incredibly ironic that people think Bitcoin is in any way about anonymity. I wouldn’t stop people trying to hide behind TOR, but such is not the purpose of Bitcoin. Bitcoin was birthed using a credit card payment. The records of the same payment are required to be kept by the banking system for 25 years. It hasn’t been that long. More importantly, I claimed the expenses on my tax in the 2008/2009 tax year. You see, a domain purchase in August 2008 is within the Australian tax year, but I was audited, which ended up going to court.

Bitcoin is a system that works within the majority of legal frameworks — all of the ones in the free world. An important aspect of how Bitcoin works is privacy. Privacy differs greatly from anonymity. Anonymity is something that people seek when they want to commit crimes, hide illicit activities, and do things that are generally wrong. Privacy is a right, anonymity is not.

The traditional model involves the parties sharing their identities with each other and others such as correspondence banks, credit companies, and even processing groups. The same intermediaries, whether they are trusted third parties or counter-parties to the transaction, all end up knowing the details of the individuals involved in an exchange. In the Bitcoin white paper, I’ve mentioned both identities and the ability to keep public keys anonymous outside of those who require knowledge of the transaction. It is not anonymity, it is privacy. It is keeping details away from the public; not those who were involved in the exchange and certainly not those who are required by law to monitor exchanges.

If you believe Bitcoin is a system that takes down government and brings about anarchy, you have been sorely deluded. The design of Bitcoin is one that allows individual users — across simplified payment verification (SPV) — to act as peers. It is a system that allows individuals to have privacy. It is a system that artfully removes any trace of anonymity in the manner that some people seem to understand it:

The reason I say the meme of digital gold is very cogent for BTC is that gold has been seized throughout history. With only a few easily traced keys that are reused over and over, it becomes really easy for law enforcement to capture BTC. Luckily, the solution is not one that suits their mantra. In previous posts [1], I have detailed how the function of splitting and dividing coins increases privacy. It does create bigger transactions, though. Using the technique, the BTC blockchain would handle around 1/100th to 1/10th of a transaction per second or less. The fees would also exceed the cost of the transaction other than the largest of transactions. Consequently, it removes the ability to add privacy from Bitcoin Core.

There is an overwhelming amount of false information around Bitcoin and, in particular, on the topic of privacy or pseudonymous transfer. Bitcoin is anything but anonymous. Anonymity requires that individuals do not know anything about the other party that they’re dealing with. Privacy, on the other hand, allows people to interact and keep identities away from the public. In discussions and posts such as the enclosed, we see the false dichotomy presented as a strawman. Bitcoin or any blockchain is completely irrelevant to the story in the form they are talking about. The question “Will Blockchain Bring Freedom or Tyranny to China?” is misplaced.

Segregated Witness (SegWit) was said to be introduced to stop purported errors caused by malleability. The truth of the matter is that it was introduced as a means of producing the Lightning Network (short: Lightning) protocol and changing Bitcoin from a property-based token system to an account-based one. Bitcoin is based on individual indivisible property tokens, known as a satoshi. There are 100 million individual tokens for every nominal coin, known as bitcoin. Because of the form of the register in Bitcoin, it is possible to fully possess civil property — even though bitcoin is intangible and digital. Unlike any other virtual system before, whether in the form of digital cash or mere files, Bitcoin allows a digital file to act as if it was a corporal thing, which provides the ability to possess bitcoin.

I’ve covered the concept many times in my blog, and I was very clear when I said that Bitcoin would end in data centres. I’d had the same argument with the paedophile James Donald, in 2008, before I realised what sort of lowlife scum he was. The reason, of course, people like him want Bitcoin to be a completely decentralised system that is not associated with commercial data centres stems from the desire to engage in illicit activity. Yet, Bitcoin, at scale, is designed to specifically avoid catering for such people. And Bitcoin has already exceeded the scale that will stop such a form of use outside the control of government. You see, Bitcoin was never about an anarchist peer system. Bitcoin uses a peer network for nodes to gain resilience and increase security. They present distinctly different uses.

Bitcoin is a system that does not even need tracing rules. The ledger is so complete that the rules of following apply. But, it needs to be noted that if assets were transferred into a foreign bank, the rules of tracing would apply. You see, tracing presents a change of the asset class. Under tracing law, the asset that has moved can be traced to the point of another asset. Such an asset may be seized. The law of following means that the original asset, including the fully traceable bitcoin tokens, can be seized. If you are told that it cannot happen, you are being lied to.

It is finally time to start explaining why I created Bitcoin. Why I spent nearly 25 years of my life, so far, on a project. To explain what ‘BlackNet’ was originally designed to be and what I transformed it into. Bitcoin represents “CryptoCredits”. The cypherpunks wanted to create a darknet market that would be completely anonymous and encrypted. It would have been a market that would have allowed Silk Road to be operable without being taken down. A system that would have allowed illicit funds to remain untraceable. One that was designed to enable assassination markets and the sale of illegally obtained information and national secrets and one that Tim May personally said could have been used to leak information about the Manhattan Project, had it been around at the time.

Brands (1994) discussed the capability of integrating traceability of double-spending into blind signature schemes. The author noted that protections against double-spending “may be trivially attained in systems with full traceability of payments” (Brands, 1994, p. 1). Yet, it was argued that introducing traceability would “require either a great sacrifice in efficiency or seem to have questionable security, if not both”. At the same time, the requirement to address the double-spending problem does not necessitate everyone participating in the network seeing all transactions.

Like Ulysses (Gifford and Seidman), Kafka takes a classical Greek story and transforms it to represent the modern. In using the title The Metamorphosis, Kafka reinterprets the work of Ovid. The Metamorphoses (Ovidius Naso et al.) represents a story of the transformation of bodies. Just as Ulysses (Joyce and Rose) embodies The Odyssey (Homer et al.), Kafka reimagined the classical work of Ovid. In each instance, there is a theme of transformation and exile.

The recent collapse of FTX demonstrates the need for oversight within financial accounting systems. Unfortunately, the term decentralisation has been used to confuse regulators and cover up many financial crimes (Walch, 2017). Creating a methodology to explain and describe Bitcoin and link it to accounting and reporting systems will aid businesses. Blockchain technology presents various possible benefits for businesses, including the provision of a system that will provide a source of validating information and reducing accounting fraud (Bonsón & Bednárová, 2019). Yet, the process will require the development of definitions in terms that regulators and auditors can understand and that fit within the technical framework of the system.

This paper presents preliminary research into the BTC Lightning Network. By modelling transaction reuse and mapping the reuse of aligned addresses as Lightning channels are opened and closed, it was possible to correlate amounts across separate nodes. It is demonstrated that many users of the Lightning Network failed to take adequate steps to protect the privacy of their information, despite the system being developed to increase anonymity.

The difference between the perspective of those who reference cypherpunk ideas of anonymity and the ideas manifested in Bitcoin permeates all aspects of the technology. Not only are the concepts of Nakamoto based on openness, as with the blockchain and its system of traceability, but it is also proposed to normative systems. Yet, Nakamoto was frequently critical of normative approaches and promoted a positive or descriptive system based on empirical evidence.

The traceability of Bitcoin is a major feature often overlooked by those reviewing blockchain technology. The argument presented by cyberpunks, that Bitcoin and other systems need to be anonymous, ignores the real-world requirements for monetary control and the primary purpose of Bitcoin: to provide micropayment services. For example, Bahamazava and Nanda (2022) explored darknet markets. The authors note that the public acknowledgement of traceability concerning Bitcoin did not impact its use. Hence, while drug buyers have slowly migrated to systems such as Monero, the widespread use of the system has not diminished.

Although several good Bitcoin libraries are available, to ensure the compatibility and security of software using Bitcoin, it is important to understand how a Bitcoin address is generated. In this post, we show how to generate a Bitcoin address step by step, covering the various Bitcoin address formats as well.

When writing software that uses Bitcoin, it is important to understand the process to ensure the security and compatibility of the transactions. In this post, we show the reader how a Bitcoin address is generated step by step. The input field within the generator page generates an example bitcoin private key and public address. Together, these enable secure bitcoin transactions.

Bitcoin was simplified to include only the solution that would ensure that no alternative could diminish the system’s security. That is, Bitcoin forms a simple two-good, two-person Edgeworth box economy form of a distribution problem. At each point, there is a known solution representing goods distributing between members.

An attacker seeking to breach a credit card company can make massive gains attacking a single system and stealing a single database. Conversely, attacking a distributed database such as the one used by bitcoin is infeasible. The reason for this is that none of the keys that control access to the ledger are stored within the Blockchain itself. These are distributed across a myriad of diverse systems. An attacker can target any one of these systems and at best will gain access to the funds held by an individual. If that individual has a lot of funds, they can distribute these on multiple systems.

Several Microsoft researchers correctly summarised a problem with Blockchains (and this applies to many that exist now, such as Ethereum) in “On bitcoin and red balloons” [2]. These authors never tested the system. They failed to investigate how Bitcoin works and assumed a mesh network. Others utterly failed in their understanding of Bitcoin (again looking at mesh structures) and proposed infeasible attacks based on Sybils propagating and taking over to “selfish mine”.

In “SEC v. Western Pac. Gold & Silver Exch. Corp.” [3], the SEC issued a No-Action Letter to protect investors. While the SEC does not directly regulate the bullion trade, it does act to regulate trade built around that using abstract instruments. The creation of a promissory note or futures instrument is undoubtedly an instrument the SEC regulates. In this, we see the strong analogy between commodity notes and Lightning. Lighting is a means to issue a promissory note over a commodity (Bitcoin Core). As a HTLC [8] is a Promissory note.

A miner of Bitcoin Core (BTC) should be concerned. BTC Hodl’ers should be concerned. Lightning required that malleability be removed as this allows the system to move to long-term channels that with cross chain swaps can eventually remove the underlying commodity cryptocurrency. As noted above, this in all forms is a security and is in the range of systems that require registering and management under the various AML/CTF laws.

Bitcoin is purposely pseudonymous. There is a fine line between privacy and anonymity and it is a line that cannot be crossed. What few understand is that anonymity is not privacy. Anonymous transactions do not help the average person, they help corrupt governments and criminals. Worse, anonymous systems will never be legally enforceable. This undercuts their key use as monetary systems and as a method of exchanging contract.

Plato covered the problems of true anonymity in The Republic. In this story, he detailed a fictional character called Gyges of Lydia who found a magic ring that enabled him to escape all review with the ability to go completely invisible at will.

It is common for Omni and Counterparty style tokens to say how they back the underlying security using the one that they parasitically sit upon.

Repudiation is an assertion refuting a claim or the refusal to acknowledge an action or deed. Anticipatory repudiation (or anticipatory breach) describes a declaration by the promising party (as associated with a contract) that they intend to fail to meet their contractual obligations.

That said, Bitcoin has had bugs from the early code, and even open code is far from perfect. The main problem Bitcoin solved is double spending. The means that are used to achieve this aim are simple, it is a competitive system. The system is capitalist, but, unlike most capitalist systems that allow the incumbent leader (the dominant company) to seek to stop competition through regulatory capture, the global nature of Bitcoin defines a competitive system.

The last week, another of the patent applications related to my papers received a grant. This research proposes a methodology to encrypt the content of a device (for instance, a laptop) without storing any keys on the device itself. The keys, or rather a piece of information (the message) needed to compute keys, are stored in another device (the smartphone). A new message is generated every time the content of the laptop is encrypted, so that every set of keys is used only once.

As the value of bitcoin increases, more incidents such as those involving Mt Gox and Bitfinex will occur in standard centralised systems. The addition of group-based threshold cryptography with the ability to be deployed without a dealer and which supports the non-interactive signing of messages provides for the division of private keys into shares that can be distributed to individuals and groups to provide additional security. This scheme creates a distributed-key-generation system for bitcoin that removes the necessity for any centralised control list minimising any threat of fraud or attack. In the application of threshold-based solutions for DSA to ECDSA, we have created an entirely distributive signature system for Bitcoin that mitigates against any single point of failure. When coupled with retrieval schemes involving CLTV and multisig wallets, our solution provides infinitely extensible and secure means of deploying Bitcoin. Using Group and ring-based systems we can implement blind signatures against issued transactions.

Further, it was noted that the provider of a host computer for third party web pages could be compared to a printer or perhaps a distributor of printed publications. It could also be argued that a Usenet group or bulletin board is analogous to a library, so that the provider should be treated as the librarian.

IPv6 incorporates the new concept of privacy extended addresses. These are referred to as CGA (cryptographically generated addresses), and have the goal of maintaining privacy whilst still providing a level of accountability and validation that can be configured by the link administrators.

The vast majority of illicit activity and fraud committed across the Internet could be averted or at least curtailed, if destination ISP and payment intermediaries implemented effective processes for monitoring and controlling access to and use of their networks. Denning (1999) expresses that, “even if an offensive operation is not prevented, monitoring might detect it while it is in progress, allowing the possibility of aborting it before any serious damage is done and enabling a timely response”[[1]](#_ftn1).

In this series of posts, questions of the security regulation challenges posed by bitcoin will be investigated. This will extend to investigating the consumer and investor protections that are associated with traditional financial exchanges[[7]](#_ftn7) and researching their effectiveness when applied to virtual currencies.

People seem to have a misplaced idea that the SegWit-coin (BTC) Core developers are even adequate developers who understand Bitcoin and seek to make it work. Such ends cannot be logically constructed in the same sentence. They either understood Bitcoin and are seeking to subvert it, or they have no concept of Bitcoin. Such developers cannot simultaneously be adequate and understand the system; the results and outcome of their changes to BTC from Bitcoin preclude such an eventuality.

In today’s instalment of business ideas that can be created using IP nChain has developed, I will detail how a smart-card application can both help secure a Bitcoin wallet and allow pseudonymous (private) and secure system authentication.