In these lessons, we're looking at the seven design principles underlying blockchain. Our fifth principle is privacy. People should control and even own their own data, period! People ought to have the right to decide what, when, how, and how much about their identities to share with anybody else. Respecting one's right to privacy is not the same as respecting one's actual privacy. We need to do both. By eliminating the need to trust others, Satoshi also eliminated the need to know the true identities of people in order to interact with them. The problem this solves is huge. It's in keeping our own information under our own control. Privacy to us is a basic human right and it's the foundation of freedom and free societies. In the last 20 years of the Internet, central databases in both public and private sectors have accumulated all sorts of confidential information about individuals and institutions, sometimes without their knowledge. Corporations can create what we could call cyber clones of people, the virtual you, by fracking the digital world for their data. This virtual you may know more about you than you do, because you can't remember what you did a year ago, or what you said a year ago, or bought a year ago, or your exact location, or what drugs you took, or what diagnosis was made by your doctor, or what test score you got, or even what your heart rate was. The trouble is that the virtual you is not owned by you. Your identity is owned by large corporations. Even democratic governments are creating surveillance nations. You can see how the US National Security Agency over-extended its surveillance rights by conducting warrantless spying over the Internet. These privacy offenses are double violations. First, these entities collect and use our data without our knowledge or consent. Then they fail to protect the honeypot of all these data. The blockchain breakthrough is in disentangling identity from transactions. When Satoshi Nakamoto created the Bitcoin blockchain, he installed no identity requirements for the network layer itself. No one has to provide a name, an e-mail address, or any other personal data in order to download and use the Bitcoin software. The blockchain doesn't need to know who anybody actually is. That's also how SWIFT, the Society for Worldwide Interbank Financial Telecommunications, works. If you pay in cash, then SWIFT doesn't generally ask for identification. Still, I wouldn't be surprised if many SWIFT offices have cameras and SWIFT requires financial institutions to comply with Anti-Money-Laundering or Know Your Customer requirements. So, there's still a certain lack of privacy there. With the blockchain, the identification and verification layers are separate from the transaction layer. That means, Amy broadcasts the transfer of bitcoins from Amy's address to Bobby's address. There's no reference to anybody's identity in that transaction. Then the network confirms that yes, Amy controls the amount of bitcoins specified and authorized sending it to Bobby. At that point, it recognizes Amy's message as unspent transaction output associated with Bobby's address. Only when Bobby goes to spend that amount, does the network verify that Bobby now controls that Bitcoin. Compare that with using credit cards. Credit cards are very identity-centric: Your name, your address, your financial information, your personal identification number, your pin, they're all attached. That's why millions of people's addresses and phone numbers are stolen every time a database gets breached. The scope of the recent data breaches is enormous. eBay: $145 million, Anthem Blue Cross Blue Shield: $80 million, JPMorgan Chase: $76 million, and so on. There were also similar breaches of telecom companies, airlines, universities, gas and electric utilities, hospital facilities, some of our most precious infrastructure assets. On the blockchain, participants can maintain some personal anonymity. They don't have to attach any other details to their identity or store those details in the central database. This is huge. There are no honeypots of personal data on the blockchain. Blockchain protocols allow us to choose the level of privacy that we're comfortable with in any given transaction or environment. It helps us better manage our identities as we interact with the world. While blockchain is public, users' identities are also pseudonymous. You have to triangulate a considerable amount of data to figure out who or what owns a particular public key. With every transaction, the sender can provide only the metadata that the recipient needs to know. Moreover, anyone can own multiple public- private key sets just as anyone can have multiple devices or access points to the Internet or multiple e-mail addresses. This complicates the tracing of data back to any one person or any one institution. That said, Internet Service Providers like Time Warner, do keep records linking identities to accounts. Likewise, if you get a Bitcoin wallet from a licensed online exchange such as Coinbase, that exchange is required to do its due diligence under Anti-Money Laundering, AML, and KYC, Know-Your-Customer requirements. Governments can subpoena ISPs and exchanges for this type of user data, but they can't subpoena a blockchain itself. That doesn't mean anonymity is required. We could design high or low levels of transparency into any application and to any business model or set of transactions, should all the stakeholders agree that that's a good idea. There are some situations where radical transparency makes a lot of sense. When companies tell the truth to their customers, shareholders, or business partners, they build trust. The ideal situation is privacy for individuals and transparency for organizations and institutions and public officials. So, what are the implications of blockchain's privacy safeguards? Blockchain provides a defense against the incoming surveillance society. Think about the problems that corporate Big Data pose to each of us. What does it mean for a corporation to have perfect information about you? We're some 20 years into the global Internet era but only at the beginning of corporate access to the most intimate details of our personal lives and ultimately, our body and our DNA. These details are piling up. Personal health and fitness data, our daily comings and goings, the inner lives of our families and our homes, you name it. Many people are simply unaware of how much privacy they bargain away every day. We leave these trails of digital footprints, crumbs. Footprints website owners can convert into detailed maps of our whereabouts. With blockchain technology, we retain much more ownership over our data. We can protect our personal information giving away only what's required in any social or economic exchange. Anytime we choose to give data of value, we can be compensated for it as well.
