Bitcoin was seemingly dragged into the very public debate on privacy and encryption recently. Specifically, President Barack Obama warned that if the government can't access phones, “...everybody is walking around with a Swiss bank account in their pocket,” which appeared to refer to cryptocurrency.
Last week, Bitcoin Magazine reported on Bitcoin's industry representatives and their positions on encryption, privacy, Bitcoin's role in tax evasion and money laundering and more. In part two of our coverage: What do the actual builders of these pocket-sized “Swiss bank accounts” think?
The debate on encryption and privacy caused by the ongoing dispute between Apple and the FBI took a sharp turn this week. The United States Department of Justice had long claimed it was unable to access encrypted iPhones without help from Apple, but this turned out not to be true.
Although the Department of Justice did not explain how they got access to the phone, the Bitcoin wallet developers Bitcoin Magazine spoke to were not surprised that they could.
Ledger CTO Nicolas Bacca speculated: “To get access to the data, the FBI probably relied on some kind of physical attack involving the flash memory. Swapping the flash memory or disabling writes could get you infinite retries, so you can brute force the access code. The operating system doesn't handle that securely.”
Bacca also pointed out that Bitcoin itself is much more secure than a typical iPhone.
“I believe Bitcoin is less at risk against physical attacks compared to other cryptosystems, because you always get a way to invalidate a possibly compromised key - just send the coins to a different address if you notice quickly enough. The issue is properly qualifying how long is that.”
While the FBI demands Apple help the government agency access encrypted iPhones, the tech company maintains that weakening encryption could result in a privacy disaster. Obama, explaining his position last week, argued it's important to find the right balance between privacy and security, suggesting weakened encryption should be an option.
But this option was firmly rejected by all wallet developers Bitcoin Magazine spoke to.
Electrum developer Thomas Voegtlin explained:
“In the physical world, you can design a door that is difficult to break. This means that someone may be able to force that door, but not covertly, and that is why we have a balance between privacy and security. But computers are devices that tend to make things binary. In the world of computing, you either do have the key, and opening the door is very easy, or you don't, and it is impossible. If we give a special key to the government, they will be able to open millions of doors with that key, with no effort, and without attracting attention. Nothing will prevent someone from misusing that key, and eventually the key will be leaked and fall into the wrong hands. A technological backdoor is the modern equivalent of the Ring of Gyges.”
Ledger's Nicolas Bacca agreed.
“As a society I believe we should be extremely worried about calls to weaken encryption,” Bacca said. “Practically, it cannot be done for a single target, as any 'NOBUS' backdoor turns into a global risk when it's discovered. Ideologically, we already had a clear demonstration that letting agencies run loose with that kind of absolute power was a pretty bad idea. Politically, I believe it can lead to important economic collateral damages, which is another good reason to avoid doing it.”
Voisine agreed with this assesment as well. Moreover, the Breadwallet developer argued that strong encryption is itself a balancing factor against the widespread data monitoring, not a factor that itself requires balance.
“Privacy is core to the human experience. Imagine if your landlord or your extended family knew exactly how much money you had at any given time, and how much you spent and when. It would be a disaster. Privacy is a leveler that allows parties with otherwise unequal bargaining power to negotiate on equal footing. It’s even required by law in many situations, such as with the finances of publicly traded firms. Intentionally weakened encryption is absolutely something that we should all be worrying about. In a future world with the potential for ubiquitous surveillance, strong encryption available to individuals will be the counterbalancing force,” Voisine said.
Perhaps the main reason Obama cited the Swiss bank account example was to point out that strong encryption could allow citizens an easy escape from certain types of taxation. More specifically, Bitcoin users can potentially store significant amounts of wealth on their phones without government agencies knowing about it, or even being able to touch it.
Mycelium developer Leo Wandersleb, however, questioned whether that should be considered a problem at all.
“So Obama is worried that government might not have ultimate power over its citizens' assets? Help me, why again does he assume the right to have that power? I'm not a U.S. citizen, so excuse me if I'm not too firm with regard to the Constitution and its amendments ... but I know of nothing that would say 'all property is yours unless the government doesn't agree.'”
Electrum's Voegtlin took a slightly more moderate position.
“I am not an anarchist, and my involvement with Bitcoin is not motivated by anti-government ideology. I believe in a society with government, with taxes and law enforcement. I write Bitcoin software because I believe that the benefits of cryptocurrency, for society and for our economies, far outweigh the risks. However, we should not be denying there are risks. New technologies always carry new risks.”
But the answer to combating these risks is not to encroach on encryption, Voegtlin pointed out. Rather, he believes the risks should be mitigated through alternative means.
“I think that law enforcement and taxation will need to adapt to cryptocurrency. In 2011, Pirate Party founder Rick Falkvinge proposed that, in a world with Bitcoin, governments should tax consumption, rather than wealth or income. I believe that level of thinking is appropriate.”
Voisine, too, believes the answer will eventually be looked for in alternative methods of taxation.
“There are many tax revenue streams that are difficult to avoid even with the leveling power of privacy putting the individual on a more equal footing with the state. Two examples are use taxes and property taxes. As the industry grows and the world moves their wealth into Bitcoin, I think we will see a gradual shift toward more heavy reliance on these types of income streams by the state. This has the added benefit of making the true cost of state services and programs more transparent. Privacy for individuals and transparency for the state is a wonderful thing.”
Perhaps unsurprisingly, Bitcoin wallet developers have no intention of weakening the security or decreasing the privacy they offer. Rather, most intend to increase both the security and privacy of their products where possible.
Mycelium currently uses a server-based model, which means governments could potentially pressure the wallet provider to give up certain privacy sensitive information or provide false transaction data to users.
But Wandersleb explained the wallet intends to improve this:
“We are working on removing ourselves from the equation. Our new wallet will not depend on our servers, so there will be no single point of failure. It will also be open source, so even if we were forced to weaken our product, others could choose to distribute reliable versions. Lastly, Mycelium works with hardware wallets that provide a very good protection against broken operating systems.”
Bacca's Ledger is one of the companies working with Mycelium to realize this solution. Bacca explained:
“We are building additional security layers directly on the phones when we can, and we're also building a new hardware wallet device, Ledger Blue. This provides open applications development on a Secure Element, which a phone can use over Bluetooth low-energy. That would be close to the hypothetical doomsday device referred to by Obama.”
And Voisine, too, emphasized that privacy and security remain top priorities for Breadwallet.
“A Swiss bank in every pocket empowers the individual in incredible ways we've never seen before. It's time that this option becomes available to the whole world, not just the wealthy and politically connected, and we are going to give it to them.”