In a surprising development on Wednesday, Bitcoin developer Peter Todd released information around MIT’s ChainAnchor project. ChainAnchor supposedly involves enticing miners with additional compensation to ensure that only transactions from a list of identified and registered users are included in blocks. The news comes at a time of accelerating initiatives to adopt facets of Bitcoin’s Blockchain technology into traditional banking and trading of other digital assets or securities.
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The uses all fall under AML or KYC regulations that ChainAnchor would help with. Identity has long been at the core of issues involving Blockchain acceptance by regulators. ChainAnchor project seems to be the most pointed attempt yet to implement an additional technology layer to help require the revealing of one’s legal name. All this to be included in confirmations on the Bitcoin Blockchain.
ChainAnchor to Expose Users
See: White Paper for ChainAnchor here.
Mr. Todd cites a slide deck obtained and made public which details the technical specifics and roadmap for the implementation of this identity-layer. As Mr. Todd states, “If ChainAnchor is fully successful to use Bitcoin at all you would be required to first register your real world identity. Your transactions would be linked to that identity in a way that that a court order, or even a hacker, could uncover full details on every Bitcoin transaction you make – your entire financial history, and for that matter, the full financial history of all Bitcoin users.”
At first, the ChainAnchor would require registration of public keys under a system that verifies one’s government given identity, though this would initially be opted into. If the system administrators intervene through linking Intel’s EPID group signature schemes to individual transactions, then transactions associated with these keys could be tied back to the real-life identity of that user. thereby making these transactions vetted under the law. “This means that the privacy of the system is based on trust: the permissions verifier and identity provider can undetectable deanonymize a user by colluding to combine the real-world identity and cryptographic identity information that each side is supposed to keep secret from the other,” Mr. Todd remarked.
Those in oversight of such a system would recreate many of the problems inherent in centralized trust models. System administrators would, according to Mr. Todd, “have the sole ability to add new members, as well as the ability to revoke membership, with or without the co-operation of the member in question.”
Miners Key To ChainAnchor
Transactions that fall into the “non-permissioned” or not verified group will be discouraged from being included in the increasingly rare space available within blocks. As a result transaction fees would be expected to rise, and in a world of exceptionally difficult mining environment and a block-reward halving the fees paid to miners will rise in importance for obtaining priority. More importantly, miners would be strongly incentivized or arguably coerced into accepting these permissioned or “Whitelist” transactions. Miner operators would likely be required to register under such a setup, too.
Mr. Todd added, “While not in the paper or slides specifically, allegedly the final stage to ChainAnchor is to eliminate unregistered, non-compliant miners from Bitcoin entirely by gradually reducing their profitability until they stop mining or become compliant.”
The Bitcoin Blockchain is a fully transparent, open database architecture with time ordered and immutable data, which relies on fully independent nodes to compete in a game to solve blocks for monetary rewards. Often left out, however, is the necessity to have an incentive token for miners to strive for while maintaining the database securely and fully independently. Through providing an extra monetary incentive, the ChainAnchor project is flipping the economics and trust model towards including only registered or personally identifiable transactions. In turn, this will hurt the neutrality and equality in inclusion facilitated by Blockchain technology.
In response to this, Mr. Todd presented a scenario where users who are not registered could have their transactions included in blocks; “But what happens if users do not leave? For example, users could respond to reduced non-compliant transaction capacity with higher fees – an especially palatable option if layer two scaling solutions like Lightning making users less sensitive to higher fees and longer on-chain confirmation times. In a perfect market without artificial barriers ChainAnchor would in turn have to respond by increasing the bribes paid for compliancy – obviously this could get rather expensive!”
ChainAnchor’s initiative plays into a larger story around enabling privacy online. As the Lightning network and other off-chain solutions are released, the tensions caused through decentralized systems will grow in noise. The discussion around digital privacy is an important one for everyone to be involved with in order to answer difficult questions. Regulators and established financial institutions understandably need to identify those transacting assets to monitor threats, and rightfully so in a time of political and economic uncertainty. Technological developments, however, are forcing us to ask new questions around what behavior should or shouldn’t be allowed in how we create and manage information.
What are your thoughts on the ChainAnchor project? Is identity tracking justifiable if done through an abstraction layer? Share your thoughts below!
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Peter Todd Exposes MIT ChainAnchor Project That Enables Tracking Bitcoin User’s Identity