First of all, that's not a solution, and secondly, the pseudo-problem you're trying to solve is not under the scope of Bitcoin.
Any time you're dealing with money, you're expected to be responsible. This means you're expected to care about whether the Bitcoin protocol promotes democracy or hurts it for example. It does not mean you're required to care, it just means if you don't care then you'll have a lot less mainstream support than if you do care. People who do care will support other people who care and will get on board but if you take the position that you have no personal or professional responsibilities at all, that isn't going to work out very well for Bitcoin or for its users long term.
For instance many users will say they'll never pay taxes again, they'll exploit anonymity to their own personal benefit without caring what effect it has on the Bitcoin community or on the global community, but those voices are in my opinion in the minority when you look at the potential that Bitcoin has.
Bitcoin is a currency, not a surveillance protocol. So the improvements on Bitcoin should be made in the direction of the former and not the direction of the latter.
Surveillance is what Eve does. Gordon is the government agent who investigates (with a warrant). Alice is you.
Every participant in the Bitcoin network has different responsibilities. My interest is in protecting Alice because Alice represents the majority of us in the community. Alice typically speaking does not want to be caught up in Gordon's dragnets, does not want to assist sex traffickers and others who want to use the Bitcoin network irresponsibly, Alice generally wants to limit risk to herself while interacting with the network. Anonymity increases risk to Alice and now Gordon must question Alice as part of his investigation while before Gordon would have had to question businesses, banks, ISPs. Alice is now in the crosshairs, is considered to be part of the bank and there is a money laundering investigation, so Alice is now put at risk just by using the new anonymity feature. What would you have Alice do here?
Don't get my position wrong, I support the anonymity feature. My position is that we should implement it in a way which limits the risk to Alice, otherwise Alice may become a statistic, a false positive, a scapegoat for Mallory. Mallory is the individual trying to actively launder money, or exploit anonymity for their personal benefit even if it harms the Bitcoin community as a whole.
It is not the responsibility of users of currency to facilitate the investigations of third parties. Though I reject the idea that anyone should assist the investigations of any presumed authority that claims to be a "monopoly on violence."*
It is the responsibility of members of a community to regulate themselves and their community. Every community has rules and every community has investigations. If you're saying there should be no rules, then how do you expect Bitcoin to ever grow beyond a small group of hackers who want to launder money or buy drugs with it? If it's expected to grow into a useful currency by the masses, if every user is instantly made into a suspect I don't see how it can happen. The result is that every user is going to have to keep their own records and the community is going to have to either come together and solve these problems or when the problems occur then everyone involved in even the slightest way will be caught up in drag nets. I'm for reducing the risk to Alice (the primary user of the currency). The drag net from Gordon is a risk to Alice but so is being hacked or scammed by Mallory. That means Alice has to protect Alice, as Gordon and Mallory both have agendas which don't benefit Alice and which put Alice at greater risk. Being anonymous does not protect Alice from Gordon or Mallory, it protects Alice from Eve. Eve is the surveillance program which doesn't require a warrant which looks at everyone without any excuse. Eve is snooping just because she can and the increased anonymity and privacy can protect Alice from Eve. If an investigation begins then anonymity will not protect Alice from Gordon who will either arrest Alice and charge her or question her and look to find an alibi. Alice needs an alibi to protect herself, which means she needs to keep detailed records on her own activities just in case.
The records that participants voluntarily keep are for their use only, and exist to prevent fraud and extortion, not to hold people accountable for transactions deemed unethical by the local oligarchy's inquisitors.
I never said anything about ethics in this discussion. I'm talking about risk mitigation, risk profiles, and different use cases.
So what you're saying is that every Alice user should be prepared to face Gordon and be prepared to go to jail/prison just because they used the software? I'm saying that if you put that much risk on Alice then Alice will not be the primary user and it will never go mainstream. Gordon could destroy the Bitcoin community simply by aggressively investigating and arresting people who use it lawfully but who don't have an alibi. Gordon has every investigative tool necessary to track a suspect and unlike with Eve, Gordon actually has a search warrant. The fact that it's anonymous, that a crime is committed, and that a certain IP address or some piece of evidence is involved, would be enough to get a warrant and investigate Alice. This investigation would result in a false positive, be a complete waste of time, money, resources, but it does not change the fact that it would potentially destroy Alice and disrupt the Bitcoin community if these sorts of investigations became common.
For Bitcoin to grow Alice needs to be able to use Bitcoin and not feel like a criminal, not put herself under risk of investigation, not put herself at risk of being sent to jail. The only way she can minimize her risks is to keep records so that if she is arrested or she does get questioned she will have the answers that Gordon is looking for and can avoid being harassed. It's not about helping or hurting Gordon, it's about protecting Alice.
It is further beyond ridiculous to want to avoid bribes to oligarchs because you fear that bribery will cause them to abuse power. Even if you naively thought politicians would be beneficent rulers without the influence of bribery, the political structure of governing cannot be cured of the ignorance that causes the majority of the damage.
I'm not saying that at all. Have a look at this video
http://video.cnbc.com/gallery/?video=3000196987&play=1What I'm saying is that democracy is very important. That Bitcoin is important within the context of promoting democracy and liberating people. Bitcoin can easily be used to erode or destroy democracy by the same forces that use fiat currencies and off-shore banking to do that. Corruption if it's the source of our problems, why would you want Bitcoin to be used that way as a member of the Bitcoin community? I admit this is a political issue so it's quite possible that you don't care about solving the problems of corruption or about building and maintaining democracy, and I can accept differing views. Technology is neutral but every user of Bitcoin is going to use it according to their views.
If you doubt this, consider the knowledge that politicians of the world possess. Name the politician that is a professional in the fields of medicine, road construction, gumball manufacturing, carpentry, and aeronautics. Name for me one politician for whom it cannot be said is an intellectual infant in the vast majority of all fields he claims to be arbiter of.
If any particular oligarchy is indistinguishable from a mob of infants deciding on arbitrary matters, then it hardly matters if their intentions are good or evil. Their actions can only be inept, heavy-handed, short sighted, and destructive.
And don't you see that my concerns are justified? If Bitcoin could be used to empower the interests of oligarchy then Bitcoin will become a lot less popular. I'm not pulling these scenarios out of my ass, I've given them deep thought. Money corrupts the political process and anonymous money corrupts it the most.
The reason money laundering is considered a problem is specifically because it can be used as a process or method of corrupting a democracy. A coin-operated government isn't necessarily an intended consequence but it probably will happen at some point because at this time it's already like that only it's the dollar doing it. Basically Bitcoin will take on the role of cash, but will be far better at everything cash is good at. Cash is good at corrupting politics and corrupting democracies, let's be honest about that. I'm not saying Bitcoin shouldn't become the best cash it can become, but I m saying that as a community the users of Bitcoin who choose to use it for anonymous donations to political campaigns must also think about how easy it would be for billionaires to use Bitcoins anonymously as well. It's something to think about.
TLDR
There will always be Luddite puerile power mad oligarchs in the world, that's not Bitcoin's problem.
*Barry Soetoro Jr
Your argument is that Bitcoin is just a technology and that it's politically neutral? I agree. But the users of the currency all have different agendas and are from different demographics even if the technology is neutral.
The users who fit into the Alice category want to run businesses, or spend Bitcoin like they would with cash. The difference is that Bitcoin will be far more anonymous than cash currently is, which can benefit Alice but also Mallory and potentially Gordon. It can benefit Alice because she can buy products with privacy and cannot be ethically or morally judged. It benefits Mallory because she can con, hack or steal someone else's coins and have a lower risk of being caught, it also allows Mallory to launder money or finance terrorism. It benefits Gordon because now he will have a much bigger budget to fight financial crime and a much easier time getting warrants and plenty of people to investigate.
The risks will mainly fall on Alice and that is the problem I have with it. Alice is the person who will be at the risk of being a false positive and arrested in a drag net. Alice will be the one at greatest risk for being investigated. Mallory will typically be more skilled than Gordon or Eve and with anonymity will be very difficult to track down but Alice will be the easiest low hanging fruit.
This could become a severe problem in the future. You don't have to understand what I'm saying, go ahead and implement these features and collect the statistics for yourselves. If we find out that most of the people who get arrested are false positives or are innocent or if we find out that some other technology becomes popular because it reduces risk for Alice then you'll see what I mean.
I don't know why you think governments don't already bribe and get away with it because they own the regulators. Jim Corzine is an example. The courts in New York will never allow a case against any financial entity, e.g. the recent Bank of America case was thrown out of court.
Bribery and corruption has existed with every money system ever used by man since Mesopotamia.
Guns can be used by criminals, yet they can also be used to defend ourselves against a government that wants absolute power and a monopoly on violence. Ditto anonymity.
They do bribe people. But not just governments but private sector billionaires and corporations as well. The problem with this is that foreign corporations from say the USA could take over entire political systems in Europe simply by buying up Bitcoins (or mining) and then funding the elections. It probably already happens to a certain extent right now through the CIA and other intelligence agencies anyway. I think these sorts of activities are the activities of Mallory, because it subverts democracy but it's something to at least think about.
I'm not against the technology or the creation of technology. I'm saying the people who create the technology don't seem to give a lot of thought about how it will potentially be used against them in the future. Bitcoin is a beautiful technology which can solve a lot of problems for a lot of people but it's also going to bring unintended consequences as it's neutral and it's only as good as the hands it is in.
Anonymity could be good for Alice, but when it presents risk to Alice then its important we find ways to minimize or mitigate the risk to Alice. Alice is someone who wants to use Bitcoin for it's beneficial uses, to fight corruption rather than to encourage it, to promote democracy, free speech, etc. Mallory on the other hand is against all of these things and could use Bitcoins to suppress free speech, subvert democracy, and encourage corruption.
They can't investigate whom they can't identify.
They'll rely on other tactics but they'll be able to identify at least some of the people involved and from there they will question Alice. If Alice refused to answer the questions then they'll bug computers and rely on surveillance of Alice. None of this will be good for Alice and I don't see how it would reduce the size of the police state. I see it would trigger an arms race between Gordon and Mallory which would put Alice at the greatest risk in most scenarios.
UpdatedMy theory is that the adoption rate of Bitcoin is based primarily on the risk tolerance of the demographic of Alice users. If Alice users believe Bitcoin is high risk then Alice users will not be quick to adopt it. Your political views (and mine) are not the majority. Your views are more extreme than most, you believe that the private sector can replace governments. This is fine but let's be realistic, you're not who the majority of Bitcoin users will be over the next 5 or 10 years. My views are all about decentralization, civil liberties, and while I don't have views that say we don't need government at all I certainly don't think we need government telling us how to live or in our personal lives. I think the majority of people who will be coming into Bitcoin will be less and less focused on politics and more and more focused on what the risks are. If they view using Bitcoin as more risky than dealing with the banks and Paypal they'll keep using that. It's like how many years has Tor been around, or Freenet, or I2P, or encrypted email, or email mixers? No one uses these technologies because people have decided the risks aren't worth it.
As long as Alice can opt-out or opt-in on a transaction by transaction basis then it can work without significantly decreasing adoption rate to Bitcoin. If it's all in then Alice does not have the ability to mitigate her level of risk in real-time based on the situation. If that is the case then Bitcoin will have a difficult time achieving mainstream adoption which is the exact problem it faces right now.
A simple solution is to set it up so that Alice has maximum control over how much risk she takes. If she can set up her wallet to make purchases to certain businesses with anonymity turned on, and other transactions with anonymity turned off for instance then it will be recognized as a feature to use when its needed.
In this scenario it will be relatively simple for Alice to only use anonymity when she needs to use it which limits the amount of risk she has to accept to be exactly the amount she requires or is willing to take. Every transaction on the Bitcoin network does not have to be anonymous, I don't even think I'd want every single transaction I make to be anonymous but other transactions I would want privacy.
Everyone has a different risk tolerance so I think this is the solution. In my own case there are many situations where I would definitely want privacy turned on, but then in other situations it wouldn't be worth it.
This would reduce the possibility of drag nets or any unintended consequences. Opt-in on a site by site or business by business or transaction by transaction basis.
