Zooko Wilcox, the founder and CEO of the Zcash company, explains why he wanted to create the privacy coin Zcash, why he believes privacy is essential to decentralization, and how encryption is the way censorship-resistance can be created on a technical level. We talk about the revelation that the NSA was targeting Bitcoin users by gathering details on their devices and how even Zcash users could be targeted the same way, but why Zooko believes most people are more concerned about other threats. We also delve into the Facebook/Cambridge Analytics news and why people don’t see to care about privacy and why so few people choose to transact privately in Zcash. He also describes he would feel if he knew that criminals were using Zcash for horrible crimes.
Zcash company: https://z.cash/
Matthew Green’s bitter tweet about Cryptokitties raising $12 million when he had to beg VCs to give Zcash a fraction of that amount: https://twitter.com/matthew_d_green/status/976298627759972353
The transaction that Zooko and I dissect during the episode: https://explorer.zcha.in/transactions/eed1d3993e52863fd33f9961672a22d016ca2a63f1e452b7d27fc41f5a2f2664
The Intercept article about the NSA tracking Bitcoin users: https://theintercept.com/2018/03/20/the-nsa-worked-to-track-down-bitcoin-users-snowden-documents-reveal/
Thank you to our sponsors:
Hi everyone, welcome to Unchained, the podcast where we hear from innovators, pioneers and thought leaders in the world of blockchain and cryptocurrency. I’m your host, Laura Shin. If you’ve been enjoying Unchained, pop into Itunes to give us a top rating or review. That helps other listeners find the show and be sure to follow me on twitter @Laurashin. Unchained is sponsored by Preciate. Founded by Ed Stevens, Preciate is building the most valuable relationships on earth. In each episode of Unchained, Preciate sponsors the recognition of an individual or group in crypto for an achievement. Who in crypto will be recognized today? Stay tuned to find out. Today’s guest is Zooko Wilcox, founder and CEO of the Zcash company. Welcomed Zooko.
Zooko Wilcox: 00:40
Thank you for having me, Laura.
Laura Shin: 00:42
So we’re all rather lucky that I was sick last week and had to reschedule because now with all the news coming out about Facebook privacy and the NSA tracking Bitcoin users, we’re about to have a lot more interesting episode than we would have had last week. But before we get into that, I want to find out about you, your history. What was your pre-Bitcoin career and how did you become interested in or think of the idea of a private digital money?
Zooko Wilcox: 01:10
My pre-Bitcoin career, I was working on a distributed cryptographically protected file system. It’s named Tahoe-LAFS. Before that, I worked on a lot of different projects over the years that mostly had something to do with encryption or de-centralization. How do they come up with that idea? I read it. I read a science paper in about 1993 by a cryptographer named David Chaum, which proposed privacy preserving digital money and showed how you could implement it cryptographically. And from that moment forward, I thought that was the most wonderful thing ever and could potentially help humanity so much. And so that became my favorite thing. So now I’m literally living my lifelong dream.
Laura Shin: 01:57
And why do you think that captured your imagination?
Zooko Wilcox: 02:00
I’d always had the idea that humanity’s best resource is the other people that can help you out and they can cooperate with you and that we’re unable to take advantage of that resource by constraints of distance and language and culture and national borders and things like that. And so, I discovered this concept of digital money shortly after a couple of other formative events in my young life. Which included that I discovered the Internet two years earlier, one or two years earlier than I discovered digital money. So maybe 1991 or so, and another formative event was the fall of the Berlin Wall a few years earlier than that. Which made me think that these boundaries that prevent people from being able to cooperate with each other, we’re all going to come down.
Laura Shin: 02:59
Why would privacy be a key component of that?
Zooko Wilcox: 03:02
Privacy is really essential to decentralization. At a certain sort of protocol level, it’s almost the same thing because the reason for de-centralization is censorship resistance, right? And the easiest, and probably the most powerful way to censor people is to threaten them. So if someone is writing or reading books that you disapprove of, you don’t try to intercept shipments of books, you just tell anyone. Anyone who writes or reads or shares, this book is going to jail. Right? So in the same way with modern internet protocols, if our goal is to achieve censorship resistance and let people use the protocol to cooperate with each other in defiance of some third party who wishes to prevent them from cooperating, then probably the number one component at the technical level to provide that is encryption.
Laura Shin: 04:05
Makes sense. It’s interesting, it goes back to quote from an interview I did with Naval that a lot of people tweeted, which is he talked about how money now is a form of speech because code is speech and now code is money. And you know obviously, in our society money is power. And so if you can move money around or transact in a private way, then obviously that would be quite powerful. But I want to keep talking about your personal story actually, because I had read a little bit about it and I saw that before you launched Zcash, there was a period where you were sleeping in your car. What was going on then and how has your life changed?
Zooko Wilcox: 04:46
Well, that was a period when I was… we had started trying to form the Zcash company and we had stopped sustaining the previous company, Tahoe-LFAS. That company survived and still exists and still maintains Tahoe-LAFS, but during that period it wasn’t making enough money to pay our bills from that company and we were spending all of our time trying to get investment to fund the launch of the Zcash company. And also during that same period, I got divorced and moved out of my house. And so, for a little while it was touch and go there, until we landed $1 million worth of investment to launch the Zcash company.
Laura Shin: 05:38
And who were some of those investors?
Zooko Wilcox: 05:42
Well, Naval Ravikant that you mentioned having been a recent guest on your podcast was one of the most influential and important of the initial investors and he was an important business mentor to me who not only put in money but also taught me how to do these things i’d never done before.
Laura Shin: 06:02
What do you mean by that? What were some of those things?
Zooko Wilcox: 06:07
All kinds of business things that, like raising money was a big one, right? Going around and soliciting a bunch of investors is arduous and the way to do it successfully is perhaps not obvious, and so it was really essential that I had Naval’s help and advice on how to do that. I think that took almost a year. I didn’t count, so this might be an exaggeration, but I think I got about 80 something noes. Like I pitched this company to 80 different investors who all turned me down. Then I got about 12 or so was the initial batch of yeses that I needed to get started, and rent a house.
Laura Shin: 06:56
So Matthew Green, the cryptographer at Johns Hopkins. I happened to see this week that he tweeted a little bit bitterly about CryptoKitties getting $12 million in funding and there was something in the tweet, I should have actually pulled the quote for this episode, but, I’ll link to it in the show notes because, he seemed bitter about the fact that it had been difficult for you guys to raise money for Zcash.
Zooko Wilcox: 07:23
That’s just a factor of timing. We were doing that, in what was that? 2015. So it wasn’t a good year to be raising money for a privacy preserving global decentralized payment system.
Laura Shin: 07:39
No, that was the year of blockchain, not Bitcoin. So let’s get into some basics. What is Zcash?
Zooko Wilcox: 07:48
It’s one way to think about it is, we cloned the Bitcoin protocol and we added encryption.
Laura Shin: 07:57
And so what does that mean for a user of Zcash?
Zooko Wilcox: 08:01
Well, I have to include the caveat that we also maintained the backwards compatible un-encrypted mode. So if you’re a user of Zcash, you have to be aware of which mode you’re using it in. But if you’re using with the encrypted feature, then it means that when you make transactions, just like in Bitcoin, those transactions get posted to the blockchain so that the entire global consensus can recognize and validate that transaction. But, the difference is that with Zcash cryptography, the amount sent and the identifier, the address of the sender and the address of the receiver, those things are all posted to the blockchain encrypted so that only the sender and the receiver can see them. The sender, the receiver, and any third party that they share it with.
Laura Shin: 08:57
And for listeners, just going forward, why don’t we maybe just define these terms so as we continue the conversation, I think, correct me if I’m wrong Zooko, but I think the official terminology is shielded transactions or shielded addresses for the ones that are encrypted and then transparent addresses and transplant transactions for ones that are not and that are more similar to Bitcoin in that they’re visible in the public ledger. Is that correct?
Zooko Wilcox: 09:25
It’s pretty close, but let’s not say shielded or unshielded transactions because a transaction can include multiple addresses. Like you could send from a shielded address to a transparent address and you can even just like in Bitcoin, send money from multiple addresses or to multiple addresses.
Laura Shin: 09:49
Oh, so you could send shielded and transparent addresses simultaneously?
Zooko Wilcox: 09:54
You can send from any address to any other address. So the important thing to think about is if you are using a shielded address then, nobody is learning anything about how much money is coming in or how much money is going out from your address and when and to whom. And, then if you’re using a transparent address, then people can see how much money goes in and out, but just by looking at the blockchain of your transparent address and then they can see the addresses that you’re receiving or sending from if those other addresses are transparent addresses. But if the other addresses are shielded addresses, then nobody can see from where the money’s coming just by looking at the blockchain.
Laura Shin: 10:39
So this is something that I’m a little bit confused about because if Bitcoin is one big public ledger and Zcash also partially uses a ledger, then can’t those private addresses, can’t the amounts in them be deduced a little bit, sort of like a Sudoku? Do you know what I’m saying? Like if you have two pieces of a puzzle, can you put the missing parts together?
Zooko Wilcox: 11:15
That’s a reasonable question. Suppose there were only one person who started using a shielded address so far and there were a million users who all had transparent addresses. Then if you saw one of those transparent addresses, send 10 Zcash to a shielded address, you know which one it was because there was only one shielded address, right? And then if somebody sent 5 Zcash from a shielded address to a transparent address, you’d be able to piece it together. Now, the hard question to answer and the important question for the privacy of real users is, “Is there a way to piece it together in practice based on how many addresses are currently in use?” So if there are a large number of shielded addresses in use and someone makes a transaction from a shielded address to a transparent address, let’s say it moves 5 Zcash. If you’re just looking at the blockchain, you have no idea which of the large number of shielded address could have been the source of that transfer. All of them are equally likely to have been the original shielded sender. Does that make sense so far?
Laura Shin: 12:29
Sort of, but wouldn’t addresses sort of be created as transactions grow? Right? So couldn’t you sort of figure out like, “Oh this shielded address was created on the blockchain at this point.” You know, around the same time that this transition was happening?
Zooko Wilcox: 12:45
That’s a pretty good question. I think you might be imagining the shielded addresses as being more like the current Bitcoin addresses and the current Zcash transparent addresses. You might be imagining them as being like an arbitrary string of numbers that you can see when you look at the blockchain and that’s not true. That’s the difference between Bitcoin and Zcash. Is that, if you just look at the blockchain, you don’t get to see the shielded addresses at all. So you don’t even get to see how many there are or when they were created or anything about any of them. Does that make sense? Because, all the information about shielded addresses is all encrypted by the keys of the sender and the receiver who are using those addresses.
Laura Shin: 13:49
OK. So when I go to a Zcash block explorer, there are these lists. For some of these it will say, “shielded value.” I don’t understand what that means? I thought that that meant that…
Zooko Wilcox: 13:52
If you’re looking at one of those that says there’s shielded and a shielded amount… Now have you looked at Bitcoin block explorers that show you the input and output addresses involved with a given transaction?
Laura Shin: 13:52
Zooko Wilcox: 14:07
So this is like the same style, right? It’s showing you a set of input transactions and a set of output transactions.
Laura Shin: 14:13
Oh, but only for the transparent addresses?
Zooko Wilcox: 14:20
That’s right. [looking at computer] You’re looking at a list and one says, greater than equal to 9.833336641. Click on the hash on the left-hand side of that list. Now that will load the details of that particular transaction.
Laura Shin: 14:36
So basically we’re looking at a transparent address and the only information that we can see from the block explorer is that some part of this transaction involved as a shielded address, but we don’t know which address that was?
Zooko Wilcox: 14:53
Yeah. So on the left-hand side of that transaction, there’s a column that says inputs, and on the right-hand side there’s a column that says outputs and there’s a large number of addresses. Each of them begins with the letter T and that’s how you can tell that each of these is a transparent Zcash address. Transparent Zcash addresses always start with the letter T and there’s a lot of them are like hundreds and they each got a little tiny amount. They each got about 0.1 or 0.2 Zcash from this transaction. On the left it says inputs and there’s nothing there. So, this is the place where you would see an address if you didn’t have the unique Zcash cryptography. Does that make sense? So the fact that the left hand side is a blank, empty space is the the magical thing.
Laura Shin: 15:46
There is something about this transaction that makes me think about tumblers or just trying to obfuscate a trail in some fashion. Is that what it looks like to you to have this blank input and then so many tiny tiny outputs to so many?
Zooko Wilcox: 16:04
Yeah, I mean actually I believe that this is probably pay outs to miners who had been running a Zcash mining rig and you know, they’re part of a pool. And so they each ran their mining rig for a time period and then the pool has probably found a block and gotten a mining reward and now it’s splitting up the resulting mining reward and sending a little bit of it to each of the miners who contributed to the pool. So that’s why I think there’s hundreds of different transparent addresses, each of which is receiving a little bit of Zcash.
Laura Shin: 16:40
I find it fascinating actually that even when you. Even in a transaction that involves a shielded address, you can sorta deduce what’s going on?
Zooko Wilcox: 16:56
Yeah, that’s really right. The reason we can deduce things is because there are these transparent addresses involved. Makes sense?
Laura Shin: 17:01
Right. But this goes back to my question about it being sort of like a Sudoku, right?
Zooko Wilcox: 17:09
Yeah it kinda is. It’s a Sudoku puzzle and in the world where there are a lot of transparent addresses being used and a very few shielded addresses being used, then it’s like a Sudoku that you can solve because you can sort of process of elimination or logical deduction. But in the world where there are lots of shielded addresses being used, then it’s a Sudoku that is enormous and doesn’t have enough clues to answer. Does that make sense?
Laura Shin: 17:46
We’ll see. Something that I wanted to also ask you about is, I know people say that privacy is important to solve in the area of cryptocurrencies because Bitcoins are not fungible in the way people think they are. Because some coins can become tainted by illegal activity and it’s visible on the ledger. And so I know that you’ve talked about how you can have, at least with Zcash, you can have fungibility, but also you know, these coins that are transacting in this public fashion, but is that just because all the coins engaging in illegal activity are choosing the privacy function? And so does that fact in itself like having had a history of, going in and out of a shielded address with that cast suspicion on Zcash coins and make them non fungible.
Zooko Wilcox: 18:34
Well, first of all, I have to take exception to the framing of the use of privacy being for something that is illegal. That’s not the only use of privacy and and it’s not what either the Zcash community or the Zcash users currently use it for or value it for. So consider instead something that’s got the same consequences, but a completely different social flavor. For example, you could be mining cryptocurrency in Venezuela and you could be concerned that extortionists are going to track you down and confiscate your miners or extort you and require you to pay them off or something like that. Even though you’re not doing anything illegal and privacy, not just at the blockchain layer, but in other ways is, like I said at the beginning of this conversation, is really the number one defense against that kind of threat. Similarly, if you’re a cryptocurrency buyer and user in the United States, your primary threat model is not the police and not the NSA, at least not if you’re using Zcash because people currently don’t use Zcash for illegal things as far as I’ve seen.
Laura Shin: 18:34
But they wouldn’t tell you if they were?
Zooko Wilcox: 19:55
OK, that was a tangent. Let me finish what your primary threat is. I’m happy to tell you. We could go into the, the known facts such as they are about what people do use Zcoins for. But I will say as you are actually well aware, from some of your other research and writings, the absolute primary threat if you’re a law abiding cryptocurrency user in the United States is thieves, right? They may not even be from the United States, they might be from other countries, but thieves are tracking down cryptocurrency users and taking over their accounts and hacking their phone numbers and things like that and stealing their coins every day, all the time. And that is a pressing and valuable reason why you should not want the details of your transactions to be posted to a public blockchain.
Zooko Wilcox: 20:49
I can think of a couple more. One is that, non-profits accept donations in Zcash a lot. And one reason for that is that donors often prefer privacy when donating. And another is that if a business wanted to use a blockchain or cryptocurrency, either way, for business transactions, they would require privacy. It wouldn’t be acceptable legally or in business considerations to broadcast their transactions to the world. So anyway, I think that was it like two tangents in a row because you were asking a question.
Zooko Wilcox: 21:26
The question was, if it was a good question. It was, if the uses of privacy are few and far between, doesn’t that endanger the privacy of those people who do choose it? Right. That is a good question. There’s a technical detail about the difference between the Zcash approach to privacy and other, sort of, lower tech older technologies and that is that in Zcash, everyone who has a shielded address is indistinguishable from everyone else who uses a shielded address. Does that make sense? And not only everyone else who’s currently using a shielded address, but you’re also indistinguishable from everyone who has ever used a shielded address in the history of the blockchain. So if there are only like 10,000 people who’ve ever used a shielded address. Now in reality, there may be more, I’m not sure about the exact number, but even if there were only a few thousand or 10,000 people who are using it, that still means someone who looks at the Zcash blockchain and tries to solve the Sudoku puzzle and deduce something about your behavior based on what they see in the blockchain. They can’t recognize anything you’ve done is any different from anything that the other 9,999 people did. Does that make sense?
Laura Shin: 22:55
Yeah, but I want to go back to that question that I asked earlier. I personally, obviously, I mean I think everybody is interested in privacy for things that they are interested in doing, but in this case where you are describing to me the different reasons why people are using Zcash and not just Zcash but the shielded addresses. Obviously you listed reasons that would be fairly innocuous and understandable, but the fact of the matter is you probably don’t know how many people are using Zcash for illicit purposes. Right?
Zooko Wilcox: 23:36
We get some information from journalists and law enforcement. If you read all the news about investigations and busts and things like that, or reports from think tanks who are analyzing the evolution of technology and emerging threats and things like that. Then you can find out some facts that way, like what kinds of currencies are used on dark net markets for example,
Laura Shin: 24:06
And there just aren’t that many that are using Zcash? Is that the conclusion you’re drawing there?
Zooko Wilcox: 24:10
There have been no dark net markets reported to have used Zcash yet. I mean, there could be one that no one’s ever found out about or talked about, but there’s no law enforcement who have ever said that they arrested people for running a dark net market that use Zcash and there’s no chatter on the dark net market on like discussion boards about anyone using Zcash there. So as far as I’m aware from that data, uh, there’s no uptake yet of Zcash for that use case.
Laura Shin: 24:42
OK, well you get off easy at this moment, but we’re going to return to that later. We’re going to discuss the NSA tracking Bitcoin users, the Facebook data breach and more. But first I’d like to take a quick break to tell you about our fabulous sponsors. Founded by Ed Stevens, Preciate is building the most valuable relationships on earth. In each episode of Unchained, Preciate sponsors the recognition of an individual or group in crypto for an achievement. Today, Preciate is recognizing CFTC Chairman Chris Giancarlo. Chris, or should we say, chairman Giancarlo has supported innovation in crypto while demonstrating an authentic desire to protect investors. We also appreciate his personable and professional approach. Thanks chairman Giancarlo for showing us how good government works. Listeners, if you know someone in crypto who should be recognized on a future episode of Unchained, take action and go to preciate.org/recognize that’s preciate.org/recognize.
Laura Shin: 25:38
I’m speaking with Zooko Wilcox, founder and CEO of the Zcash company. So in light of this week’s news about the Facebook, Cambridge Analytica data breach and about the NSA tracking Bitcoin users, I want to discuss Zcash in light of those and let’s talk first actually about the intercept story. Which is the one about the NSA tracking Bitcoin users and listeners I’ll link to this in the show notes so you can read it if you missed it. But, I guess Edward Snowden leaked documents showing how the NSA was not just tracking Bitcoin users blockchain data, but also what it called, “intimate details of those users computers.” And the article said that the NSA had collected some Bitcoin users, password information, Internet activity, a type of unique device identification number known as a Mac address. They were also tracking Internet users Internet addresses their network ports, timestamps, and they were doing all this to identify what they were calling Bitcoin targets. Would it be possible for the NSA to track and target Zcash users in the same way?
Zooko Wilcox: 26:44
Yes. The only thing that Zcash does better than Bitcoin at this point is it avoids putting clear text data into the blockchain like Bitcoin does, but it is the same as Bitcoin is with respect to what an attacker can learn by snooping on your network while you use it and what an attacker can gain by compromising your device when you’re using it. So in both of those cases with Bitcoin and with Zcash, you could use Tor, the anonymizing routing system in addition, like by connecting to the Bitcoin network through Tor or connecting to the Zcash network through Tor. And that might help, at least with some attackers. But basically, that kind of information is still exposed to Zcash users today and to Bitcoin users. I mean the information about them is still exposed to someone who can either take over their device or spy on their network usage.
Laura Shin: 27:54
Matthew Green, who I mentioned earlier, the Johns Hopkins University cryptographer, who’s also a founding, Zcash scientist said that this makes privacy, “Totally worthless.” And that section of the article… (Laughing)
Zooko Wilcox: 28:15
(Laughing) We didn’t employ him for his PR skills. Actually, we don’t employ him at all. He’s uh, he’s not an employee of the company, but he’s a great, a great ally and partner in our science research.
Laura Shin: 28:23
Yeah. But I wanted to just explore this a little further because he said… so this is actually now just the writer of the article. I’m just going to read this quote. This is the text from that section in the article. The NSA’s interest in cryptocurrency is quote, this is Matthew Green now that they’re quoting, “Bad news for privacy because it means that in addition to the really hard problem of making the actual transactions private, you have to make sure all the network connections are secure.” Green added. Green said he is quote, pretty skeptical unquote, that using Tor, the popular anonymizing browser could swear the NSA and the long-term. So that’s even undercutting that idea. And then he said basically, “In other words, even if you trust bitcoin’s underlying tech or that of another coin, you’d still need to be able to trust your connection to the Internet. And if you’re being targeted by the NSA that’s going to be a problem.” So what do you say to that? Do you think that people can have any privacy against this kind of surveillance?
Zooko Wilcox: 29:22
It’s possible in theory, Tor might help what we know so far from public information including the Snowden leaks, is that Tor has stymied at least at some points in the past, the NSA itself, which I think is a good benchmark. The NSA is a very powerful, sophisticated organization, but we shouldn’t focus on them as the enemy or the threat, right? For most people, the NSA is not their threat model. And so they continue to need improved privacy for their threat model, even if that improved privacy is not going to protect them against the NSA. Does that make sense? For example, suppose you were a company that wants to use a cryptocurrency to do business over the Internet. It’s fast. It’s international, it’s programmable. You appreciate the decentralized nature of it so you’re not becoming vulnerable to some other company or some third party shutting you down. So you are using cryptocurrency for your business and your threat model is that thieves and competitive businesses and foreign armies and things like that might be targeting you. Either to steal your money or to take some strategic action against you in the marketplace by spying on the internal workings of your business. So you really should upgrade to better privacy tools including Tor and Zcash for that kind of purpose. Even if it’s still possible, which remains uncertain, that the NSA could successfully defeat those tools.
Laura Shin: 31:06
So it sounds like you… it’s almost like you rank all the different threats and while you acknowledged that this is a threat, you feel like compared to other ones, it’s maybe less of a priority?
Zooko Wilcox: 31:22
What I think is that everybody needs privacy. The NSA needs privacy, right? It’s a distributed organization with multiple components that need to communicate with each other and it’s being threatened and attacked. If the NSA, we’re using a cryptocurrency for any purpose or a distributed, publicly accessible blockchain for any purpose, then they would use a technology similar to Zcash or use Zcash itself or something to protect their operations from their enemies. If you were a corporation like Apple, you cannot afford to broadcast your internal private operations and planning and activities to your competitors like Samsung, right? So you need privacy and you need privacy technology. You can’t just rely on Samsung to be honorable and not look. Likewise, Samsung is not just going to use some kind of a blockchain or cryptocurrency that exposes its innards to the public and then just requests that the public will not take advantage of that. So you need privacy and you need privacy technology in the modern world. So I want to get away from a sort of over simplified view of the NSA versus the people. That’s important to me too actually. But, it’s only one example of the pervasive requirement for data security and privacy in the modern world. And like you say, in the week since you and I last talked, this overwhelming need for a better technology has become increasingly apparent to more people. If you were paying attention, you already knew that the world was going this way, like with the Equifax hack. It’s become apparent and it continues to become more and more apparent to more and more people that our current way of doing things in which we, sort of, entrust all of our private data to some third party is not a sustainable or scalable way to improve society and to protect society going forward.
Laura Shin: 33:28
So this is actually something that I was so curious about because we’ve seen so many times in the past that there has been news about different privacy breaches. But, by and large, nothing really changes. People continue to agree to every terms and conditions a company puts in front of them. So a part of me, and I’ve covered this also in previous articles that I’ve written. I’ve just seen it time and again, people would answer and surveys after the Snowden revelations of a few years ago that they cared about it, but then they did not change their behaviors. I’m just curious, and this may not be something that you track, but after a news cycle like this one that we’re in right now or after Equifax, do you see activity in that part of Zcash increase at all? Or have the numbers largely remained the same?
Zooko Wilcox: 33:28
I haven’t looked in the last week. It’s a good question.
Laura Shin: 34:19
Well, I can tell you right now that currently on Zcash, only 14 percent of transactions are shielded, which I think says something about just how much people value or don’t value privacy. So why do you… well you tell me, is that more than is typical? Because if so, maybe now there’s a little bit more interest in it after the Cambridge Analytical news, but it’s still so low.
Zooko Wilcox: 34:44
Well actually I think there’s a lot of demand and I think a lot of people are using Zcash just because of the privacy feature.
Laura Shin: 34:56
But if that’s the case, why are only 14 percent of transaction shielded?
Zooko Wilcox: 35:01
Well actually, it’s in part, it’s more like six times as many people are using the exchanges that support only unshielded transactions in order to buy and sell coins for speculative purposes. You see what I mean? I got the six times by figuring that 14 percent is about one sixth.
Laura Shin: 35:21
I’m sorry, are you saying that all of that is just exchange activity?
Zooko Wilcox: 35:26
Well, my inference, of course I don’t have particular insight into what people are doing with the network, but my inference from everything I read in newspapers and on Twitter and whatnot is that the most common use for all coins right now is buying and selling them for trading purposes, for speculation or to store up value. And I’m sure that the exchanges that support Zcash are the source of a large number of those transactions. Like the one that you and I looked at today. Oh, I guess that was mining, that’s another big source. But mining and exchanges are two of the biggest activities in all cryptocurrencies.
Zooko Wilcox: 36:10
There are additionally actual uses of Zcash aside from mining and speculation like the ones that I mentioned. But you’re asking a very good question which is, is there like a credible, real demonstration of people’s demand for privacy aside from lip service? That’s your question, right? I really think there is. I don’t think the ratio of shielded to unshielded transactions is a good measure because as the rate of unshielded transactions goes up as more and more exchanges in wallets add the ability to use unshielded addresses, that makes that ratio gets smaller and smaller, but in fact the total usage of shielded transactions is also going up. It’s just not going up as fast.
Laura Shin: 37:11
Wait, I’m sorry, but the balance between them is the transparent ones are going up faster for the speculative reason?
Zooko Wilcox: 37:19
Well, I don’t know for sure why. I mean, I know for sure why is that most of the exchanges and wallets and third party tools like OpenBazaar and ShapeShift and all these different things out there. They mostly only support the transparent addresses and they don’t support the shielded addresses at all yet.
Laura Shin: 37:41
Why not? Is it just too difficult?
Zooko Wilcox: 37:44
Yeah, it’s mostly to do with engineering. The cryptography to accomplish that novel privacy property that I described earlier. It’s so expensive on your CPU that we couldn’t even get it to run in a smartphone. It only works on laptops. And most of the third parties like exchanges and services have not implemented it at all. So that if you’re dealing with one of those parties, like if you’re using Kraken, the exchange to send or receive Zcash in order to trade it for dollars, you can’t use… Kraken only uses transparent addresses itself on its side.
Laura Shin: 38:26
It would be difficult to convert that to USD if they didn’t know the amount…
Zooko Wilcox: 38:35
No, so the only reason they don’t is a matter of engineering and efficiency. That’s why what the Zcash core team that the Zcash company employees. What we’re doing right now is developing an improved cryptographic protocol that will greatly reduce the computational expense of shielded addresses so that it will be possible to implement shielded addresses in mobile phones, in hardware wallets and all apps like that.
Laura Shin: 39:08
Oh Wow. OK. But, I don’t want to get away from this interesting question about privacy that continues to fascinate me. I just wonder what do you think is going to get people to care about privacy?
Zooko Wilcox: 39:22
It’s a really good question. I partly think… it’s true that people care and they’re sincere in their caring, but privacy is a social value that you want everyone in your nation or your community to have privacy. It’s not like so much an individual value. So it’s similar to how… it’s a public goods problem. It’s like the tragedy of the commons. You know, the idea that everyone benefits by having a well-maintained shared area, but you can’t expect every individual to go out of their way to take care of the shared area. So similarly with privacy, you want everyone in society to know that they can communicate freely their opinions to each other, make moral choices, express and act on their political beliefs, read whatever books they are interested in. That’s all part of the way our society was built and has lasted this long until about 15 years ago. And, that’s not something that you can regain as an individual just by protecting your own communications and your own computer usage. You should protect your own computer usage. Like I said earlier, the most urgent reason to do that is to make it hard for thieves to choose to target you. But, as a society, we want privacy for its social benefits, not so much an individual benefit.
Laura Shin: 40:56
So are you just going to kind of continue to preach the benefits of privacy or do you feel like there some way to kind of nudge people to actually really care about it?
Zooko Wilcox: 41:06
Well, I think we definitely need to make it easy. That’s what is always been the most important thing in all of our other tools. You know, computer apps and things that we’ve learned to use over the years. It needs to be easy and understandable and feel safe and feel good to people. And that’s why what the Zcash company is doing right now is focused on improving the efficiency of the shielded addresses so that we can make them the default that everyone uses whenever they use Zcash. The other thing is that I’m continuing to preach… I mean I do preach the value of privacy for nations to protect and enrich them as nations and for communities to make them stronger and healthier communities. But I also preach the value of privacy for businesses to comply with the law and to protect their customers and to protect their own internal operations.
Laura Shin: 42:08
Let’s talk about selective disclosure and viewing keys. First of all, define them for the users and then answer the question for me of whether they defeat the purpose of privacy at all?
Zooko Wilcox: 42:21
Selective disclosure is the notion that the things you do aren’t going to be broadcast to everyone in the world. Nor yet are they going to be hidden so that only you can ever see them. Instead, you’re going to get to choose to whom you will reveal your actions. So this is why I say that privacy is all about consent. I disagree with people who say privacy doesn’t matter because people like to share pictures of themselves doing embarrassing things with their friends on social media. To me that shows that privacy matters, because they’re choosing that and because they could have chosen otherwise, it gives their choice meaning. So selective disclosure as well as being meaningful and valuable. It’s also a necessary consequence of mathematics because if you’re using math to protect data, i.e. using encryption to protect data, then that means there is a decryption key, which if someone gets it, then they can see the data. So it’s a problem if someone gets access to data Illicitly like in the Equifax hack. But, it’s also a virtue that you can choose to share access to some third party by giving them the key and that’s what we call a view key in Zcash because to distinguish it from the spending key, right? The spending key is what you keep in order to be able to spend your money later. And the view key doesn’t give anyone spending power, but it gives them the ability to view the transactions in the blockchain.
Laura Shin: 42:21
It’s like a Google Docs.
Zooko Wilcox: 44:02
Yeah, that’s right. You can do that in Google Docs. Yeah, exactly.
Laura Shin: 44:09
When I asked about whether or not it defeats the purpose of privacy, part of it is actually related to this next question I want to ask you, which is, I know you listened to a previous interview I had done with Kathryn Haun back when she was a prosecutor with DOJ,
Zooko Wilcox: 44:09
That was a great inteview
Laura Shin: 44:25
Yeah. Well she’s amazing, but she talks about how she liked Bitcoin because it made it easier to track crimes. She talked about how she worried that privacy coins would make that more difficult. And so I actually asked her for this episode when I should ask you and she said, “Well, since that interview I’ve learned that transactions can be unblinded.” Which I’m presuming is referring to is selective disclosure and viewing keys. But I just wonder, let’s say a court orders a transaction to be unblinded. How does that occur? If a court can force such a thing then I guess that’s why I just wonder. Or that’s why I asked earlier like does that defeat the purpose of privacy?
Zooko Wilcox: 45:06
That’s a great question and the answer is a little bit complicated, but I think we can work it out. I think we have to analogize to the Internet, you know, how people are always analogizing cryptocurrencies to the Internet. They say that Bitcoin today is like the Internet was in 1990, whatever. Have you heard that?
Laura Shin: 45:06
1994, I think is the year they are talking about now.
Zooko Wilcox: 45:32
Were up to 94, Okay. I remember 1994. And yeah, I had a homepage. But anyway…
Laura Shin: 45:35
You were ahead of the curve, I was only just learning about email.
Zooko Wilcox: 45:44
Sometimes that kind of comparison can be a little bit fatuous, but there is a really substantial, technical reason that the comparison is valid, which is that when the Internet spread and society started to depend on the Internet for the important parts of their life. There was actually some consternation among some people that this would undermine the legitimate authority of government. And the interesting, somewhat nuanced fact is it kind of did a little bit.
Laura Shin: 45:44
Yeah, just look at where we are… Cambridge Analytica.
Zooko Wilcox: 46:26
There’s a lot of ways… we’ve come a long way in the last 25 years. But, the result is a little bit more nuanced. It’s not that either this is really just the same as what came before. It’s not that the internet was just like newspapers and it’s not that cryptocurrencies are just like paypal. They actually are different. But also it’s not that they are so different that none of the structures and processes that society has evolved will be able to cope and it’s just like the end of government and society as we know it. Instead, what happens is with both cryptocurrencies and with the IP protocol that underlies the Internet, it is a global open scientific fact that hundreds of millions of technologists around the world know how to use it and no one can stop them from using it because they already have the knowledge of how IP works (TCP/IP) And increasingly, not quite hundreds of millions of them, but a lot of them also know how cryptocurrencies work and that’s sort of out of control, right? People in other countries can use Zcash and Bitcoin and TCP/IP as much as they want for whatever they want and we can’t really do anything about it. But at the same time, the next part of the process is that companies build services on top of that structure. So soon after TCP/IP started spreading, the Internet started spreading around the world. Then a bunch of companies started up like Google and Amazon that provide services built on top of that open network and those companies are, at least mostly, under the same social controls and social processes as their predecessors were ten and a hundred years earlier. Right? And the same thing is happening with cryptocurrencies. There’s an open protocol that anyone in the world can use, that no one can be excluded from, which is the Zcash protocol.
Zooko Wilcox: 48:29
At the same time, there are companies like the aforementioned Kraken, a cryptocurrency exchange, which are United States companies. Which are compliant with United States laws and what new rules we make as legislators and what new conclusions we impose by courts will apply to those companies. OK. That was pretty damn long winded. I’m sorry I used a curse word on your podcast. But, I had to say all that because both of the simpler answers are very wrong. The answer that says that since we have centralized… centralized is the wrong word. Centralize is a very troublesome word, isn’t it? Let me try again. There’s a way to look at this that says, “Since we have large organizations that lots of different humans depend on like Coinbase, then there’s no point in Bitcoin. It’s no different than Paypal.” That’s clearly wrong, right? Even though a lot of people depend on Coinbase, and even though those people are completely vulnerable to what would happen if a hacker stole all the bitcoins out of Coinbase or whatever. That doesn’t mean that Bitcoin is meaningless, right? It’s actually quite important that there’s an open protocol that those bitcoins that Coinbase controls are built on top of and transacted across and that there are other companies in other places around the world that are also using the same open protocol. So it would really be over simplifying to say the new technology doesn’t matter and it’s meaningless because people use these large companies or institutions or third parties or whatever. And on the other side, it would also be over simplifying to say that the new technology is going to wash away all of the social structures that we currently operate. So this may have been the dream or the intent of some people at some point, I don’t know. But, I really don’t think the spread and adoption of Bitcoin is going to eliminate companies or governments or any of the processes that we use to protect consumers and combat crime and everything else. I hope you edit that down because that was way too much talking.
Laura Shin: 51:11
But the thing is that I thought you were going to then reveal what happens if a court orders that somebody does….
Zooko Wilcox: 51:20
Oh jeeze, I talked all the time and I didn’t even answer your question.
Laura Shin: 51:22
What would happen?
Zooko Wilcox: 51:27
Right. So the answer is at the protocol layer. I mean, the answer is that somebody controls the keys. And in a lot of cases it’s going to be a third party like Coinbase that controls the keys. Which is the same thing that we currently do with financial institutions, like banks.
Laura Shin: 51:50
And this is in the future, when even shielded transactions are handled by exchanges? Earlier you said that right now, that’s not the case?
Zooko Wilcox: 52:00
Right. So at the protocol layer, whenever you create a transaction in Zcash, you retain the view key, which allows you to reveal that transaction in the blockchain to a third party of your choice. Now, we have to look at the next layer up. At the layer where services get built. Now at that layer, there might be some people who are running their own Zcash node themselves and they control their own key. And so if they post a transaction to the Zcash blockchain then they are the only ones who have the ability to disclose that transaction to anyone else. And there might be other people who are relying on a third party, like Coinbase. In that case, Coinbase is the one that’s generating those keys and posting those transactions to the blockchain. So then Coinbase is the one that has the ability to disclose the view keys to third parties.
Laura Shin: 52:58
And so for the individual, it’s just sort of up to them. A court could order it and then the individual would choose and pay the consequences if they decide not to?
Zooko Wilcox: 53:15
Right. And that’s basically how our society has always operated, at least for the last couple hundred years. Up until about 10 years ago. 10 or 15 years ago, we started in trusting more and more of our personal data to third parties. And there was a legal struggle in the United States about whether the fourth amendment to the United States constitution should apply to personal data even when it’s entrusted to third parties or not. And it is mostly worked out “not”. If you have like correspondence, like a letters that you send back and forth with a friend or a business partner or something. Until about, 20-25 years ago, those would probably be on paper and there would be specific processes. Whose authority derives from the fourth amendment for when the court could compel you to reveal the contents of your letters to a third party. Right? And then when we started entrusting all of our letters to Google and Yahoo and other third parties, even though what would be desirable for society, I don’t believe has changed from 25 years ago to today. But what became enforced by the technology and the courts changed. So that now a much looser standard is required before those third party email providers will provide copies of your letters to a third party.
Laura Shin: 54:41
Interesting. Well, we’re running out of time, but before we go, I actually want to ask you one last question because in that same episode I did with Kathryn. Back in the day, she also just was musing cause Zcash was about to launch at that time. And she said, “Oh, I wonder, you know, about the moral implications of creating a private digital cash that would make it easier for criminals. And you know, I wonder if the developers think about these things?” And so earlier in the podcast when you said that you are not seeing activity on the dark markets in Zcash, it seemed like you were saying for that reason, you feel pretty good about reasons that people are choosing their private transactions. But, if you were to find evidence that people were using it for human trafficking, child pornography, to purchase hitmen or illegal arms. How would you feel about having created something that was used to do that?
Zooko Wilcox: 55:38
It would be disturbing to find out that something I’ve contributed to is used for bad ends. But when we set out to do this, we thought to ourselves, “If we’re going to empower a bunch of humans, are they going to use their power more for good or more for evil?” And I feel very sure, it’s just my conviction in life that if we empower billions of humans. They will use it much, much more for good. They will protect each other from poverty and disease. They’ll support their families. They’ll do for each other through economic exchange, what they have already started doing for each other through the Internet. The Internet has lifted everything up, right? It’s improved education, it’s improved government. It’s improved our ability to stay in touch with remote loved ones. It’s improved our jobs. It’s improved our entertainment and amusement and relaxation. And, I feel a very deep conviction that many humans around the world are in desperate, urgent need of economic opportunity and economic freedom, that they have been unfairly denied, and when we give them that, they will use it almost all for good.
Laura Shin: 57:08
Let’s hope. I’m similarly optimistic and believe in the good of people as you. We’ll see. Well, it’s been so great having you as a guest. I’ve just loved this discussion. Where can people get in touch with you or see your work?
Zooko Wilcox: 57:18
You can definitely go to the Z.cash website.
Laura Shin: 57:23
Great. Well thanks for coming on the show.
Zooko Wilcox: 57:26
Thank you so much, Laura.
Laura Shin: 57:28
Thanks so much for joining us today. To learn more about Zooko, check out the notes inside your podcast episode. Also, be sure to follow me on Twitter @Laurashin. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review and subscribe on Apple podcasts. If you like this episode, share it with your friends on Facebook, Twitter, or LinkedIn. Unchained is produced by me, Laura Shin with help from Elaine Zelby and Fractal Recording. Thanks for listening.