Anonymity and privacy are not finite states. They exist across a spectrum and are mutually exclusive from each other. On the anonymity spectrum, transactions can be completely anonymous (where no transacting party knows the true identity of the other party), pseudo-anonymous (where transacting parties only know each other by fake names) or non-anonymous (where transacting parties know each others true identities). On the privacy spectrum transactions can be completely private (where no party except the transacting parties know that the transaction took place), semi-private (where third parties know the transaction occurred but the general public does not) and public (where the general public is aware of the transaction). When the spectra of anonymity and privacy are combined we see a matrix of possible financial transactions.
The Anonymity-Privacy Matrix
- Public transaction using true identities – Most large public business deals, like company mergers or a billionaire buying a sports team, are public knowledge and everyone knows the true identities of the parties involved
- Semi-private transaction using true identities – This is the default state of most commerce today. If you buy an something online using your credit card all parties know each other’s true identity and the a number of third parties (credit card company, government) are aware that the transaction occurred.
- Private transaction using true identities – If one friend buys something from another friend and pays cash, both parties know each others true identities but no third party knows that the transaction occurred.
- Public transaction using pseudo-anonymous identities – Sometimes a transaction is made public but the buyer or seller remains psudo-anonymous. An example might be a newspaper announces that a famous piece of artwork was sold to “an unnamed Japanese buyer.” The public knows that the transaction took place but only a few parties know the true identity of the buyer. Actions on eBay occur in this sphere – everyone knows the auction took place but only a few parties know the true identities of the transacting parties.
- Semi-private transaction using pseudo-anonymous identities – Transactions on the Silk Road fall into this category. A third party knows that the transaction took place (The Silk Road administrators) and each party only knows the other party by pseudo-anonymous handles. Because the transaction takes places using bitcoins, the transaction itself is also pseudo-anonymous and can be tracked if the bitcoin addresses can be linked to the real identities of the transacting parties.
- Private transaction using pseudo-anonymous identities – Many drug deals are currently conducted like this. A buyer and seller may conduct their transaction in cash, thereby making the transaction private. The buyer and seller may only know each other by false names. They may have each others phone numbers (which themselves may be psudo-anonymous) and they may be able to describe how the other person looks to a sketch artist, but they don’t know each other’s full identity. This type of transaction was recently introduced online with decentralize marketplaces that allow parties to transact in private without a centralized administrator knowing that the transaction took place. When I sold my book on BitxBay (and became the first documented person to sell a product on a decentralized marketplace) the buyer knew my true identity but I only knew him by a psudo-anonymous address. If I hadn’t announced the transaction it would have been totally private with no third party knowing the transaction had occurred.
- Public anonymous transaction – This type of transaction has taken place in the past with cash. For example, at church someone may secretly slip a large amount of cash into the donation bin; The priest may announce the large donation but no one would know who gave it. In the future this type of transaction might happen if someone were to donate money with an anonymous cryptocurrency to an organization like Wikileaks and the donation were to be announced to the public; Everyone would know the transaction had occurred but no one would know who the donor was.
- Semi-private anonymous transaction – If the Silk Road began accepting anonymous cryptocurrencies, a third party (the administrators) would know the transaction had occurred but it could be possible for the transacting parties to remain completely anonymous.
- Private anonymous transaction – If a new decentralized marketplace sprung up that allowed people to transact with each other through anonymous cryptocurrencies there would be no way for anyone except the transacting parties to know that a transaction had occurred and both transacting parties could remain completely anonymous from each other.
Today the vast majority of global financial transactions are private or semi-private with all transacting parties using their true identities. The last two types of transactions (semi-private/anonymous and private/anonymous) do not yet exist in our society. Over the coming years technology, in the form of anonymous cryptocurrencies and decentralized online marketplaces, will allow these types of transactions to happen. Some of these transactions will be nefarious and some will not, but once these systems are in place our world will change dramatically.