Why wallets need a mixnet
Monero just integrated Nym and Electrum and Blockstream Green wallets were integrated already a while ago. What is all that about and why do digital wallets need a mixnet?
Wallets are one of the core elements of the decentralised web. Not only do they store your tokens, wallets also act as portals! They are access points into different chains and services. In this sense, the tokens being stored in wallets are less a currency as we know it and more like credentials — the means by which users can access, benefit from and participate in different online worlds.
The shift from cash to digital tokens has opened up many new use-cases, but it has also brought new problems. Whenever something “goes digital” this means it is translated into bits of information. And these bits are ripe for the picking: data and metadata that can be vacuumed from the tubes of the internet, for profiling, targeting and exploitation.
As more of the services we use and rely on move to tokenised systems (including, in many countries, increasingly large swathes of the public sector), it is vital that we build digital wallet technologies that are private by default.
Crypto is secure….isn’t it?
Many users of crypto wallets assume that their activities are private. After all, wasn’t the point of Web3 to do things differently from Web 2.0 and make sure people instead of big tech would be in control of online information? There are several key reasons why this is not the case. We’ll look at some of them here…
Wallet design. Digital wallets are not designed from a privacy-first standpoint. They are designed to fulfil a business case, and by extension to generate revenue. Privacy is a secondary concern, and indeed may be actively detrimental to the business interests of the infrastructure provider.
There are plenty of examples — in 2022, the Celcius bankruptcy resulted in the publication of the transaction history of half a million of the platform’s users, along with all the information required to de-anonymise them. The publication was demanded by the judge overseeing the Chapter 11 process — a clear demonstration that the only way to collect data safely is to simply not collect it at all.
The good news is there are several privacy-first wallet solutions. These all come from the open source community. Electrum is the most popular wallet for the privacy-minded, and for good reason — it is beyond the control of any single party, and is not hostage to corporate fortune. And Wasabi Wallet runs on the Tor network by default, offering ways to further improve security. But even privacy wallets like Wasabi that use Tor and coin mixers face problems by virtue of public ledgers. Journalist Laura Shin and blockchain surveillance company Chainalysis apparently managed to ‘de-mix’ a Wasabi transaction. Also Electrum cannot guarantee privacy on its own due to a fundamental flaw in the design of the internet: network traffic and its metadata is exposed.
It’s the metadata…
Even wallets with strong privacy protections are vulnerable at the network layer, the layer where communications traffic criss-crosses the world. This traffic, even when encrypted, leaks metadata and reveals your IP address. Metadata is the information about a message rather than the content: the size of the message, timing, device it was sent from and so on. This metadata reveals patterns that — especially now with AI powered surveillance — reveal in detail what is going on. And this includes all crypto transactions!
The peer-to-peer transaction broadcasts of Bitcoin and cryptocurrencies more broadly are entirely exposed. And this allows an observer to link for example your Bitcoin public key to your IP address and can even give an approximate location of where you live…
In order to solve this, the Nym mixnet protects your metadata and IP address. It does this by obfuscating traffic patterns. Packets are encrypted so they look the same and are routed across a large network through three layers of mix nodes, each mixing the packets with others so that they are entirely untraceable.
Electrum and recently the Monero are already integrated with Nym! They can be used via NymConnect.
Watch how…
Nym provides the infrastructural privacy foundations on which wallets, DApps and other tools can be built. The mixnet and its benefits are platform-agnostic, and can be used with any existing or new blockchain.
How does Nym compare to Tor? Read here.
If you are a wallet developer and want to integrate with Nym — start here!
Wallets beyond Web3
Wallets will shortly be the cornerstone of many people’s financial lives. Cash is being thwarted, trust in financial institutions is ebbing away, and in many so-called “developing” countries people have jumped straight from physical money to some form of digital token, bypassing the wildly inefficient structures erected by Western financial institutions. Payment rails, clearing houses, and the wastage associated with them already look antiquated.
But beneath this supposed surface story of legacy finance fading away, big finance is joining forces with big tech pushing out digital payment systems via cards and smart-phones. This is much bigger than Web3 and this shift from cash comes with major consequences.
First of all, the shift to digital payment systems means we are headed towards a veritable explosion of sensitive economic data and metadata traversing networks. Don’t underestimate just how much your purchasing habits can reveal about your life, relationships and state of mind!
Secondly, the shift from cash to digital payments means a shift in power towards this new coalition between big tech and big finance. The invention of Bitcoin nearly fifteen years ago was exactly in anticipation of the surge in financial surveillance that was to come. And the movement for privacy preserving e-cash is still alive!
Nym will be opening this year’s Computers, Privacy and Data Protection Conference in Brussels, to make sure the issue of digital payments and privacy remains on the agenda!
- Cloud Money, Data Privacy and Sovereignty — What Is At Stake And What Can Be Done?
- Moderator: Jaya Klara Brekke (Nym CSO)
- Speakers: Brett Scott, Author of Cloud money, Cash, Cards, Crypto and the War for our Wallets and Andres Arauz, former director of the Central Bank of Ecuador
Resources
Read Nym R&D teams latest e-cash paper
Read Andres Arauz paper on “the data of money”
Listen to Brett Scott on the dangers of a cashless society
Languages
Turkish //
