Bitcoin Fedimints Trade Privacy For Trust And Custody – Bitcoin Magazine
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P: What other things in the Bitcoin space, whether it’s companies starting up or new protocols being proposed that have you guys really excited, that we haven’t talked about so far in this conversation. Ben, would you like to go first since you’ve been quiet for a while?
Ben Carman: Yeah, I think Fedimints is probably one of the biggest things happening right now in the space. That’s pretty cool. It’s like using this thing called a Chaumian Ecash server, its features are perfect privacy but complete custody. It’s funny, because it’s something that was invented 30 years before Bitcoin was, and basically some banks used it, but it either closed or just failed.
Then it was just like, “Oh, this is a cool idea, but failed in the fiat world. Now people are trying again. because they can make these Fedimints interoperable between each other, where you can have multiple banks talking to each other through Bitcoin and everything is bitcoin denominated, but you can still have this perfect privacy on top of that.
I think it will be a very cool solution. I know another way to do privacy on Bitcoin. There will be custody, but I think the idea is a Fedimint, so it’s a federation running it. So it’s much more difficult, you can’t just have one person pull, you have to be a collection of people. If you make it large enough, it should be secure enough that quantities can be kept there for privacy.
P: Love it.
Tony Ronning: I agree. Fat man. From a privacy point of view, I think it’s very exciting. Yes, there is a custodial aspect, but I believe even myself that I will not use it because I am not capable of custodial. As I want to use the spending money that I have and the daily spending and receiving that I can do on a mobile wallet. I want it to be as private as possible. Even with Lightning, even with PLN as I described it earlier, there are still Lightning channels; it’s still online. There are still liquidity issues to receive: You need incoming liquidity to receive on Lightning, so you need channels open and then you need all these other things. It is not practical from an everyday point of view, in many ways and for everyone. So if I want a Lightning wallet that works really well and Fedimint actually integrates with Lightning incredibly well. You can bounce between federations by going through Lightning.
All kinds of amazing things you can do with just their Lightning integrations. They basically have Lightning gateways that are linked to the federation, so a Lightning gateway will honor tokens from the federation that is linked to and through that mechanism, you can basically receive on Lightning atomically.
The Lightning port will accept the funds on your behalf and you will receive tokens for them. These Fedimint tokens and Lightning port can’t just run away with your money. Sure, the union, if it was all a majority bad actor, you might lose some funds there.
You trust the federation, but for me, I would, I’m fine with trusting the federation with a month’s worth of spending. I’m talking about, like, a few thousand dollars worth of spending money at a time to be able to receive the privacy guarantees that Fedimint provides.
So for me it’s an acceptable risk. You don’t just rely on your privacy either. Like you can go to Coinbase and Matt Odell likes to talk about how some people just want to pay him through the Cash App and that way Matt doesn’t see their Bitcoin wallet. He only sees that it comes from the Cash App.
He does not work in Cash App. He does not have the data for the Cash App. So he cannot see the users hiding among. They trust Cash App with their privacy. That way, no one can analyze your data and your transactions, but with Fedimint, you don’t just trust Fedimint with your privacy. They literally don’t know what your transactions are; what your Bitcoin is. They gave you a token at one point that is blinded, so when you go to use it later, they have no idea if it’s still you or not. The most they can do – and you can do Fedimint in all kinds of different ways – but even in the scenario where there is a KYC-based federation, which I’m sure will exist and there will be non-KYC and KYC-free. and things like that. Even if you’re just a single identity in a federation and you receive these federation blinded tokens, the worst they can do is see how many tokens you’ve ever received, but they won’t know how much you currently have. They won’t know when you’ve ever used it, where you’ve used it.
There are many beautiful privacy benefits of using Fedimints, but it’s not just trusting them with your privacy, it’s trusting them with custody, but it has some really great privacy guarantees.
