Dec
17
A curious application just crossed the desk of the United States Patent & Trademark Office. Two weeks ago, MasterCard applied for a patent on its new “… method for anonymization of a blockchain transaction.”
“MasterCard’s idea sounds an awful lot like a mixer or tumbler,” reported TNW the day after MasterCard filed its application, “a system often used by cybercriminals to launder dirty cryptocurrency.”
That may not be an exaggeration. While there are plenty of reasons behind the appeal of blockchain’s anonymity to the law-abiding—from security concerns, to an intrinsic preference for privacy, to a desire to keep Big Brother’s nose out of their business—there’s no question that anonymity protects people who are up to no good.
And it appears that MasterCard indeed proposes to eliminate what little penetrability exists in blockchain transactions. On the day following the application, Coindesk’s Nikhilesh De explained that …
… most blockchain ledgers are not actually anonymous. The [MasterCard] application explicitly notes that transactions can be traced due to “the nature of the blockchain as an immutable ledger.”
As a result, it’s possible to identify all of the transactions that are associated with a specific blockchain wallet using public data.
To wit, De goes on to cite the following from MasterCard’s application:
“… such data may, as it is accumulated and analyzed, eventually reveal the user behind a wallet or at least provide information about them … However, the existing communications and attribution structure of blockchain technology such as bitcoin require identification of where the transactions are emanating and terminating, in order to maintain the ledger … Thus, there is a need for a technical solution to increase the anonymization of a wallet and the user associated therewith in a blockchain.”
MasterCard’s technology, continued the above-referenced TNW article,
… works by providing a primary address for a transaction, this address then stores the transaction data including the amount and final destination address.
Meanwhile, a new transaction and digital signature is created, with a new private key. This new transaction is responsible for ensuring the funds reach the desired person.
As a result, when you receive funds the sender address will be associated with the MasterCard system, and not the identity of the sender.
None other than the International Monetary Fund has expressed a keen interest in piercing blockchain anonymity. Earlier this year, IMF Managing Director Christine Lagarde blogged:
The same reason crypto-assets … are so appealing is also what makes them dangerous. These digital offerings are typically built in a decentralized way and without the need for a central bank. This gives crypto-asset transactions an element of anonymity, much like cash transactions.
The result is a potentially major new vehicle for money laundering and the financing of terrorism.
“One recent example,” Lagarde continues, “reveals the scope of the problem”:
In July 2017, an international operation led by the United States shut down AlphaBay, the largest online criminal marketplace on the internet. For more than two years, illegal drugs, hacking tools, firearms, and toxic chemicals were sold all over the world through AlphaBay … Before the site was taken offline, more than $1 billion had been exchanged through crypto-assets.
Of course, money laundering and terrorist financing is only one dimension of the threat. Financial stability is another. The rapid growth of crypto-assets, the extreme volatility in their traded prices, and their ill-defined connections to the traditional financial world could easily create new vulnerabilities.
Yet CNBC recently suggested that government poses no imminent threat to blockchain anonymity, citing assistant to the president and White House cybersecurity coordinator Rob Joyce’s remarks at the Munich Security Conference in Germany:
Joyce emphasized the need to better understand the cryptocurrency’s risks and benefits before embarking on any sort of regulatory regime.
“I think we’re still absolutely studying and understanding what the good ideas and bad ideas in that space are,” he said when asked about the potential for government regulation. “So, I don’t think it’s close.”
Privacy and money laundering are not the concern of the U.S. Patent & Trademark Office. Its job is to determine whether a submission represents a “… new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” If so, it may grant the inventor “a property right.”
Things could get interesting if MasterCard receives its requested patent and the IMF or the United States government doesn’t like it.