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 coming up that have really excited you, that we haven’t talked about so far in this conversation. Well, do you want to start since you’ve been silent for a while?
Ben Carman: Yeah, I think Fedimints is probably one of the biggest things happening in space right now. It’s really cool. It’s like using this thing called a Chaumian Ecash server, the properties of it are its perfect privacy, but entirely guardian. It’s funny, because it’s something that was invented 30 years before Bitcoin, and initially some banks used it, but it either shut down or just failed.
Then it was like, “Oh, that’s a great idea, but that failed in the fiat world. Now people are trying again. because they can make these Fedimints interoperable with each other, where you can have multiple banks talking to each other through bitcoin and everything is denominated in bitcoin, but you can still have that perfect privacy on top of that.
I think this is going to be a really cool solution. I know another way to do bitcoin privacy. It will be custody, but I think the idea is a Fedimint, so it’s a federation that manages it. So it’s much more difficult, you can’t just have one person pulling the mat, you would need to be a group of people. If you make it big enough, it should be safe enough for the quantities to stay there for more privacy.
P: I love it.
Tony Giorgio: I agree. Fedimint man. From a privacy perspective, I think that’s really exciting. Yeah, there’s a guard aspect to it, but I think, even me, like I’m not going to use it because I’m not capable of guard. For example, I want to use the pocket money I have and the daily expenses and receipts 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 earlier, there are still Lightning channels; he is still online. There are always liquidity issues to receive: you need incoming liquidity to receive on Lightning, so you need open channels, and then you need all these other things. This is not practical in everyday life, in many ways and for everyone. So if I want a Lightning wallet that works great and Fedimint integrates incredibly well with Lightning. You can bounce between Federations by simply going through Lightning.
All kinds of amazing things you can do just with their Lightning integrations. They basically have lightning gateways that are tethered to the federation, so a lightning gateway honors tokens from the federation that is tethered to and through that mechanism you can essentially receive over lightning atomically.
The Lightning Gateway will accept the funds on your behalf and you will receive tokens for them. These Fedimint tokens and the Lightning Gateway can’t just run away with your funds. Of course, the federation, if everything was a bad majority player, you might lose funds there.
You trust the Federation, but for me, I would, I agree to entrust the Federation with the equivalent of a month’s pocket money. I am talking about a few thousand dollars spent at a time to be able to benefit from the confidentiality guarantees provided by Fedimint.
So for me, it’s an acceptable risk. You don’t just trust them with your private life. Like you can go to Coinbase, and Matt Odell likes to talk about how some people will just pay it through Cash App, and then that way Matt won’t see their bitcoin wallet. He just sees it’s from Cash App.
He does not work at Cash App. It does not have Cash App data. He therefore cannot see the users hiding among them. They trust Cash App for their privacy. This way no one can analyze their data and transactions, but with Fedimint you don’t just trust Fedimint with your privacy. They literally don’t know what your transactions are; what are your Bitcoins. They gave you a token at one point which is blinded so when you go to spend it later they have no idea if it’s still you or not. Most they can do – and you can do Fedimint all sorts of different ways – but even in the scenario where it’s a KYC-based federation, which I’m sure will exist and there there will be non-KYC ones and non-KYC ones and stuff like that. Even if you are only one identity in a federation and you receive that federation’s blind tokens, the worst they can do is just see how many tokens you received, but they won’t know how many you currently have. They won’t know when you spent it, where you spent it.
There are many privacy benefits to using Fedimints, but it’s not just about giving them your privacy, it’s about giving them custody, but it also offers very good privacy safeguards.
