Verifying data while keeping it private and why it matters: Bitcoin Masterclasses 3 with Craig Wright

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“Bitcoin does not stop human actions,” says Dr. Craig S. Wright in the final session of The Bitcoin Masterclasses Series 3 in Zurich. He’s talking about fraud – as long as you have people as part of your system, there will always be bad actors trying to cheat for their benefit. So what mechanisms can we put in place to find out who they are and what they are doing?

The video for this session of The Bitcoin Masterclasses is available here (second half only). You can watch the entire Series 3 event on the CoinGeek YouTube channel, as well as all other previous The Bitcoin Masterclasses series.

Of course, we could make everything transparent and visible to everyone. Also, of course, this solution is unacceptable to most people, both honest and dishonest. If it is necessary to make some data auditable and other data private, fraud will almost always be hidden in the non-auditable part. Therefore, investigators rely on other forms of detection, such as outliers and pattern spotting.

Dr. Wright refers to “Benford’s Law” in accounting as a means of detecting unusual activity in apparently random series of transactions. This helps an auditor identify data that may have been manipulated by humans, and flags it for deeper analysis.

Blockchain analysts like Chainalysis (like traditional financial investigators) can tell you that “something happened here” in certain transactions, but not what it was. We still have to use more old-fashioned ways of investigating errors. But with the Bitcoin blockchain, we can still verifiably account for the existence of certain pieces of data, even if some of it cannot be seen by everyone.

“This moves us into a different realm. We have the ability to do accounting, but the ability to have accounting and privacy,” Dr. Wright said.

“When we think about how to structure data, the fragmentation becomes important.” We can break files into parts, and use any hashing function to encrypt them.

Dr. Wright says we can use SPV and Merkle-ized structures to prove that all the roads are there. For example, an auditor can sign a series of documents (eg AG) ​​in the same Merkle structure, and then edit documents with the letters D and F. Although the actual data from D and F can now not be seen by others , we can still prove that they were checked.

“I can now give you a signed document, but only part of the information.” This is how SPV (Simplified Payment Verification) works in Bitcoin – any block of transactions can be verified as valid, but it is not necessary to see the entire contents of the block or the transaction within it.

You can even do this with audio and video files, removing some parts of it (eg for public consumption) but removing others, while still being able to verify that the entire recording and its original content exist.

A breakout session after the training suggests use cases such as passports and general ID (Dr. Wright often gives the example of his daughter who needs to show ID to get into a place but doesn’t want to reveal her exact age and home address). This is important as these documents store more and more personal data. Others include a company’s financial records, HR payslips, proof of phone bill payment (without specifics), health check results, credit scores and taxes.

We are heading into a future where all kinds of personal information will be collected and stored. This future will come regardless of whether a scalable Bitcoin blockchain is used to store this data…or not. Privacy laws can only offer temporary protection. Ultimately, this is why we advocate the most responsible system available; one that promotes information availability at the same time as privacy, and has the technological capabilities to make these processes efficient.

Dr. Craig Wright Bitcoin Masterclasses provide a deeper understanding of the technology

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