Privacy is existential

A presentation by Peter Van Valkenburgh, Executive Director of Coin Center, at Ethereum Day (Devconnect Argentina 2025) on why privacy is existential for Ethereum. Peter traces the legal history from ICO warnings through Tornado Cash sanctions to MEV and validator liability, and argues that base-layer privacy is required for truly neutral infrastructure.

This transcript is an accessible copy of the original video transcript (opens in a new tab) published by Ethereum Foundation. It has been lightly edited for readability.

Introduction (0:00)

This is a big stage with a long walk and I'm I'm old school, I'm afraid, so I do have a written out speech, but hopefully you'll enjoy. So, thank you for having me. Coin Center, my organization, has been around for 11 years. We're defending the developers and users of Bitcoin, Ethereum, subsequent cryptocurrency technologies from inappropriate government regulation in Washington DC. We know threats when we see them. So, a little over 9 years ago today, I stood on the stage in Shanghai at Ethereum's second DevCon and I warned about the dangers of doing ICOs. It was actually the leadoff presentation at the second DevCot. This is 2016. This is right at the start of the so-called ICO boom. That was long before Gary Gendler was at the SEC. It was before anyone had received a Wells notice. It was even before the DAO hack, which if you remember or were around at the time triggered the DAO report from the SEC in the beginning of their investigation and prosecution of people in crypto.

Three years ago, I stood on stage at Zcash's ZCON uh 3 and gave an impromptu speech sort of last minute, not written out like this one about the tornado cash sanctions which had just been announced that morning and Alexis the developer his arrest in the Netherlands. Coin Center immediately analyzed the legality of those sanctions and concluded they were inappropriate. The US is still mostly a country of laws, not men. And the sanctions law, the International Emergency Economic Powers Act or AIPA, only allows the president to sanction people or the property of people. And an immutable smart contract on the Ethereum blockchain, like the Tornado Cash pools, is neither. We sued the government and ultimately our legal theories won in the court. And I'm happy to say that as of this past spring, the administration removed the tornado cash sanctions.

Americans Americans can use the tech. And perhaps even more importantly, courts set a binding precedent that you can't use sanction laws to tell Americans what software they can and cannot use. But it's not all good news. The developers continue to fight for their liberty. We are supporting them with AMAS briefings. Coin Center is also supporting a civil plaintiff. This is the complaint. It's Michael Llewellyn.

He's a software developer. And he is suing the Department of Justice in a Texas court to get declarative judgment that publishing software for privacy is not a crime and does not require a license in the United States. So, you may not know a lot about me or

Privacy is existential (3:15)

Coin Center, but hopefully you know that you should trust me when I raise an alarm, when an alarm is warranted. If we're going to succeed in building and maintaining free and open financial infrastructure, we need to tread carefully. And that's why I want to talk today about privacy. Privacy is existential to Ethereum. Privacy is not a regulatory attack surface. I will not stand here and tell you not to build privacy the way I told you not to do ICOs in 2016.

Privacy is actually a way to narrow the attack surface. And the tornado cash prosecutions are actually not about privacy. The theory of the government and those prosecutions is that anyone who's facilitating the movement of tokens on chain is doing money transmission and they need to get a license irrespective of the privacy features of the software. They are wrong the prosecutors but their wrongness is about licensing law and speech rights not about privacy. As I said, privacy is a way to narrow the attack surface to make ourselves actually less vulnerable to inappropriate prosecution and unconstitutional bans or prohibitions.

And to prove that to you, the case I want to direct your attention to today is not a securities law prosecution. It's not even a money laundering or elicit finance prosecution. It's about minor extractable value or me. But before we get there, let's talk briefly about Frankenstein. As the good doctor said, how dangerous is the acquirement of knowledge, and how much happier that man is who believes his native town to be the world than he who aspires to become greater than his nature will allow.

Mary Shelley and the one-way ratchet of knowledge (5:16)

Here's what I think Mary Shelley is saying in that novel. Privacy is not just about human dignity. It's about the efficient absence of knowledge. Just as it would be hard to live one's life with constant scrutiny, everybody always invading your privacy, it would also be hard to live your life with constant intimate knowledge of everyone else's private affairs. You constantly invading everyone else's privacy. Why is that? Because to become omnisient without omnipotence, to see everything without having the ability to fix everything, drives humans mad. It destroys our humanity with worry, hubris, and the pursuit of control over the uncontrollable.

You seek to become greater than your nature will allow. And as Mary Shelley wrote, "Knowledge can be a one-way ratchet. Once you see something, it's difficult to unsee it. Knowledge, as she wrote, clings to the mind when it has once seized on it, like lyken on the rock. And I think Satoshi Nakamoto knew this. The opening of the white paper is, if you look at it, kind of surprisingly all about reversibility. It's not about decentralization really.

It's not about proof of work. It's not about blockchains, a word that hadn't even been invented yet. It's about how existing modes of payments online are plagued by reversibility, or at least the urge to reverse. Quoting from the white paper, while the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trustbased model. Completely non-reversible transactions are not really possible since financial institutions cannot avoid mediating disputes.

The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions. And there is a broader cost, the loss of ability to make non-reversible payments for non-reversible services. With the possibility of reversal, the need for trust spreads. So, Satoshi's goal was actually neutrality as much as it was irreversibility. The ability to reverse is to him the origin of tremendous transaction costs associated with trust. He didn't come right out and say it in the white paper,

The cost of mediating disputes (7:50)

but I think what he means by mediating disputes is also policing fraud, stopping crime, obeying the laws and powers of nation states, and controlling people. We talk often about how computationally inefficient blockchains are, and they are. that even the monumental computing effort of globally verifying digital signatures without parallelization pales in comparison to the inefficiency inherent in a human dispute over the moral worth of every transaction and whether it should be included in the chain.

Those are the kinds of transaction costs that will drive global economies to a halt. But it's not just that power drives those costs. Before power there is knowledge. Arguably they are one and the same. And we can try and decentralize power to avoid the costs of per transaction mediation. That is the main project of Satoshi of Vitalic. The reason for a public one-way ledger compiled by competitors in a proofof work or proof ofstake leader election.

But dispersing that power may never be enough, especially if part of that dispersal requires the full publicity of the global transaction details. The power still exists, it's just spread over a greater number of people. And as the others become aware of their collective power thanks to the public visibility of transactions on chain, they will band together to exploit that power. or else they will become the target of a truly powerful entity offchain who can bend their behavior onchain to their will.

Better if they cannot even become aware of their power. Far better if they are blind. So to me the best case for privacy is not that users of blockchains deserve it. Some users deserve it and some users do not deserve it. It's not that users of blockchains seek privacy and therefore markets should supply it to the demand. Sadly, few consumers actually take their privacy seriously or are willing to pay for it or even switch from one app to another app that are both free just to protect it.

No. The best case for privacy is that validator neutrality depends on it because neutrality through decentralization will never be enough. Neutrality requires blindness. I would suggest humbly that there are

Two rules of knowledge and power (10:24)

two fundamental rules of knowledge and power in blockchains. The first rule, nothing transparent remains neutral. A visible ledger will become a mediated ledger. It will be mediated by the self-interest of powerful validators, through self-interested manipulation like minor extractable value. It will be mediated by the off-chain pressure of powerful entities like corporations and nation states through the imposition of legal duties and liability for failure to honor those duties. If a validator has even a small amount of power, they will be made to exploit that power. A mapped world is a world that will be carved up.

And rule two, nothing that is neutral survives unless it is big enough. A neutral ledger is a threat to powerful people. That will only be tolerated if the powerful people who rely on it see that their enemies rely on it, too. Mutually assured neutrality. With these rules in mind, let's go back to the threats in crypto that we've observed in Washington DC over the last year, to the overroad prosecutions, and to badly calibrated laws and regulations.

The tornado cash saga showed that privacy tools that exist as islands on public chains will always become the target of state aggression. Nothing is neutral unless it's private and only big neutral things survive. Tornado Cash was a small village prioritizing privacy and therefore neutrality within the larger public world of Ethereum. It was frankly unrealistic to expect no response from powerful governments when they can visibly watch as North Korean hackers move their money into the tool.

Yes, my organization, Coin Center, will always be there to fight back against unreasonable attempts to ban the usage of such tools and criminal liability for the developers of those tools if they are neutral and non-custodial tools. But we may not always win those fights. There's just too much ammunition against us. and the transparent nature of the Ethereum blockchain, showing the world each specific evidence of each criminal use of the tool only gives our opponents more ammunition.

Privacy pools are a wise approach to limiting that threat. Try as best as possible to deny the wrong people access to the good neutral tool, but note that the tool stops to be neutral. And even then, sometimes whoever's providing the anonymity set for that pool will fail to deny bad people access to that tool. And the onboarding transaction of those bad people will remain visible on the L1. And it will be powerful ammunition for our opponents.

The Pereira Bueno case and MEV (13:26)

But the case that truly convinces me of the dire need for base layer privacy is not tornado cash. It's another case in the Southern District of New York, the Pereira Bueno case. Two brothers are being charged with criminal wire fraud. They found a way to use the MEV Boost software to sandwich attack other MEB boost users who were themselves sandwiching ordinary Ethereum users. They earned upwards of $20 million doing this. They didn't lie to anyone or misrepresent themselves to any fiduciary or contractual relationship partners. Nonetheless, the Southern District of New York prosecutors think that they are guilty of wire fraud, a federal felony, because they are not quote an honest validator.

When that term honest validation and honest validator appeared in the jury instructions in that prosecution, Coin Center filed an emergency amicas brief to try to explain to the judge and the court how that term honest validator in our technical community may not mean in fact does not mean what the prosecution thinks it means. But this case is a mess. This is our amicus. Not just the prosecution being a mess, but also the underlying facts.

Minor extractable value is a disgusting reality of Ethereum. It too has its genesis in a lack of privacy. It is the public nature of DEX transactions that allows them to be easily sandwiched by validators. It is much harder, probably not impossible, but much harder to sandwich transactions if you can't see their economic fundamentals. But I don't just want base layer privacy as a way to discourage MEV. I want it as a way to defend validators.

Legally enforceable duties of validators (15:23)

The DOJ's larger gambit in the Pereira Bueno case is that validators have legally enforcable duties to one another due to the public nature of the transactions they validate. And if those duties are breached, validators, I think they think, should sue one another. And if they do not, the state, the Southern District of New York, should prosecute dishonest validators for crimes. And this doesn't just stop with wire fraud. If you can see a moneyaundering transaction or could have seen it using blockchain analysis, then how are you not complicit in that money laundering?

If you build on a version of the chain that has sanctioned transactions in it, are you not complicit in sanctions evasion? If you put multi-billion dollar fraudulent transactions into the ledger, maybe you should be made to roll them back. And willful blindness is not a defense. You can't simply say that you decided not to use a widely available tool like chain analysis. Willfully ignoring all the knowledge inherent in the public blockchain may still lead to potential criminal charges and will always be prosecuted as such.

Willful blindness is not a defense, but actual blindness is. So if you really want trustlessness, if you truly want neutral infrastructure, if you want dumb pipes, then the pipes need to be actually blind to the that flows through them.

Traditional finance pipelines and SWIFT (16:56)

Now, a good criticism of all this, you might say, Peter, we already have dumb pipes in the traditional financial industry, in the traditional global financial system, and that the operators of those dumb pipes are not cryptographically blind to the economic realities and the criminal aspects of the transactions that they put in their ledgers. The biggest of those pipes is called Swift. And this is a strong argument against what I was just saying.

It's an argument we made in our amicus brief in defense of Roman storm of which I'll quote right now. The Society for World Bank, a worldwide interbank financial telecommunications, Swift, is a Belgian banking cooperative that helps banks across the world settle over 150 trillion in financial transactions each year. While Swift's tools are often used to move substantial amounts of money in violation of sanctions, and they are, and while Swift voluntarily cooperates with ongoing investigations into their the use of their messaging protocol for sanctions evasion, they are nonetheless at pains to stress that they are not an obligated entity under US sanctions laws. quote, "Responsibility for ensuring that individual financial transactions comply with sanctions laws rests with the financial institutions handling them and their competent authorities. Swift is only a messaging service provider and has no involvement in or control over the underlying financial transactions that are mentioned by its financial institutional customers in their messages.

Swift has in reality far more control over the messages that they relay than the tornado cache developers had over any tornado cache transactions. Unlike the tornado cache protocol, Swift messages can only be rei relayed by Swift authorized users and Swift can and does block some users from participating in their proprietary messaging network. But they didn't start doing that blocking until recently when the European Union Parliament ordered them to do so by law in name, which if you think about it is very good of the European Parliament. They said, "Oh, we see you've been helping Iran send money to uh violate sanctions. Um, we're going to pass a law through our democratic institutions to tell you to stop." It's actually much nicer than showing up in the middle of the night and arresting them in front of their kids the way they treated Roman Storm.

Anyway, I digress. Let me go back to my two rules. One, nothing transparent will remain neutral. Here, in the example of Swift, we have empirical evidence. Back in the 1980s, Swift was arguably opaque in the same way that Bitcoin and Ethereum were opaque arguably in their early days. They are pseudonmous networks. The organizers of Swift didn't have the metadata or the computational ability to understand the nature of all the plain text messages on their protocol. That was the 80s, man. It was wild. That's just not true anymore. Of course, Swift can easily know tons about the messages on their proprietary network. And so the law, I think, is catching up to that transparency and is killing their neutrality. Between Iran in 2012 and Russia in 2022, Swift is barely holding on to its neutrality as a global settlement network.

Second, Swift is unlike Tornado Cache and even unlike Ethereum, big. Recall our second rule. Nothing neutral will survive unless it's big. In my opinion, the only reason why Swift is barely holding on to its neutrality is the fact that the global economy relies on it. And even then, its neutrality is crumbling because that neutrality is obviously a facade. Of course, this Belgian nonprofit knows when it's moving money for Iran. Why should they claim to be neutral? My prediction is the whole thing breaks down because of geopolitics within the next decade. And that's actually one of the reasons I'm long-term bullish on permissionless blockchains that are private and credibly neutral.

And finally, even if Swift survives the current slowmoving crisis that's unfolding with some semblance of its neutrality intact, Swift is a permission system that only includes banks in its network. users are at the mercy of banks and their transactions are fully visible to those trusted parties who end up cooperating with corrupt and tyrannical nation states. So sure, you might say that my argument for base layer privacy being essential to neutrality is underdetermined, but do you really want to just rebuild the global financial system in solidity with all of the warts of the global financial system and all of the warts of solidity? Or are we actually here for freedom and openness?

Are we actually here for dumb pipes?

Conclusions and defense of neutral infrastructure (22:14)

In conclusion, Coin Center is not going anywhere, and we will always be here to help defend protocol developers and infrastructure from unjust prosecution and over broad regulations. But without actual privacy, that fight gets harder and harder. What can we do? One, I believe Ethereum should have base layer privacy or at least become the root ledger for L2s that have blind and actually decentralized sequencers.

Two, I also believe we need to build tools to offer governments alternative privacy preserving means of preventing crime and terrorism. And if that second topic interests you, if you have expertise in it, please reach out. Yesterday I spoke at the Cippher Punk Congress about our efforts here and that talk may be interesting to you. Recently we published this report, Tear Down This Walled Garden: American Values and Digital Identity. It was written by me and my co-author Ian Meyers, co-inventor of Zcash.

And we have a newlyannounced John Hancock project um which is finding ways to minimize data collection at trusted entities and finding ways for people to prove their innocence without revealing their identity. And the goal is to socialize those new tools and technologies amongst the regulators in Washington DC. We should help governments understand them and leverage them. We should not be handing them a transparent ledger for every transaction for investigation and then ask them kindly to leave alone our neutral validators who knowingly watch and validate suspicious transactions. Transparent ledgers ultimately support mass surveillance and they doom infrastructure neutrality.

Privacy is existential. Thank you.

Q&A session (24:21)

Host: Thank you. Sharing I think one of the most important topics of our times by far. I think our first question is actually in the realm of — how do you view the explainer of privacy to new people? For such a long time the concept of privacy has been washed in this idea of secrecy — it's for people in hooded cloaks, etc. How much of an obstacle do you feel that is, especially when you think about lobbying efforts? You need the everyday person to also feel like this is something that's for them. Do you feel that's a big struggle? How do we mitigate that?

Peter Van Valkenburgh: So my expertise is law and public policy. How you get consumers to believe in privacy and value their privacy — I'm not an expert in that. I do think you need to make it, as someone said earlier today, normative, and not "I'm here for my rights, man" — because not everyone's like me. They're not all mountain-man libertarian types who are like "yeah, human dignity, my privacy." It just needs to be better for them. It needs to make sense to them that they wouldn't go to their dentist and give them their tax records to get oral care. That's insane. Why should that be the system here?

As far as explaining it to policy makers, I think there's a place for activism. There's a place for it being a fundamental right, or at least something worth protecting deontologically because it's morally good. I also think though that this argument I'm making in this talk is maybe more persuasive at the end. If you really want the kind of neoliberal ideal of a global economy that's interconnected and open and doesn't exclude wrongly, then you believe in neutral pipes. That is what SWIFT has been for a long time. That's not a weird alien world — that's what we had. And it will get destroyed if those pipes end up being tools for one nation's surveillance and control. It might not be the US — it might be China. So again, the two rules I was proposing — it needs to be big enough that we don't want China censoring this network, and so we're happy that we can't censor this network either. Mutually assured neutrality.

I think this also resonates with national security professionals. You go back to the history of Tor, an incredibly important protocol for anonymous internet browsing. It was developed by the US Navy, actually, and signals intelligence. The government was actually happy to have it out in the world and promoted people to use it, on some level, because if the only people on Tor are CIA agents in Iran, Tor will not hide them. We'd rather have a system where our agents can hide — probably along with their agents — than a system where everyone's just visible all the time and we can't achieve our national security objectives. So, these are the things I think about.

Host: In a lot of discourse these days, it's a lot about getting regulations passed as soon as possible, and there's this undertone that another administration or another ruling party could overthrow a lot of the progress that's been done. How do you react and think about that at Coin Center? There seems to be a sense of urgency amongst lawmakers in crypto.

Peter Van Valkenburgh: I mean, we've had this window for a little while where maybe we could actually pass some things where there seemed to be enough bipartisanship, and we could actually lock some things down. I do fear that that's closing because increasingly we're seeing partisanship here. It's really important. This is key to my day-to-day in the legislature. We've half passed this law called the Blockchain Regulatory Certainty Act, the BRCA. The BRCA would create a safe harbor for software developers just like Roman Storm — saying you're not going to be prosecuted for unlicensed money transmission if you didn't actually control people's money. If you just made software that other people used to move money for themselves, that safe harbor is the single biggest policy goal Coin Center has had in its 10-year history. We're right on the cusp of getting it. We got it passed in the House. We got to pass it in the Senate. We got to lock it down. It's a coin flip right now. I'm on the edge of my seat.

Host: I think you all do such important work that not everyone may fully understand. What is something that you wish more people knew about what you do?

Peter Van Valkenburgh: I'm just glad for people to learn about our mission — to defend the freedom to innovate using open blockchain technologies and the ability for people to use these technologies privately. If that's a mission you care about, please visit coincenter.org. Thank you for giving me the chance to shill. We are a donor-funded nonprofit and we rely on the goodwill of people like you who believe in our mission to keep doing the work we're doing. Thank you for this opportunity and thank you for listening to my talk on neutrality.

Host: Thank you so much, Peter. I love the t-shirt.