Episode 4: Financial privacy vs transparency Episode Transcript (website) Samantha Yap [00:03]: Hi! I’m Samantha Yap. Welcome to The Story of Money by YAP Cast where we talk about where money is heading. Join me and Hart Lambur on this episode of The Story of Money by YAP Cast. On our last episode, we spoke with Will Harborne, Co-Founder and CEO of RhinoFi, about financial privacy and why it’s something we should care about even when we don’t quite understand what it is or what its implications are. Traditional finance, he says, is a stop-gap measure, which of course he would say because he’s in DeFi. But he’s also not sure the existing options in DeFi would work in the long run. It’s a tricky problem because on some level transparency is good — in crypto what makes the system work is that it’s possible for everyone to see every transaction. We might not know who is buying and selling what, but we can see the system at work. And for all the crashes and scams, the main and oldest cryptocurrency network Bitcoin has been working 99.9876% of the time — it’s been up for 9.5 years, and down for 14 hours and 47 minutes. This is according to the Bitcoin uptime tracker which you can see online. You can see it all in action. We don’t have to take anyone’s word for it. But we don’t want people to see that we bought or sold Bitcoin; that information should be private. We would like our bank to know that we’re a good credit risk but we don’t want to share with them every single thing we’ve bought or sold. Will has a point. There has to be a better way. And he talked about some of the solutions in DeFi land that might work. But now it’s time for him to tell us about what he’s working on, and why. And how it might make all this financial privacy thing easier, and more scalable. What led you to start RhinoFi? Samantha Yap [02:06]: Let's kind of jump into, you know, what led you to like start RhinoFi and what's your vision for it. Will Harborne [02:15]: So, for RhinoFi really what we want is that everyone can start to access the opportunities of decentralized finance. So, it is possible now, if you are technologically savvy enough and have done your research to go and access opportunities, which most people don't have access to through the traditional financial system. So, you can make investments into early-stage projects. You can earn interest on your funds, whether that's stablecoins, like basically the equivalent to the dollar or Bitcoin or Ethereum, and you can also transfer funds to other people without having to wait for banking hours over the weekend, etc with very low fees or no fees in most cases. And so, these are kind of the early applications that are possible and people are doing in DeFi. But it's very difficult and we are just trying to make it as easy as possible so that millions of people can onboard. The big problem that has happened over the last few years is that more and more applications have launched and the whole space has become more and more complicated, more and more fragmented, more expensive to use as well cause of the demand. And so, we started by tackling the issue of cost, and we made a platform that was really cheap and really easy to use. And now we're trying to expand to cover much more of DeFi because DeFi itself has been growing over the last few years and there are now 50 different blockchains, 50 different DeFi ecosystems, 20 different wallets. And so, navigating through that for someone who's new to the space especially as we see more and more mainstream users coming into this DeFi is really difficult. And that's really where we see the challenge and what we are set up to do. We've been doing it for kind a subset of DeFi two and a half years, but now actually is the opportunity to sort of use our team's sort of expertise to do it for a much wider aspect of DeFi and help more people get involved. What is the case for DeFi? Samantha Yap [04:06]: We talked last week a bit about DeFi — the fancy term for using the decentralised financial system that has evolved around blockchain, the technology underpinning the likes of Bitcoin and Ethereum. But we’ve heard as many bad things as good things about DeFi, and it still has a wild west feel to it — perhaps too much so for anyone but the geekiest investor. So, let’s not just assume it’s better because it’s trendy. So, I guess Will, if you can make the case for why people should consider using DeFi. You know, in terms of just adopting it you know yeah. Why, should people consider using DeFi because the current financial system works okay? I can pay my bills. It's okay, I think. Will Harborne [04:51]: I think that statement in itself is part of the answer, which is that it does work okay if you're from the right place. If you're living in the UK or, you know, France or the U.S probably. Yes. And many other countries too, but if you're living in Turkey, which is actually where we see the largest number of users have DiversiFy, maybe not, maybe your local currency is continuously devaluing. You don't have the same access to financial services that we are used to in the UK or with your bank in the UK. And so that's where at the moment DeFi is becoming most useful. And we are seeing activity in a lot of countries that maybe, aren't part of the global financial system in the same way. And you can earn today like much higher interest than you would on a savings account, for example, and start to access more opportunities to escape from inflation and other things. And we're still early so these opportunities are still, you know, growing and still in some cases quite risky, but they're getting safer all the time and so that's where I think people are gonna increasingly want to start, want to access DeFi starting from, you know, not necessarily like the kind of center of Europe, but starting from other places in the world, and eventually as the technology and the opportunities improve, extending to everyone in the world. How do people preserve their privacy in DeFi? Samantha Yap [06:09]: So, taking it back to financial privacy again you know, in terms of making the case for this, for using DeFi and also engaging with crypto, you know, cause again, we spoke about how some of the benefits is that transactions are transparent, open, and you can trust that your payment is reaching a wallet address. However, it is accessible from wherever around the world, as long as you have an internet connection, but then there are some places in the world where people don't want their government or people to know that they're holding crypto. Like, for example, in China, which has banned crypto, and you don't wanna be a Chinese trader and have the government find out that you're holding, you know, Bitcoin and trading Eth so yeah. How do those people make sure that their privacy is protected? Will Harborne [06:56]: Today there are a few different ways. It is harder and you have to sort of navigate through the waters. But for example, you can do this, you can use a solution like Tornado Cash, where you essentially use again, another version of Zero-knowledge proofs to hide your, the source of your, so you basically move them from one wallet to another, without anyone seeing what their kind of intermediary movement was and who it is. You can also use solutions like Aztec that today can already have already launched and keep your transactions private. Solutions like what we built on RhinoFi are partially private and I think a lot of people still rely on that. So, by partially private, I mean it's kind of the first part of privacy I mentioned where other people just looking at the blockchain, can't see what you've done, but ultimately if a motivated Chinese government wanted to get access to that data, they would be able to. And so, it's probably not, you know, it's meeting some needs, but not, not all of them but we are seeing more and more, more and more solutions. You can, you often indeed find out move to private blockchains, like Zcash and then move back and that again sort of protects your privacy. So, it’s getting easier and easier every day. And I think within the next few years, probably less than one year actually given that there's a few new privacy focused blockchains launching, it will be possible for anyone who is motivated to have, have all the privacy they want from, from anyone on blockchains. UX still poor? Samantha Yap [08:19]: You raise kind of like a good kind of exercise or kind of method that people use. But for the average user, even for myself, like I, I wouldn't, you know, it's not like I'm trading hundreds of millions of dollars, but you know, like you said, if someone's motivated, then they can find these options. But in most cases, people are not you know, the average user or customers not really going to, you know, make a certain transaction, use a certain blockchain, you know? What would you say to with where it is? Will Harborne [08:47]: That's gonna be true, and to be honest, the only solution there is gonna be for us to have all privacy by default. And this has been the continual sort of problem that people who are trying to build these technologies have faced, that is if you make it optional or just like, you know, you know, just some people use privacy. It really doesn't actually help because there's even evidence of some of the companies now who look at blockchain data, being able to very easily, eventually deconstruct who every transaction was in these private systems like Zcash or Monero just through the fact that a few users made mistakes and then it becomes possible to kind of narrow down the field and keep searching until you've eventually figured out every transaction. And so, the only way to get real privacy, full privacy would be for it to be the default and for it to be for everyone. And for that you need basically all of the stacks, all of the tools to upgrade, to include privacy without the user needing to do any extra steps. But that is what there are million people who are yet to come. What is Rhino's goal? Samantha Yap [09:46]: Is that what RhinoFi is looking to do, or is that kind of how you guys are going to ensure financial privacy or you know, from the beginning kind of build something that's more private? Will Harborne [09:58]: Yeah. I mean, our goal is essentially to offer all of the most important tools available in DeFi to our users, without their needing to go and search for them and look for them. So right now, that involves decentralized trading, lending transfers, but it will involve privacy as well because that's something I believe all of our users will eventually need and want as they grow as the number of them grows. And so, we would be integrating, for example, some of the solutions I talked about, like Aztec other of these, these private chains and therefore kind of ensuring that without needing to go and search for them and use different wallets and applications that everyone gets practice. I don't think that today is quite feasible yet, but I really don't think it's gonna be very long before. Where is the balance between privacy and transparency? Samantha Yap [10:40]: So, we have the potential for financial privacy here, if someone really cares to do it. But this sounds still quite complicated, and perhaps a little theoretical. Is this still something far off, I wonder? Or is it doable now? So, you mentioned that RhinoFi provides your customers with the option to integrate these, you know privacy applications by nature and, you know, it makes it easier for them to find these options. If we can talk about the balance between having financial transparency and financial privacy for a bit you know, where does it like, kind of like start and end, you know? Cause you're saying it's, it's good to have transparency, but then you have to have some level of privacy. And you mentioned a few kinds of blockchains that have tried to build these solutions. Is there one single best solution or is that dependent on the applications and solutions? Will Harborne [11:37]: Yeah, there's not yet like a best solution, cause it's early. All of these are sort of being tested in different ways, but I think the, that there is a general architecture that's sort of starting to come to consensus with a lot of the different teams that are sort of independently building, but have kind of come to this same route, which is essentially to have kind of a base layer. You can call it layer zero on Ethereum, that would be Ethereum main chain, which maybe is transparent. And you can have a lot of the core infrastructure by that I mean, things like Uniswap or Aave, which are sort of massive liquidity pools where people can use in DeFi, which are transparent. And that's great because you want the building blocks underneath everything to be transparent because of all the benefits we spoke about of transparency, which is that everyone can see it safe; everyone can see that there's nothing that's gonna go wrong; it's not over leveraged; whatever else, but then you want the layer that's built on top of that, which is where users interact with these systems to be private. And for those users to have to, make use of this DeFi infrastructure, that's transparent, but not to have their own transaction data visible. And that is possible in a few different ways. We're seeing it happen in the Ethereum ecosystem with solutions like Aztec and Rollups, which can be private, but then still interact with Ethereum and we're seeing it happen in other, other blockchain ecosystems in a, using different technologies, but achieving a similar goal. So that's how I sort of think it's gonna end up, end up working where you, where you can get the benefit of both but of course it's still early, so it's hard to, hard to be sure. Where are we with DeFI and what needs to happen? Samantha Yap [13:19]: On that you said it's still early I think something for listeners who don't know much about this space, it's important to remember that Ethereum only came into existence in 2014. So, we are still early. Where do you see the state of kind of DeFi today? And what would you like to see or what you most excited about? Will Harborne [13:40]: It's still a lot. I mean, the number one thing is gonna remain wallets and ease of access because until we can overcome that for most people, it is just too much risk to install something on your laptop, where you could lose all your money if you make a mistake, or your laptop crashes and having to use five different websites. Use a bridge website where your funds disappear for 30 minutes and then get them back on a different blockchain. All of this is just, you know, it's, you can see that it's proof of concepts really, rather than things, which millions of people could use. And so that's kind of the number one focus is really making it so easy that it does feel like using Monzo, Revolut or, you know, consumer bank apps on your phone. But the second thing is gonna be then making actually the applications and opportunities useful enough that people actually want to use them. So, a lot of this, a lot of what we've seen happen in the last few waves of cryptocurrencies are very speculation driven. They're exciting for that reason, which sort of brings people with things like NFTs. New tokens, which, you know, might go up very fast in price, but those sorts of things aren't for everyone, they are for people who can afford to take more risks, maybe have a bit more disposable income. And really the world is potentially going into a very difficult time with inflation, cost of living and all sorts of other challenges, which are just starting to kinda loom onto the horizon. And if we want DeFi to really fulfill its promise. It needs to be playing a much bigger role than just for speculation. It needs to be somewhere which people could use as an alternative to their bank. Because although we often forget it, banks do collapse and have collapsed throughout the history of banks. And so, we want to be able to offer kind of a lifeboat for people who maybe are leaving from their local currencies in whichever country to something safer where actually they can protect their money, they can earn some interest on it and have it hedged against inflation and maybe invest it in safe ways. Some of that it does exist. And if you really know what you're looking for in DeFi, you can find that today. There are, for example, like gold-backed tokens and all sorts of other assets, but they're still small and difficult to find. And so that's the second thing I think we wanna solve. And if we do that, DeFi will become a lot more than just, sort of a play thing for people who have some spare time and money and really something that could help save millions of people from potential sort of financial ruin, or other issues in the next global recession or even worse. So maximising potential that's what, you know, we should all be focusing on, but there's a limited sort of amount of time and energy to do it. And the technology still needs to keep incrementally improving, but we we're getting there. Samantha Yap [16:28]: I suppose that’s quite sobering, and good that Will is frank about it. These things are still some ways off, and that’s important to remember. DeFi can be a bubble where everyone already knows the lingo and are brimming with confidence that this is the future. But there’s a problem with bubbles, as we know. But perhaps the greatest compliment paid to DeFi is that it’s got governments talking, not just about regulating crypto and throwing its worst exemplars in jail, but about using some of the technology that makes DeFi tick and applying it to their own banks, their own financial system. You know you’re in a good place when people start copying what you do. So maybe we’re not so far away from something that people can really use? What do you make of CBDCs? So with the introduction of like cryptocurrencies and with this technology governments have increasingly been interested in CBDCs which are Central Bank Backed Digital Currencies which, and we're seeing kind of, you know countries like China, think of launching a digital Yen, as well as the UK thinking of Britcoin. So, in the move of cash becoming more digital this sounds like a good thing, but it also is kind of a concerning thing because it means that now the governments will know more about who we are through our financial data. Could you share, kind of yeah, your thoughts on CBDCs? Will Harborne [17:53]: Yeah. I think CBDCs have huge amount of potential. I think they will definitely happen and plenty of governments. Yeah. Including China, UK and the EU have said that they we'll almost certainly issue CBDCs and there are good reasons for them to want to do it, which aren't necessarily in our best interest as users, but technologically, they make sense - they add lots of benefits. The problem, which we can imagine when we talk for example, about China issuing a CBDC is, it's not gonna be a blockchain the way that we imagine it today with decentralization and, you know, open control for the people. It's gonna be a currency that may be tracked on some version of a blockchain, but where the government has full control to free someone's assets, delete their assets, stop them from moving their fund if they do something which contravenes the People's Republic, and so that's a real sort of escalation of control over the monetary system, which of course, China has always tried to have a very tight control over the monetary system, stop people moving at abroad, etc. but this is to an extreme level where they can go directly to an individual's wallet and freeze it without needing to go via a bank or whatever else. And so, for that reason, we should be very scared of CBDCs. And you can imagine what we, in the context of what we've spoken, privacy becomes even more important. And clearly here, privacy also from the government issue of these currencies, that if you can at least protect who you are then you can't be targeted by a malicious government, or government employee even. And so that's, I think a prerequisite for the success of, well, essentially for freedom entirely for anyone who would live in a country with a CBDC. If we wanna see really successful CBDCs I think the approach that the UK has indicated is gonna take is an interesting one; which is that it would hopefully be linked with the kind of public DeFi infrastructure, that's being created. So that it wouldn't exist as some separate thing, but could make use of all the innovation happening in DeFi. But I don't think it would even be possible under like consumer protection laws or privacy laws in GDPR, in Europe to have a CBDC that wasn't private because of course, if they were just issued using the kind of technology of today without any extra privacy, we would be able to literally see all of our friends and, you know, anytime someone said, you send you a money, you could look up their address and see every other person they've ever sent money on what they bought at the supermarket last weekend. And this is, you know, really not something which would be, I think, even legal. So, privacy technology will be needed before we get CBCDs, at least in the free world, that might not be the case in certain other countries. Advice for governments doing CBDCs? Samantha Yap [20:38]: Thanks for explaining that. So, yeah, so you're saying that the, the UK government is looking into how to ensure that factions of the CBDCs are gonna issue is private. So, I mean, do you know if other governments are considering the privacy aspect of it? Or is that like remains to be seen. And if you were to speak to them, like, you know, what would you encourage them to look out for? Will Harborne [21:01]: I think to be honest, you know, the main thing would be, make sure that it's private and the second thing being, make sure it can interact with public decentralized finance, because if any of these currencies are issued as like some separate standalone system they will miss out on all of the open source, rapid innovation that's happening in DeFi and so won't be able to kind of piggyback onto those, those rails and applications. Whereas, if they do get that right, I think a successful CBDC could get used throughout all of the cryptocurrency world kind of, you know, in a way that many centralized, centrally issued stable coins are now and be hugely successful. Samantha Yap [21:40]: Should we be concerned though, of you know, a CBDC kind of becoming this surveillance currency being issued in other countries? And is there a way around it with DeFi and what you're building? Will Harborne [21:51]: That, that will depend on whether they're allowed to be interoperable. At the moment there's infinite scope on how it can be built, but we'll have to wait and see what each government decides to do. Samantha Yap [22:02]: Seems like you're putting a lot more thought into how you're building kind of your exchange and project, that I guess government should learn from too. That was Will Harborne, Co-Founder and CEO of RhinoFi, which aims to open DeFi to the entire world. Many thanks to Will. My takeaways from this conversation could be summed up by this: DeFi offers the potential to give us more control over our financial data while gaining access to the sort of tools and services that elude many outside the wealthy Western countries. The ideal DeFi platform will enable privacy for the individual but transparency for the system. But we’re not there yet: DeFi has some way to go to make these tools safe, secure and straightforward. And governments, rather than opposing the innovations of DeFi, could, with well-thought through initiatives like Central Bank Digital Currencies, help build a financial infrastructure that balance financial needs with financial privacy. Thanks for tuning in to another episode of YAP Cast. I’m Samantha Yap. For new episodes follow The Story of Money by YAP Cast.