Two weeks ago, zkSNACKs announced it is going to refuse certain UTXOs from registering to coinjoins coordinated by the company. zkSNACKs runs the default coordinator of Wasabi Wallet, the most popular Bitcoin privacy solution, as well as finances most of its development. Although we will not share the legal and regulatory details of the matter, we will address the most frequently raised concerns.
We are fully aware of the gravity of our actions and had been even before the decision was made. By exploiting the only architectural flaw of Wasabi Wallet's non-anonymously run coordinator: lack of censorship resistance; we broke one of the largest taboos of Bitcoin: blacklisting, to achieve something greater: survival of the best Bitcoin privacy technology. In doing this, we are giving Bitcoin's anonymity a chance to thrive. The alternative, discontinuing zkSNACKs would have set back Bitcoin privacy for decades. Blacklisting by the default coordinator, while undesirable, is a small price to pay for the future of Bitcoin's privacy. We even welcome the community outrage as it would be disappointing if there weren't any; however, we want to clear up some of the speculation.
First, no, it wasn't because "we want to ban the Russians." Come on, guys.
Second, it's understood that a private company has the right to choose its customers and that the users have the right to complain. Thus, everything is as it should be. Although we would like to serve every single individual in this world, that cypherpunk utopia is not yet here. Most people do not understand Austrian Economics and libertarian values. In order to ensure the survival of the project, we can act in a way that society allows us to do, even if we are not philosophically aligned with that.
About going anonymous: at this point, it is impossible. Aside from feasibility, it's also questionable if it'd be a good idea. As a legal entity, we can hire developers at the top of their fields ensuring rapid improvements to Bitcoin privacy.
In a Bitcoin Magazine article, one of the owners of zkSNACKs Ltd., Bálint Harmat said the decision to blacklist was done proactively. While it is correct that there's no legislation that specifically says coinjoin coordinators must blacklist their customers' UTXOs, the challenges encountered operating the business in even the most liberal jurisdictions are numerous and multiplying.
Wasabi Wallet is making Bitcoin anonymous and most people are afraid of the idea of anonymous money. They don't care that it existed for thousands of years before the last century, nor do they understand the gravity of the fact that fungibility is an essential property of good money. Ignorance of first principles has resulted in unwanted media attention and claims of money laundering that we are obviously not trying to enable. Such claims by mainstream media have travelled far and ultimately led to legal challenges, which forced the company to choose between discontinuing its operations or introducing blacklisting so that the coinjoins can continue.
Without the zkSNACKs company, it would be more difficult, if not impossible, to continue funding the developers working on Wasabi 2.0. So after researching the options and a lot of thinking and debating, zkSNACKs Ltd, the company sponsoring the development of Wasabi Wallet, announced that the default coinjoin coordinator will start blacklisting certain unspent transaction outputs (UTXOs.)
The zkSNACKs coordinator having a blacklist does not mean Wasabi Wallet monitors or collects user data. Our architecture is specifically designed to limit the power of what we can do. We still cannot breach our users' privacy even if we wanted to. For example, all communication still goes through Tor, so the company has no information about coinjoin participants’ identity.
Any user of the open-source non-custodial Wasabi Wallet can still send and receive normally.
Finally, on the claims about the death of the project: we expected that after the announcement the liquidity of coinjoins would take a severe hit. Surprisingly, this never happened. The volume of new bitcoins being put into Wasabi coinjoins has slightly increased compared to pre-announcement levels. The theory put forward is based on the fact that the largest deterrence from coinjoining was the fear that users' coins may be worth less after the coinjoin process due to their "proximity" to perceived "dirty" coins. So the increase could be explained by Wasabi coinjoins being now seen as a non-risky activity to participate in. Whatever may be the cause, we are happy to see Bitcoin's privacy improve.
To conclude, after the past 2 years of research and development, we are convinced that Wasabi 2.0 is a revolutionary improvement to Bitcoin's fungibility. Our ultimate goal is to bring privacy to Bitcoin users and blacklisting was a necessary move, enabling us to continue to do so.