I first wrote about the idea of strong privacy in an article
published in 1996, almost twenty years ago, and have returned to the subject several times since. The basic idea, inspired by the work of members of the Cyperpunk mailing list, in particular Tim May, was that public key encryption made possible a world where individuals could make their transactions invisible to third parties. In such a world it would be possible to combine anonymity and reputation by linking the reputation to an online identity but making it difficult or impossible to identify the corresponding realspace identity.
A key element of such a world is anonymous digital cash, some way of making payments, including payments to strangers, without identifying payer or payee to either third party observers or the other party. What I was imagining was something along the lines worked out by David Chaum, a Dutch cryptographer. Chaumian digital cash is issued by a realspace bank but, just as with ordinary paper currency, transactions are anonymous. The bank does not know who has made transfers to whom, and neither party to a transfer needs to know the identity of the other.
Chaumian digital cash does not yet exist, probably because it requires a realspace bank, a realspace bank requires permission, ideally protection, for the government in whose territory it exists, and governments take a dim view of a technology that would make money laundering laws undenforceable. The nearest equivalent that does exist is bitcoin, one of its virtues being that there is no issuer, hence no need for permission or protection.
Bitcoin is, in a sense, the least anonymous money that has ever existed, since every transaction is observable by anyone with a bitcoin account. Transactions are shown as between accounts, not between people. But all that is necessary to link a realspace person to at least one of his accounts is to make a bitcoin payment to him and see what account the money goes to.
That works as a way of monitoring bitcoin transactions made by a realspace identity. Suppose, however, that we have a world of strong privacy. In that imaginary world my online identity is Legal Eagle Online, selling legal advice which I cannot sell in realspace due to not being a member of my state bar. Legal Eagle makes and receives payments in bitcoins. The online identity can be linked to the account he uses by anyone who makes a payment to him. But as long as I am careful not to use his bitcoins to buy goods delivered to my realspace address, there is no information linking Legal Eagle to me.
There are proposals to convert bitcoin into a truly anonymous ecash by
using mechanisms that, as I understand them, mix coins in between
transactions. How successful such projects will be I do not know. Even without them, bitcoin as it currently exists could be used as the digital currency of a world of strong privacy. It is not as good for that purpose as a fully anonymous currency would be, since the bitcoin transactions of my online identity are public. But it preserves the essential feature of such a world, the separation between online and realspace identities.