Identity, Privacy, and Surveillance

The expanded Substack essay is here https://bitesizepayments.substack.com/p/identity-privacy-and-surveillance

Orwell said privacy would be taken. Huxley said we'd hand it over.

On digital payments, we managed both.

And it's left us arguing about the wrong thing. Total transparency or total anonymity. Surveillance state or crypto shadows. Pick one.

That framing is tidy, and it's false — because it misses why cash worked in the first place. Cash was never a principled privacy design. It was an accident of physics. Paper can't phone home.

The middle ground we're mourning was never engineered. We just inherited it.

Which means if we want one now, we have to build it on purpose. And the tools already exist. Zero-knowledge proofs. Selective disclosure. Tokenisation. Prove you're over eighteen without showing your birth date. Prove the funds are clean without exposing the account. The digital euro's offline design keeps transaction details between payer and payee alone — and Parliament cleared the framework last month.

So the real question was never transparency versus anonymity.

It's whether anyone with power actually wants the middle.

Orwell and Huxley both assumed we'd have no choice. That part they got wrong.

Payments Industry Insights

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Transcript

BITESIZE PAYMENTS: DIGITAL

Episode 6: Identity, Privacy, and Surveillance

Full transcript

Welcome to Bitesize Payments: Digital. I’m Paul Thomalla.

A twenty-pound note doesn’t know who’s holding it.

It doesn’t care. It doesn’t record. It doesn’t report back to anyone.

Hand it across a counter, slide it under a table, tuck it into a card — the note just exists. Passive. Inert. Indifferent to its owner.

The moment you go digital, all of that disappears.

Not because someone decided to watch you. Not because governments wanted surveillance, or corporations wanted data, or regulators wanted control.

But because digital payments, by their very nature, cannot function without knowing who you are.

That’s the thing that sits underneath this entire episode. Not that surveillance was bolted onto digital payments as an afterthought. Not that privacy was taken from us by bad actors with bad intentions.

But that identification and payment are, in the digital world, the same thing. You can’t have one without the other.

Today, we’re going to dig into what that means. What it costs. And the genuinely difficult choices it forces us to make.

The System Was Built This Way

Let’s start with something simple.

In the analogue world, privacy was the default. Not because anyone designed it that way. Not because governments protected it. Just because of the nature of physical objects.

Cash is paper. It doesn’t need to know who’s holding it. A twenty-pound note works exactly the same whether it’s in your pocket or a stranger’s. You could walk into a shop, buy something, walk out. No record. No trace. No identity required.

If someone wanted to surveil you, they had to work for it. Follow you physically. Tap your phone line. Surveillance was active, deliberate, expensive. And you could opt out. Use only cash. Don’t have a phone. Disappear if you wanted to. Privacy wasn’t something you had to fight for. It just… was.

Digital payments are different by design.

To move money electronically, both parties need to be identified. You need a bank account — which requires ID. The bank is legally required to know who it’s dealing with. The card network needs a verified cardholder. The merchant needs a record of who paid.

Identity isn’t an add-on to the digital payment system. It’s the foundation the whole thing is built on.

This is worth pausing on. When we talk about digital surveillance, it can sound like something imposed on top of an otherwise neutral technology. But it isn’t. The moment you move from cash to digital, you move from a system that doesn’t need to know who you are to one that fundamentally cannot function without knowing.

The identification and the payment are the same thing.

Surveillance isn’t a side effect of digital payments. It’s a precondition for them.

And once you understand that, a lot of what follows starts to make sense.

The Opt-Out That No Longer Exists

You might be thinking — fine, but I could just use cash. Keep things analogue. Stay outside the system.

And historically, you could. That was the escape valve. For people who didn’t trust the watchers, didn’t want the record, didn’t want to be known — cash existed. Practical privacy. Good enough privacy. Privacy by default.

That escape valve is closing.

Try living without a bank account. You can’t get employed — most payroll is digital. Can’t pay rent. Can’t set up utilities.

Try living without a phone. Two-factor authentication. Delivery confirmations. Essential services. Nearly all of it requires one.

Try using only cash. Merchants increasingly prefer not to take it. Banks limit withdrawals. Governments push digital-only. For most people, the path of least resistance leads straight into the system.

Sweden is nearly cashless. China is racing toward digital-only. The UK, the US, the EU — all steadily reducing cash usage. Not through outright bans. Just through making cash increasingly inconvenient. Expensive. In some contexts, suspicious.

Though Sweden is worth pausing on.

Having led the world into cashlessness, Sweden got nervous. What happens if the digital system goes dark? So this year, a law came into force — every party in parliament behind it — obliging supermarkets and pharmacies to take cash again.

And here’s the thing.

Nobody thinks Swedes are going to start carrying notes.

The state has legislated to protect a freedom its citizens have already stopped using.

Hold onto that. We’ll come back to it.

It’s strange everywhere, actually. People spend less cash every year — and hold more of it. Notes in circulation are up across most major economies. We’ve abandoned the thing as a tool and started stockpiling it as a comfort blanket.

Cryptocurrency promises anonymity — but governments are cracking down, requiring exchanges to verify everyone, tracking blockchain transactions. Privacy coins like Monero are being delisted from exchanges, banned by regulators, treated as inherently suspicious just for existing.

The last genuinely anonymous option seems to be gradually disappearing.

It’s becoming very difficult to participate in modern society without participating in digital surveillance. For most of us, we’re in. Whether we trust it or not.

Does This Feel Like Safety, or a Nightmare?

Everyone in the system. Everyone being watched, to some degree. And people have very different reactions to that.

To some people, this feels like a nightmare.

Government sees everything. Every political donation. Every controversial purchase. Every movement tracked through transactions. Orwell’s 1984, but with better UX.

There’s a line from 1984 that keeps coming back to me. In Room 101, the Party knew your worst fear because they’d watched you, analysed you, understood you completely. Your payment history does something similar. What you buy reveals what you fear, what you want, what you’d rather keep private. Room 101 doesn’t need interrogation anymore. It just needs your transaction data.

To other people, this looks like safety.

Fraud protection. Money laundering prevention. Terrorist financing interdiction. Tax evasion detection. The tools to catch the bad actors. To make society safer. To ensure everyone pays their fair share.

Which view resonates with you probably comes down to one question.

Do you trust the people watching?

If you trust government and corporations to use surveillance responsibly — only against genuine bad actors, with appropriate safeguards — then digital payments seem fine. Even beneficial.

If you don’t — if you worry about abuse, mission creep, political targeting, commercial exploitation — then digital payments feel much more troubling.

The technology is the same either way. The data collected is identical. Your view of it depends almost entirely on trust.

The Record of Your Actual Life

Let’s be specific for a moment about what we’re actually talking about.

Your payment history doesn’t just show what you bought.

It shows your health. Pharmacy purchases. Therapy sessions. Gym memberships. What conditions you might be managing. What you’re worried about.

It shows your politics. Party donations. The publications you subscribe to. The purchases that signal where you stand.

Your religion. Your relationships — who you send money to, regularly, what that pattern suggests. Who matters to you. Your movements, your habits, your routine and the deviations from it.

Your financial life is, in many ways, a record of your actual life.

And it’s all there. Permanent. Searchable. Visible to whoever has access.

The surveillance isn’t hypothetical. It’s already built in.

And here’s the deeper tension.

We also want to be different people in different contexts. At work, you’re the professional. At home, the parent. With friends, relaxed, social, a different version of yourself. In the physical world, you could compartmentalise. Different people saw different versions of you — and that wasn’t dishonesty. It was just human.

Digital payments collapse all of that into one.

Your payment history shows all of you at once. The professional, the parent, the social person, the private person. Everything merged into one permanent, searchable record. It becomes harder to be different people in different contexts when one data set shows all of it.

And most corporates have good structural reasons to prefer it that way. They need one clear, verifiable identity for KYC compliance, fraud prevention, credit decisions, customer relationships, tax and audit. Privacy doesn’t just inconvenience them — it works against the structures they depend on.

The Questions We’d Rather Not Answer

Now for the uncomfortable part.

We generally don’t want to be watched. It feels invasive. Like a loss of freedom. Surveillance states have historically been dangerous.

But we also tend to want bad actors watched. Terrorists financing attacks. Money launderers hiding criminal proceeds. Scammers stealing from vulnerable people. We want surveillance to help catch them.

The difficulty is that surveillance which catches bad actors tends to require watching everyone. Because you don’t know who the criminals are until you look. Targeted surveillance is much harder to achieve than it sounds. In practice, the options are: watch broadly and catch more, or limit surveillance and preserve more privacy — at some cost to detection.

The deal on offer is roughly: give up privacy, let us watch everything, and we’ll only use it to catch bad guys. Trust us.

Whether that feels acceptable depends on trust. Do you trust current authorities to use the data appropriately? Do you trust future authorities with surveillance infrastructure already built? Do you trust that the definition of ‘bad actor’ stays narrow? These aren’t rhetorical questions. They’re the genuinely difficult ones that different people answer differently, based on their experience and their reading of history.

And there’s another contradiction worth naming honestly.

Most of us have participated in the cash economy. The hairdresser who says twenty pounds card, eighteen for cash. The builder who quotes two prices. The plumber who prefers not to leave a paper trail. We take those options because they’re cheaper, easier, and feel victimless. And then we wonder why schools are underfunded and hospital waiting lists are long.

It’s worth sitting with that contradiction for a moment.

Digital payments make this much harder. No cash means no off-the-books transactions. Everything is tracked. Everything is declared. Everything is taxed. The informal economy that helped people get by — it largely disappears.

There are two sides to that. Tax avoidance becomes harder, revenue increases, services get better funded. But there’s no flexibility. Small operators who survived on that grey market may struggle. The hairdresser giving you a deal might not be able to afford to stay open.

The question underneath it: do we actually want the tax system to work as designed? Or do we want an escape valve, available when it suits us, while expecting others to fund the services we use?

Digital payments make that choice more explicit. The middle ground shrinks.

The Choice That’s Coming

So here’s where things have arrived.

With cash, there was a middle ground. Imperfect privacy. Some anonymity. Some tracking. A balance — however uncomfortable — between surveillance and freedom.

That middle ground is shrinking.

Digital payments push toward something more binary. On one side: perfect transparency — every transaction tracked, stored, analysed, visible to whoever has access. On the other: perfect anonymity — untraceable cryptocurrency, mixing services, privacy coins, complete opacity.

Both options have real costs. Perfect transparency enables fraud detection, tax collection, crime prevention — and it creates surveillance infrastructure that can be misused, and it eliminates privacy. Perfect anonymity protects freedom — and it enables crime, makes tax collection much harder, and gives bad actors room to operate.

But I want to push back on that framing. Including my own.

Because the binary is too tidy — and it misses why cash worked in the first place.

Cash was never a principled design for privacy. It was an accident of physics. A piece of paper that leaves no record, because paper can’t phone home.

That middle ground we’re mourning? Nobody engineered it. We just inherited it.

Which means if we want one now, we have to build it on purpose. And here’s what gets skipped — the tools already exist.

There’s cryptography that lets you prove something is true without revealing what’s underneath. Prove you’re over eighteen, without showing your birth date. Prove the money’s clean, without opening up the account.

Central banks are already designing this in. The digital euro will have offline payments where the details are known only to the payer and the payee — and the European Parliament signed off on the framework this summer. China’s e-CNY has what its central bank calls “controllable anonymity” — private from the merchant, never from the state.

It’s achievable. Now.

So the question was never transparency versus anonymity. It’s whether anyone with power actually wants the middle.

Because privacy-by-design helps you — and complicates everyone else’s model. Harder KYC. Blunter fraud scoring. Leakier tax collection. Thinner data.

The technology to give us practical privacy back already exists. What’s not clear is whether the people running the rails have any reason to deploy it. Or whether they’ll let “you can’t have both” do the work of making sure we never ask.

In Orwell’s world, privacy was taken by force. The state seized it.

In Huxley’s world, people gave privacy away for convenience. For comfort. They chose ease over freedom.

In the world of digital payments — we did something of both. Privacy was taken, in the sense that opting out became practically impossible. And it was given away, in the sense that we chose one-click purchases, personalised recommendations, frictionless transactions.

Which is why Sweden is the whole story in one country. The politics are noble — protect cash, defend the option. The practice is that nobody spends the notes.

That’s not a Swedish quirk. That’s all of us. We want the escape valve to exist. We just don’t want to use it.

So what do we actually want? Not what we say we want. What we’re genuinely willing to accept.

Are we willing to accept significant surveillance to better catch terrorists?

Are we willing to accept tax avoidance to preserve privacy?

Are we willing to live with much greater transparency if it makes society fairer?

Are we willing to accept more crime and less revenue to protect freedom?

It seems hard to have all of these simultaneously.

Digital payments may be narrowing those options. The middle ground that let us have it both ways is getting smaller.

These choices are arriving. Whether we’ve thought them through or not.

Next time on Bitesize Payments: Digital — Episode 7: Protocol Governance vs. Sovereign Control. We’ve seen what digital money can do, how it settles, and what it costs in privacy. Now the power question: when code can be law and protocols can govern — who actually makes the rules?

If you’d rather read this one, the full written version is on Substack — it goes wider in places, and I publish both at the same time. If this changed how you think about something, I’d love to hear what. And if you know someone who’d push back on it — send it to them too. I’m Paul Thomalla. Thanks for listening.