Bitcoin was created to make digital transactions simple yet anonymous. In guaranteeing trust between senders, it created a transparent network permitting everyone to have access to someone’s transaction history. So if you have nothing to hide, why worry?
- Institutions require better transaction data to continue adopting cryptocurrencies.
- Selective privacy in blockchains protects trade secrets.
- The expansion of Web 3.0 use cases will increase interest in privacy protocols.
Crypto is not private, nor will it be in 2022. It might be somewhat anonymous, but increased regulations erased every bit of anonymity crypto users had. In addition, exchanges are delisting privacy coins, claiming they sustain illicit activities and don’t fully comply with Anti-Money Laundering (AML) regulations. (Yet, banks don’t comply over and over again. Go figure.)
Every transaction that takes place on the blockchain is visible to everyone. Crypto transactions are anonymous by default because there is no tie between the wallet address – a string of numbers – and a person. There is, however, an indirect link between deposit methods, exchange addresses, and a person’s transaction history, which destroys the entire privacy narrative.
Blockchain’s immutability and transparency are its biggest feature and flaw, because it forces users to give up their privacy. Transparency is valuable for creating a trustless network, yet some things are best kept secret.
Privacy as a unit of exchange in 2022
There is a striking difference between privacy for the sake of conducting illicit activities and privacy to protect someone’s rights. Without privacy, control as a form of governmental violence can be enforced on anyone. As early as 2017, Edward Snowden endorsed Vitalik’s view that zero-knowledge proof protocols can redefine private trade. And they weren’t wrong in any way.
Blockchain’s transparency makes investments by institutions or venture capitalists challenging to manage. Jill Gunter believes that venture capital (VC) investments become risky, given that they reveal investors’ poker hands too early in the game. Selective privacy is needed to protect investors’ assets, and to streamline the adoption process through zero-knowledge protocols that help keep trade secrets.
Adoption will be driven by the trust institutions can put in protocols to protect their best interests. Brave Software found, in its Web 3.0 privacy paper, that DeFi is not as private as we thought. DeFi protocols are connected to third parties and unintentionally “leak” wallet addresses. If an inherently anonymous blockchain can’t prevent leaks, how can institutions that spend millions developing investment strategies trust the current state of DeFi or other blockchain protocols?
Solutions have been available for some time, yet privacy coins didn’t make the regulatory cut in several countries. Zero-knowledge scalable transparent arguments of knowledge (zk-STARKs) are becoming a hot topic, meeting DeFi and investors halfway. There is a growing market for compliant privacy, contrary to what early crypto maximalists were blabbering about.
Transparency and privacy are equally important, and context plays an essential role in managing the expectations of zero-knowledge protocols.
But we’re not only talking about institutions here. Web 3.0 is growing at a rapid pace. DeFi and Web 3.0 applications need the ZK hero to prevent the industry from falling into the same traps laid out by Web 2.0 before them.
Banter wisdom
In 2008 or 2009, when BTC payments were made through forums, there was a sense of privacy. But the need for increased adoption erased all of that. One of the central narratives of 2022 will be the growing development of zero-knowledge proof and privacy protocols. Investors are eager to get more exposure to crypto, but they need more safeguards to keep them in the game.
The use of crypto will skyrocket in 2022, and so will the need to retain transaction anonymity. Polygon already invested US$400 million into Mir, a ZK protocol, and rebranded it as Matic Zero. So don’t go full degen on ZK just yet, but consider researching protocols that tackle privacy in an industry-compliant way; we believe 2022 will be hot and heavy for a privacy narrative.
