Decentralized technology will end the Web3 privacy conundrum

Published at: Jan. 30, 2022

Although the modern internet connects us like never before, one thing that younger generations have never truly experienced is the feeling of genuine privacy. Even older generations have forgotten what life was like before our every thought and action were tracked.

Web3 envisions an open, trustless, permissionless internet where users can interact with each other peer-to-peer without giving up ownership control, privacy or relying on intermediaries.

Underlying that vision, blockchains are one of the most important tools. They eliminate the need for trusted third parties and help to create a direct relationship between users and service providers, recording the rules of engagement on immutable ledgers and even storing direct interactions between them. Blockchains also fundamentally reconfigure the structures and power balances in data ownership.

With blockchains, individuals can now bypass centralized websites and costly intermediaries and interact directly with each other with end-to-end encryption. People can buy assets such as houses or works of art, access public resources, and participate in high-level decisions. Moreover, the control and management of those processes are much simpler using a decentralized platform where third parties are unable to gain access to data unless participants agree to enable it.

That’s the theory.

The reality of blockchain privacy

In reality, today’s blockchains are “pseudonymous,” where users are identified by an alphanumeric string of characters known as a public key. However, associations between the activity in a transaction and metadata can often undermine pseudonymity. This renders one of the main proposed benefits of blockchain useless and potentially exposes sensitive information to all participants in a network.

We may not know who Satoshi Nakamoto is, but we can track the transactions associated with their addresses. Blockchain forensics firms, including CipherTrace and Elliptic, regularly use the digital ledger to trace financial activity on the blockchain.

A seemingly unrelated phenomenon has been recently observed in the ever-growing world of blockchain-based markets, where trades, visible to miners, become subject to “front-running.”

While this doesn’t have much to do with privacy at first glance, this type of attack occurs when a miner is able to read the plain-text transactions submitted on-chain and insert their own transactions ahead of users, getting the best deals and leaving the rest of us with less value. The maximal-extractable value (MEV) refers to the amount of value that miners can suck out of the system by front-running — value that users would otherwise receive.

Since January 2020, miners have extracted hundreds of millions of U.S. dollars in value from Ethereum users. Clearly, this a real problem the industry needs to address.

This begs the question: Where are the blockchain layers that deliver real privacy?

As things currently stand, the implementation of privacy has not been given the priority that is needed or deserved. Instead, the blockchain community chose other priorities — notably, addressing the scalability, speed and cost challenges that have been holding blockchain back from mass adoption.

The solution for Web3 privacy already exists

It’s not just willful negligence, of course. There is a good technical reason that web applications today are unable to execute on existing blockchain architectures. Because all participants are currently forced to re-execute all transactions in order to verify the state of their ledger, every service on a blockchain is effectively time-sharing a single, finite, global compute resource.

Another reason that privacy has not been prioritized is that it’s very hard to guarantee. Historically, privacy tools have been slow and inefficient, and making them more scalable is hard work. But just because privacy is hard to implement doesn’t mean it shouldn’t be a priority.

The first step is to make privacy simpler for the user. Achieving privacy in crypto should not require clunky workarounds, shady tools or a deep expertise of complex cryptography. Blockchain networks, including smart contract platforms, should support optional privacy that works as easily as clicking a button.

Blockchain technology is poised to answer these calls with security measures that guarantee utmost privacy with social accountability.

Zero-knowledge proofs (ZKPs) and secure multiparty computation (sMPC) are two technologies that can revolutionize the way we perceive internet privacy and help us regain control over the personas we create online.

Both solutions will allow the internet to become a place where our sensitive data is released only with our approval. However, each solution has its own drawbacks.

Kinks in blockchain privacy

While ZKPs allow for basic transfers, they do not allow multi-user interactions. And while sMPC allows for multiple users, it can be prohibitively slow on its own. The obvious answer is to couple the two technologies together to cancel out the pitfalls and create a fast, secure, highly private framework from which to stage Web3 projects.

Perhaps the right way to look at web privacy today is that we are finally at the end of a huge log jam. The destination — a better form of privacy where the user is in control — was never in doubt, but there were other fish to fry.

The jam was caused by an understandable focus on solving scalability, speed and cost, leaving too little energy and investment to address privacy. But that’s the past.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Adam Gagol is the co-founder of Web3 venture studio Cardinal Cryptography and of Aleph Zero, a Swiss organization offering a scalable privacy-enhancing smart contract infrastructure suitable for enterprise-grade applications. Adam earned a Ph.D. in mathematics for his work on applications of probabilistic methods in combinatorics. In the blockchain space, Adam’s achievements with Cardinal Cryptography include designing Aleph Zero’s consensus protocol, which was peer-reviewed by the Association for Computing Machinery in 2019.