• February 4, 2023

Where Does Crypto Stand When it Comes to Privacy?

By Jonathan Zerah, Marketing Director at Status.IM

Sometimes the fear of loss is a stronger motivator than the prospect of gain. Recently, social media platforms announced new changes to privacy policies that will ultimately add confusion to Big Tech’s access to information and metadata for personal use. Many users are now looking for private communication apps.

There has been a massive influx of encrypted chat interest and alternatives to centralized systems. But how well is this phenomenon understood overall? Are there certain aspects of privacy that are more important than others? Or is it just situational? It has become increasingly clear to a group of people who value self-management over their private information that the crypto community is very much aware of these issues.

Search for pseudonymity via data protection

Private communication apps like Telegram and Signal have suddenly become very popular, increasing by tens of millions of users in just a few weeks. For some, this is a new step in keeping their information safe from prying eyes. However, in the crypto world, the use of encryption is a common practice. We know the crypto community values ​​privacy because we see people using encrypted apps like Telegram and being open about centralized authorities having too much control over personal information (PII). But there also seems to be a unique breakdown of these beliefs and practices when it comes to decentralized finance.

In blockchain and crypto communities like Ethereum and Stacks, users claim privacy as a critical trait of the decentralized ethos. For example, members of the Ethereum community often use Decentralized Financial (DeFi) applications as they are autonomous, self-executing smart contracts that interact with user-owned data rather than interacting with centralized financial services. However, the same DeFi community is openly trading Ethereum, a public blockchain that keeps transaction history forever.

The notion of self-management has long been a big draw for crypto enthusiasts using dApps and Web 3.0 applications. However, crypto communities continue to use mainstream centralized applications to build communities and coordinate governance, which does not keep privacy at a high standard. With few options available, the crypto community can create their own social privacy tools to interact and connect on their own terms. In fact, as far as we can see, people seek pseudonymous connections, interactions, and transactions more often than they seek total anonymity.

From cypherpunk beginnings

Early crypto communities like that Cypherpunks Pioneered what it means to create private communication. However, ease of use has never caught up with the call to action for private communications until recently.

While different, privacy and security combine at the waist. So a good proxy for data protection is security. Safeguards like the use of 2FA are slowly increasing for the general public (they go just above that) 50% in 2019). This behavior is a good sign for account security, but quantifying data protection as a whole remains difficult precisely because of its secrecy.

From a personal point of view, crypto users often prioritize security features as they retain the ability to maintain some level of privacy and protect crypto assets. This shift often occurs as users move to take ownership of their assets and communications. By removing the centralized third party, users have the option to take ownership of their communications and crypto assets. As the migration from centralized ad-supported services to private chat apps and DeFi leads, understanding what new users want will help fuel long-term adoption.

Data protection and financial inclusion

In just over a year, DeFi has exploded from less than $ 1 billion to over $ 1 billion $ 77 billion In terms of total market capitalization, an ethos-based trend with financial staying power. With DeFi, banks, banks, and underserved communities can interact with nontraditional financial services in a way that is both public in nature and provides a degree of pseudonymity for end users.

While practical protection is theoretical, in reality certain regulatory requirements restrict marginalized communities who may not have access to personal information (PII) such as birth certificates or driver’s licenses. By expanding the possibility for people without documents to obtain financial access in a pseudonymous way and to communicate with their peers, data protection-oriented DeFi gateways can help bring underserved sections of the population on board in a meaningful way.

Using multiple pseudonymous identities can allow users, for example, to register a wallet or ETH address for regulatory compliance and to use other pseudonymous addresses alongside them to interact with friends and extended communities. In this scenario, an ETH address registered for regulatory purposes acts as a store of wealth, which is different from a reputation store address, while pseudonymous accounts in decentralized apps (dApps) act as separate idioms under a different identity, without this necessarily being associated with your actual identity must be direct. This construction offers a level of pseudonymity that is lawful while protecting privacy.

Open questions

So far, the blockchain industry has paved the way for privacy, but we need to continue this trend and ask critical questions to newbies. In order to develop a fuller understanding of what is wanted and what is not possible, it may be wise to ask important critical questions of the community, including when privacy is the top priority. Which features are most important to you when interacting with privacy tools? What data protection measures do you use to keep your digital assets and communications private?

Understanding this set of open questions and concerns can lead to broader solutions. If pseudonymity is a primary desire for crypto communities, the industry focus should be on securing pseudonymous communications. If private access to decentralized applications and DeFi is desired, solutions should be developed to meet these needs. If blinded transactions or transactions that use blenders and knowledge-free evidence are desirable, these features should be built in.

Centralized authorities’ complete control over personal data has challenged how crypto communities value privacy. It needs to be assessed how these communities can protect personal data while providing open access to decentralized applications and financial instruments while complying with local laws and regulations. When privacy goals can be assessed more fully, crypto communities can interact with products that meet their needs.

About the author

Jonathan Zerah joined Status in 2017 to lead Marketing and Communications. Prior to Status, he worked at leading digital agencies developing campaigns, activations and digital products for global companies such as Nike, Samsung, Audi and Google.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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