Innovations in the crypto space appear daily. Whether through decentralized applications or new ways to implement and use non-fungible tokens (NFTs) in decentralized finance, blockchain technology is innovating at the speed of light. The only thing missing? Broad Acceptance. One thing holding this back is the very public nature of the blockchain. DeFi, as it works now, lacks meaningful privacy. To encourage widespread adoption by businesses, governments, and individuals, those who conduct blockchain transactions should expect regular, consistent data protection.
First we need to define what privacy means. It does not imply pseudonymity that cryptocurrency now claims to have. Good privacy means not tracing a personal financial account and not disclosing an individual’s assets. It means a company can protect trade secrets. Privacy means that a government’s finances are the business of its citizens – not the business of dangerous neighbors.
Related: In crypto, nobody cares who you are: here’s why it’s a good thing
Cryptocurrency is just that – a currency. As the Canadian trucker convoy and the Russian war on Ukraine bring about a shift in crypto sentiment, it will continue to be treated as a currency regardless of whether it is regulated as such. It is a financial asset, and our current understanding of personal financial privacy supports the move toward privacy across DeFi. The European Union has issued the General Data Protection Regulation, to which all internet companies operating within the EU are committed. At a more traditional level, fiat banks have multiple privacy protocols, many of which are subject to human error. Privacy is natural and often unvalued until removed.
Privacy is critical to enterprise crypto transactions
It’s impossible to deny that corporations and large traditional financial institutions are migrating to crypto, with news of giants like Commerzbank applying for crypto custody business licenses. Corporate finance is beginning to see the benefits of using crypto to solve a problem that has plagued them for decades: instant cross-border payments. Lack of privacy for these transactions will discourage wider adoption because until the privacy of such institutional transactions is secured, it will remain a niche offering.
Businesses have the right to protect trade secrets, including those related to finance and payments to employees and contractors. Hedge funds, which will benefit tremendously from moving assets onto the blockchain, need to be able to protect their financial movements. If every movement of wealth can be traced, private companies cannot protect themselves and competition is diluted. It is just as reasonable to expect privacy in business as privacy is for individuals. As crypto sees wider adoption, it will continue to atrophy every step of the way until the privacy issue is resolved.
Related: The loss of privacy: why we must fight for a decentralized future
Data protection does not endanger regulation
The good news is that privacy in DeFi can be both responsible and secure. We all know that regulation is increasing, and as frustrating as it is for the wild west of blockchain projects, guard rails can enable growth. People don’t trust what they don’t understand, and when regulations come, they signal that the people running governments know what’s happening and what needs to be monitored. That is a Good Matter. Governments can – and should – regulate crypto exchanges, fiat ingress and egress, and individuals subject to local, state, and federal laws, regardless of where they reside. Privacy does not threaten or disable regulation. Governments codify privacy on social networks. Why should financial networks be an exception?
The bottom line is that once DeFi is safe and private, people will feel more comfortable using crypto. Because people don’t trust something they don’t understand, we need to invite them in, using the expectancy paradigm that accompanies other financial endeavors. Another way to invite people into the room is to separate the argument for privacy from the discussion of anonymity. This will help solve the problem new adopters face when they mistake crypto for an easy way to facilitate illicit transactions. Until there is a reasonable expectation of privacy, DeFi will remain a risky endeavor for both individuals and businesses.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Kieran Mesquita is chief scientist at Railgun, a decentralized smart contract project that brings privacy to cryptocurrencies that work seamlessly with DeFi. He has an extensive background in developing technologies for blockchain and DeFi projects. He was an early adopter of Bitcoin and one of the first to develop his GPU mining software.
https://cointelegraph.com/news/on-chain-privacy-is-key-to-the-wider-mass-adoption-of-crypto On-chain privacy is key to broader mass adoption of crypto