Innovations in the crypto space appear daily. Whether through decentralized applications or new ways to implement and use nonfungible tokens (NFTs) within decentralized finance, blockchain technology is innovating at the speed of light. The only thing missing? Widespread adoption. One thing holding this back is the very public nature of the blockchain. DeFi, as it operates now, lacks meaningful privacy. In order to catalyze broad adoption for businesses, governments and individuals, those executing blockchain transactions should expect regular, consistent privacy.
First, we need to define what privacy means. It does not mean pseudonymity, which cryptocurrency purports to have now. Meaningful privacy means that a personal financial account will not be traced and an individual’s wealth will not be exposed. It means a business can protect trade secrets. Privacy means a government’s finances are the business of its people — not the business of dangerous neighbors.
Related: In crypto, no one cares who you are: Here’s why that’s a good thing
Cryptocurrency is just that — a currency. With the Canadian trucker convoy and the Russian war on Ukraine bringing about a crypto vibe shift, it will continue to be treated as a currency regardless of whether it is regulated as one. It is a financial asset, and our current understanding of personal financial privacy supports the move toward privacy across DeFi. The European Union has adopted the General Data Protection Regulation, to which every internet entity operating within the EU is beholden. On 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 it is removed.
Privacy is crucial for corporate crypto transactions
It’s impossible to deny that corporations and large traditional financial institutions are pivoting to crypto, with news that giants such as Commerzbank are applying for crypto custody business licenses. Corporate treasuries are starting to see the benefits of using crypto for solving a problem that has plagued them for decades: instantaneous cross-border payments. Lack of privacy for those transactions will stunt broader adoption because until the privacy of such institutional transactions is secured, it will remain a niche offering.
Companies have a right to protect trade secrets, including those related to finance and payments to employees and contractors. Hedge funds, which will benefit enormously from moving assets onto the blockchain, must be able to protect their financial movements. If every asset movement can be tracked, private businesses are unable to protect themselves, and competition is diluted. It is just as reasonable to expect privacy in business as it is to expect privacy for individuals. As crypto experiences wider adoption, it will continue to be stunted every step of the way until the problem of privacy is solved.
Related: The loss of privacy: Why we must fight for a decentralized future
Privacy does not threaten regulation
The good news is that it is possible for privacy in DeFi to be both responsible and secure. We all know that regulation is growing, and as frustrating as they can be for the Wild West of blockchain projects, guardrails can enable growth. People do not trust something they do not understand, so when regulations come, they signal that the people leading governments know what’s happening and what needs to be overseen. That is a good thing. Governments can — and should — regulate crypto exchanges, fiat on- and off-ramps, and individuals who are subject to local, regional and federal laws wherever 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 secure and can be used privately, people will feel more comfortable using crypto. Because people do not trust something they do not understand, we have to invite them using the paradigm of expectation that comes with other financial endeavors. Another way we can invite people into the space is by disconnecting the argument for privacy from the discussion of anonymity. This will help resolve the problem new adopters face when they falsely consider crypto to be an easy way to facilitate illegal transactions. Until there is a reasonable expectation of privacy, DeFi will remain a risky venture for both private parties and businesses.
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.
Kieran Mesquita is chief scientist at Railgun, a decentralized smart contract project that brings privacy to cryptocurrencies operating 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 people to develop its GPU mining software.
As the adoption of cryptocurrency grows, the importance of on-chain privacy is becoming increasingly apparent to those in the space. On-chain privacy allows users to transact securely while still keeping their identity and financial information private. Without it, it is difficult for users to feel confident in the security of their funds and transactions.
For those who use crypto for financial transactions, such as buying or selling goods and services, the need for privacy becomes even more important. Some users may be concerned that their purchase of cryptocurrencies could be tracked to their wallet and disclose personal information. Without on-chain privacy, a user’s entire cryptocurrency history is publicly viewable. On-chain privacy therefore allows users to remain anonymous while still safely conducting transactions.
With data privacy becoming a more pressing issue in the digital age, users are likely to be increasingly drawn to organizations and products that take steps to protect their data. For cryptocurrency, this means implementing features that ensure that users’ financial information and transactions stay private.
Perhaps even more importantly, on-chain privacy is necessary for crypto to reach wider mainstream adoption. It is difficult for newcomers to the space to understand what it takes to purchase, store, and use cryptocurrencies in a secure manner. The privacy that on-chain solutions offer allows users to remain anonymous and secure their transaction data. It’s for this reason that on-chain privacy is key to the wider mass adoption of crypto.
With the right measures in place such as on-chain privacy, the lure of cryptocurrency can be made more secure and attractive to mass adoption. After all, the same protocols that offer privacy also open up the potential for greater access to financial inclusion, a feature that most of the world’s unbanked population stands to benefit from. On-chain privacy is therefore a key component of wider crypto adoption and should therefore be given the due attention it deserves in the discourse of crypto.