Opinion: Decentralized technology will solve the privacy problem of Web3

Author: Cointelegraph Chinese

While the modern internet has connected us in unprecedented ways, one thing the younger generation has never truly experienced is genuine privacy. Even the older generation has forgotten what life was like before every thought and action was tracked.

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

At the heart of this vision, blockchain is one of the most important tools. It eliminates the need for trusted third parties and helps establish direct relationships between users and service providers, recording participation rules on an immutable ledger and even storing their direct interactions. Blockchain fundamentally restructures the balance of power and ownership of data.

With blockchain, individuals can now bypass centralized websites and costly intermediaries to interact directly with one another in end-to-end encrypted ways. People can purchase assets like real estate or art, access public resources, and participate in high-level decision-making. Moreover, using decentralized platforms, the control and management of these processes are much simpler, and third parties cannot access data unless participants agree.

In theory, this is the case.

The Reality of Blockchain Privacy

In reality, today’s blockchains are "anonymous," with users identified by a string of alphanumeric characters known as public keys. However, the association between transaction activity and metadata often undermines anonymity. This renders a major advantage of blockchain useless and can expose sensitive information to all participants in the network.

We may not know who Satoshi Nakamoto is, but we can track transactions associated with their address. Blockchain forensic companies, including CipherTrace and Elliptic, frequently use digital ledgers to trace financial activities on the blockchain.

Recently, in the rapidly growing world of blockchain-based markets, a seemingly unrelated phenomenon has emerged: transactions visible to miners can become "front-running."

At first glance, this doesn’t seem to relate much to privacy, but this type of attack occurs when miners can read plaintext transactions submitted on-chain and insert their own transactions before users, allowing miners to secure the best trades and diminishing the value for the rest of us. Maximum Extractable Value (MEV) refers to the value miners extract from the system through front-running—value that users could have received.

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

This raises the question: where is the blockchain layer that provides true privacy?

As it stands, the implementation of privacy has not received the necessary or deserved priority. Instead, the blockchain community has chosen other priorities—specifically, addressing scalability, speed, and cost challenges that hinder widespread adoption of blockchain.

Web3 Privacy Solutions Already Exist

Of course, this is not just a matter of deliberate neglect. Today's web applications cannot operate on existing blockchain architectures for acceptable technical reasons. Since all participants are forced to re-execute all transactions to verify the state of their ledgers, every service on the blockchain effectively time-shares a single, limited global computing resource.

Another reason privacy has not been prioritized is that it is difficult to guarantee. Historically, privacy tools have been slow and inefficient, making scalability a daunting task. However, just because privacy is difficult to achieve does not mean it should not be a priority.

The first step is to make privacy simpler for users. Achieving privacy in the crypto space should not require cumbersome workarounds, dubious tools, or complex cryptographic expertise. Blockchain networks, including smart contract platforms, should support optional privacy as easily as clicking a button.

Blockchain technology is ready to respond to these calls, taking security measures to ensure maximum privacy.

Zero-Knowledge Proofs (ZKP) and Secure Multi-Party Computation (sMPC) are two technologies that can fundamentally change how we perceive internet privacy and help us regain control over the personas we create online.

Both solutions would make the internet a place where our sensitive data can only be published with our consent. However, both solutions have their drawbacks.

Minor Issues in Blockchain Privacy

While ZKPs allow for basic transfers, they do not permit multi-user interactions. While sMPC supports multiple users, its own execution speed can be very slow. The obvious answer is to combine these two technologies to eliminate the flaws and create a fast, secure, and highly private framework from which to launch Web3 projects.

Perhaps the right way to view internet privacy today is that we will ultimately end the congestion. The destination—a better form of privacy, controlled by users—has never been in question, but there is still more work to be done.

The congestion arises from the focus on solving scalability, speed, and cost issues, while too little energy and investment have been directed toward addressing privacy concerns, which is understandable. But that has been the past.