Innovations in the crypto space appear every day. Whether through decentralized applications or new ways to implement and use non-fungible tokens (NFTs) within decentralized finance, blockchain technology is transforming at the speed of light. the only omission? Wide adoption. One thing that prevents this is the very public nature of blockchains. DeFi currently in operation does not have any meaningful privacy protections. To facilitate widespread adoption by businesses, governments and individuals, those executing blockchain transactions should expect regular and consistent privacy protection.
First we need to define what privacy means. That does not mean that cryptocurrencies now claim to have pseudonyms. Meaningful privacy means that personal financial accounts are not tracked and personal property is not exposed. It means businesses can protect their trade secrets. Privacy means that the government’s finances are the people’s business, not the risky neighbor’s business.
Relevant: In cryptocurrency, nobody cares who you are. This is a good reason.
Cryptocurrency is a currency. With the Canadian truck driver escort and the Russian war on Ukraine changing the mood for cryptocurrencies, they will continue to be treated as currencies whether or not they are regulated as currencies. It is a financial asset and our current understanding of personal financial privacy supports the shift towards privacy across DeFi. The European Union has adopted a general data protection regulation that all internet companies operating within the EU comply with. At a more traditional level, fiat banks have multiple privacy protocols, many of which are subject to human error. Privacy is natural and often has no value until removed.
Privacy is important to corporate crypto trading.
With the news that giants like Commerzbank are applying for crypto custodial business licenses, it’s impossible to deny that businesses and large established financial institutions are moving to crypto. Corporate Treasuries are starting to see the benefits of using encryption to solve immediate cross-border payments, a problem that has plagued them for decades. The lack of privacy protection for these transactions will hinder widespread adoption as they remain a niche product until the privacy of such institutional transactions is protected.
The Company reserves the right to protect trade secrets, including information related to finances and payments to employees and contractors. Hedge funds that will benefit enormously from moving their assets to the blockchain should be able to protect their financial moves. If all asset movements can be tracked, private companies cannot protect themselves and competition is diluted. It is just as reasonable to expect privacy in a business as it is to expect personal privacy. As encryption becomes more widely adopted, it will continue to be hampered at every step until privacy issues are addressed.
Relevant: Loss of Privacy: Why We Should Fight for a Decentralized Future
Privacy does not threaten regulation
The good news is that DeFi’s privacy can be kept responsibly and securely. We all know that regulations are increasing and guardrails can enable growth as much as it can be frustrating for the Wild West of blockchain projects. Because people don’t trust what they don’t understand, when regulation comes, it signals that those who lead government know what’s going on and what they need to oversee. that good thing. Governments can and should regulate cryptocurrency exchanges, fiat on/off ramps, and individuals subject to local, regional and federal laws, regardless of where they live. Privacy does not threaten or disable regulation. Governments codify privacy in social networks. Why are financial networks an exception?
The bottom line is that once DeFi becomes secure and private, people will be more comfortable using cryptocurrencies. Because people don’t believe in what they don’t understand, you have to invite them using the paradigm of expectations that accompany other financial endeavors. Another way you can invite people into your space is to separate the debate about privacy from the discussion of anonymity. This will help solve the problem new adopters face when they mistakenly view cryptocurrencies as an easy way to facilitate illicit trading. Until there are reasonable expectations for privacy, DeFi will remain a risky venture for both individuals and businesses alike.
This article does not contain investment advice or recommendations. All investments and trading involve risks and readers should do their own research when making decisions.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent those of Cointelegraph.
Kieran Mezquita Lead Scientist at Railgun, a decentralized smart contract project that provides privacy to cryptocurrencies that work seamlessly with DeFi. He has an extensive background in technology development for blockchain and DeFi projects. He was an early adopter of Bitcoin and one of the first people to develop GPU mining software.