Opinion by: Fahmi Syed, President of the Midnight Foundation
Stablecoins have become the most sought after innovation in the blockchain from Bitcoin. Their attraction lies in their undeniable usefulness, offering the speed and flexibility of digital assets with the stability of the Fiat, becoming a natural link between traditional finances and decentralized systems.
From now on, Stablecoins benefit from a rapid adoption rate, especially in emerging markets where they allow fast and low cost crossings and provide a stamp against the volatility of currencies.
By seeing an incredible opportunity, the giants of traditional finance and agile fintechs seriously make a push in this space. Last year, Pyusd de Paypal reached a market capitalization of $ 1 billion, placing it in direct competition with the USDC of Circle and USDT of Tether. This year, BlackRock planned to buy a 10% stake in the IPO of Circle – additional proof that the stablescoins enter the consumer financial system.
What is more unexpected is the interest of non -financial powers. Recently, Amazon and Walmart have announced that they were exploring the publication of their supported tokens in dollars. Although it is logical for banks and fintechs to adopt stablecoins, the interest of the main retailers signals something larger. It shows that companies are considering stablecoins such as not only transactional tools, but strategic assets, disintermediation, cost reduction and more effective management of the balance sheet.
As exciting as seeing companies exploring stablescoins, this development raises an important question: by entering space, do these institutions really understand the risk of confidentiality to which they can be exposed?
The risk of confidentiality remains neglected
Most, if not all, discourse around the stablecoins have mainly focused on regulation, guarantee and innovation of payments. Although all this is good, these crucial conversations have drawn the attention of the critical question of user confidentiality.
Stablecoins are on public blockchains, which present risks of commercial confidentiality and important consumers. These are not only bad players flying the data of consumers and badly the reputation of the brand – they are also structural limitations to the scalability of the company.
Transparent by design, each transaction made on a public blockchain is recorded and immutable. The whole story of any portfolio, address or safe interacting with Stablecoins is permanently visible to the world and can never be modified or deleted.
In relation: Walmart, Amazon plans to publish its own stablecoins: WSJ
The whole financial history of customers, each purchase of product, each subscription paid, each merchant visited, each meeting with the assisted doctor, would be publicly traceable forever.
This raises important concerns about monitoring, profiling and identity theft for individuals. For organizations with millions of customers and complex compliance and audit obligations, overlooking the fundamental transparency of public blockchains, on which Stablecoins operate, could be catastrophic in a deemed manner.
When a global retailer or a service provider emits stable to rationalize transactions, competitors can see how customers interact with their tokens. They can identify consumption expenditure models, determine promotional prices and strategies and acquire the ability to view income and commercial performance in real time.
Such unprecedented transparency presents serious risks, exposing companies to competitive encroachment and allowing market players – including analysts and merchants – to operate performance data in real time or to short -circuit the listed companies on the stock market.
Without transactional confidentiality, mass adoption can remain out of reach. Stablecoins cannot evolve between business quality systems or global consumer markets as long as the confidentiality problem is not resolved. Liquidity supply will suffer without solid and selective disclosure mechanisms, undergoing confidence, conviviality and long -term adoption.
And yet, the conversation in confidentiality remains a reflection afterwards in broader conversations around the stablescoins.
Without confidentiality insurance, regulations do not make sense
In order to legislate and unlock the potential of DEFI, the challenge of balanced regulatory compliance with privacy by design has been widely ignored. A look at the long -term genius law proves this point.
This legislation aligns stablecoins with the support of assets and guarantees to combat money laundering. Although it is important, it is just as crucial as we consider the risks that immutable blockchains pose to data protection and confidentiality. As this has not been addressed in the Act on Engineering, it is now up to developers and engineers to assess and mitigate these risks.
Given the above, the stablecoins regulation has an unexpected paradox. By legitimizing these digital assets, we potentially reduce user confidentiality, creating risks for consumers and brands that emit tokens.
These are unexplored waters for institutions operating in strict data protection frameworks. Most of the Stablecoin infrastructure offers few guarantees to limit the exposure of sensitive information, and even less in line with emerging laws on data confidentiality.
The blockchain is not yet ready for companies
How to align the progressive characteristics of blockchain – immutability and transparency – with data protection protocols and laws that traditional brands and inherited institutions should follow?
Cryptographic techniques which preserve the confidentiality of transactions while allowing auditability exists, such as evidence of zero knowledge, which allow institutions to minimize risks thanks to functionalities such as armored sales and selective disclosure. These capacities are not yet standardized in most ecosystems supporting the stabbed.
While more and more brands and institutions adopt stablecoins, they must look beyond the compliance check box. Exposing user data on public blockchains can be catastrophic. Failure to comply with privacy could lead to the fall in stables of the favor of the public.
Stablecoins on the way to become financial instruments in good faith, the decision towards onchain payments resembles a fatal conclusion.
Failure to comply with confidentiality and protection of consumer data and the company could affect the adoption of mass of stablescoins. Avoiding such a result will require the next generation of blockchain technology to put rational intimacy at the center of its design.
Opinion of: Fahmi Syed, president of the Midnight Foundation.
This article is for general information purposes and is not intended to be and must not be considered as legal or investment advice. The points of view, the thoughts and opinions expressed here are the only of the author and do not reflect or do not necessarily represent the opinions and opinions of Cointellegraph.
