Opinion by: Eran Barak, CEO at midnight
It has been almost 16 years since the blockchain emerged from its esoteric fringes to enter the world speech, the most recently evidenced by the continuous support of the historic operators of Wall Street. Despite this remarkable ascendant, the unfortunate truth is that this technology has not yet achieved its true commercial potential. A basic challenge persists: too much sensitive data remains publicly unmanned.
The node of the problem is that companies must keep confidential commercial data, and people try to protect their personal information as best they can. However, once the data on a public blockchain, it becomes irreversibly and indefinitely exposed.
Even if a company takes all possible precautions to hide the data, the errors made by others or the vulnerabilities of the system can expose sensitive data or metadata, including the identities of the participants. This can lead to confidentiality violations, violations of compliance or both, undergoing the fundamental hypothesis that blockchain is reliable and highlighting the importance of robust measures to protect sensitive data.
On the other side of this medal, the concealment of the activity on a blockchain can open the door to money laundering, triggering negative responses from the government. The cases where it happened led to a false impression that governments are opposed to the confidentiality of Web3, a criterion that fundamentally needs to adopt technology.
From whatever the angle we look at it, the maintenance of onchain confidentiality is a real and complex problem for web3. Until we resolve it, companies should not and should not meet the abyss.
The belief that governments oppose intimacy on the blockchain is wrong
Web 3 entrepreneurs have grown to fear that the creation of decentralized applications and companies that provide financial anonymity can bring them into regulatory difficulties. You just have to look at Samurai Wallet, whose co-founders have been accused of money laundering, or Tornado in cash, whose developer was sentenced to 64 months in prison for similar reasons.
These responses have led to a consensus that governments are completely opposed to privacy with regard to blockchain.
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This could not be further from the truth. Governments do not oppose privacy but have not compulsory in industries. Data protection laws, such as the General Data Protection Regulations or the Portability and Health Insurance Act, are in place to ensure that companies protect our customer data against threats of improper use and security.
The real problem that these high -level cases reveal is that web3 measures to protect data created abusive opportunities, allowing the facilitation of criminal activities that have naturally raised serious concerns in the name of governments. Blockchain data protection capacities should not undermine the established inter-laws of the global community against terrorism, trafficking in human beings, fraud and other criminal offenses.
This raises the question: what privacy looks like, well done,?
Selective disclosure
With regard to the use of blockchain, sensitive data protection is generally carried out while keeping the data outside chain or by encrypting the data. The latter is not a sustainable confidentiality given the rapid progress of quantum computers in the encrystration encryption.
The advent of Zero-Knowledge (ZK) technology (ZK), a complex cryptographic technique, allows users to ensure that sensitive data remains out of chain by rather sharing certificates on the validity of the data. In web3, ZK has become a transformative means of improving confidentiality because it allows the non -reliable parties to validate that a transaction has occurred without sharing any information on the transaction.
Decentralized applications can exercise selective disclosure by choosing between the implementation of data (complete disclosure), putting it into force with encryption (disclosure via visualization keys) or using ZK to publish only a certificate on the data (offering usefulness without any disclosure). The selective disclosure of data only solves half of the puzzle. It was not designed to take into account metadata.
The next confidentiality border
The metadata, the information surrounding our data, is an underlined element of the exhibition by the blockchain of sensitive information; It can be used to make inferences, creating an additional layer of vulnerability even when the data itself is hidden.
For example, through transaction metadata, investment and trading strategies can be deducted in addition to other behavioral models. For companies, the implications can be harmful to their growth and their ability to keep a step ahead of competitors. They cannot afford to have secrets and commercial strategies, nor even the identity of the other parties with which they make transactions, made public.
The need to protect metadata and delete the possibility of making inferences is essential for security and can be treated using a private token. However, such a capacity can be easily used badly for money laundering.
If the use of a private token is not the solution and the use of a public token does not provide sufficient confidentiality levels, the way to resolve this challenge is to rethink the web3 approach to completely protect metadata. We have to combine the advantages of the two approaches, effectively creating an active double system in which a public and private token are used. Each asset works independently, which means that specific restrictions can be imposed to prevent illicit activities such as money laundering while retaining all the advantages.
A powerful framework
The double active system allows confidentiality without the shielding ailments of conditions which generally allow, which makes possible the conformity and application of commercial policies. By combining this tokenomic structure with selective disclosure, privacy and regulatory compliance can coexist on blockchain, which will have resounding effects on adoption and innovation.
Opinion of: Eran Barak, CEO at midnight.
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.
