Upend Blockchain’s Model and Prioritize Privacy Over Anonymity

Blockchain, News, Opinion | May 22, 2019 By:

With the increasing adoption of technology, data breaches have become more frequent, with user information often misused to serve a company’s interests. This was demonstrated by the Facebook-Cambridge Analytica scandal in early 2018, which saw the latter harvest the personal data of millions of Facebook users without their consent in order to inform political campaigns on Facebook and influence public opinion. This calls into question the centralized control afforded to third-party platforms of massive amounts of data, including Facebook, which has collected 300 petabytes of personal data since being founded.

This is where blockchain technology comes in: the widespread adoption of the technology stands to restore privacy and protect a user’s data.

Another key feature of traditional blockchain design is its ability to facilitate anonymous transactions. While this is touted as a major advantage, it also presents its fair share of challenges.

Blockchain anonymity revolves around the use of encrypted public keys to provide information and transaction history on token holders. These public keys function as the only forms of identification on a majority of blockchain networks. However, they do not provide any material information on actual user identity.

Problems with blockchain anonymity

By virtue of their anonymity, cryptocurrencies have been used far too often for illicit activities. These include money laundering, tax evasion, black market and dark net operations, among other criminal acts. Reports such as the Silk Road saga have left a permanent stain on the industry, with most business operators and institutions opting to steer clear of the space.

A second noteworthy point is that the current blockchain model has no total anonymity. Due to the public nature of ledgers, every transaction is visible to the general public. This also means everyone within the network can view wallet balances and know the net worth of users (even if these “users” are represented merely by a string of numbers). For honest users, having such sensitive information out there can lead to disaster and makes them vulnerable to hacking and social engineering, among other things. For companies that require financial privacy, this rules out the possibility of blockchain adoption.

Mending the flawed blockchain foundation

Clearly, the demerits of complete anonymity outweigh potential benefits for the blockchain industry. It is clear the fundamental design of blockchain as we know it is flawed and must be addressed. The model requires a complete overhaul to allow for identity verification and transaction privacy, but this veil of privacy cannot be allowed to interfere with the provability, immutability and decentralization of the blockchain concept.

How would such a move impact blockchain adoption by business? Most people and pretty much every legitimate business want to know who they are transacting with, as well as to keep their transactions private. The ideal solution is to replace anonymity with privacy. Adding ID-verification to blockchains changes everything because it allows everyone to exchange goods and services with confidence.