Crypto has something to say about privacy

[ad_1]

Last November, EU plans to ban all private coins were leaked to the press. The first draft, seen by CoinDesk, would ban all “anonymity-enhancing coins.” This has caused a frenzied debate in some parts of the crypto community.

The transparency of the blockchain is inherent in its design, as in the case of a public blockchain, all transactions are recorded in an immutable ledger visible to all. This is great for many use cases, but not others.

One of Bitcoin’s early criticisms was that although it was decentralized, its public nature could not offer privacy. Zcash, originally known as Zerocoin, was designed to address some of the privacy issues associated with Bitcoin. The project used a form of zero-knowledge proof called zk-SNARKs that allows transactions to be verified without revealing the recipient, sender, or transaction amount.

Zcash helped set a precedent and a framework. Using zero-knowledge cryptography, they became the first open, permissionless financial system.

Under leaked EU plans, zcash and other privacy coins and chains like dash and monero would be banned in all 27 EU countries. As the EU economy is worth more than $16 trillion and has almost half a billion people, this would be a blow to international anonymity. Before the bill becomes law, the European Council and the bloc’s 705-member parliament must agree on it.

“There are legitimate needs for anonymity in finance for retail users to [the] institutional level. From privacy/personal security to protecting competitors from emulating strategic business transactions,” said Alex Pruden, CEO of Aleo. “An outright ban on all anonymity-enhanced encryption protocols would not effectively stop money laundering, as the majority is still done using physical cash or through the traditional financial system.”

Leaked document shows EU set to ban privacy coins

The following are blacklisted:– Monero $XMR– Zcash $ZEC– Secret $SCRT– Dash $DASH

The policy would prohibit banks and crypto providers from interacting with them to avoid money laundering, have they checked FTX?

— Yoda Research (@YodaResearch) November 15, 2022 Governments can be selective about privacy

Central banks and governments aren’t always against blockchain-based privacy, especially when it works for them. The so-called “godfather of privacy” and creator of Bitcoin eCash’s predecessor, David Chaum, recently worked with the Swiss National Bank on a prototype CBDC (central bank digital currency) protecting privacy.

CBDCs are digital versions of fiat currency. They are issued and guaranteed by central banks. The purpose of CBDCs is to function as a means of payment. They also intended to function as a store of value, similar to cash.

The CBDC will combine privacy, scalability, anti-counterfeiting measures and quantum strong cryptography and is based on Chaum’s blind signature technology. Chaum said his method could prevent the government from tracking people’s user spending. And also allow law enforcement to track criminal funds.

If Chaum’s technology is successful, there’s a clear reason why governments would adopt it. A digital fiat currency that offers cash privacy, but bank transfer traceability, works for both parties. Because a centralized authority controls CBDCs, they have mostly been a controversial issue in the crypto community. Many see CBDCs as an additional way for governments to exercise control over the financial system. Cryptocurrencies are specifically designed to counter this.

A privacy-assured CBDC is much more likely to receive a positive reception from those who already use a digital currency.

Chaum announced as part of the partnership with the BIS Innovation Hub Swiss Center and the Swiss National Bank that they offer a better level of privacy than cash and guarantee that privacy will not be taken away from the end user.

Privacy is hard earned and easily lost.

Unfortunately, Chaum’s constructive partnership with state institutions seems to be the exception, not the rule.

The state-sponsored assault on privacy comes from many fronts and in many forms. In 2019, the Russian government implemented an authoritarian “sovereign internet law”. Among other things, it requires internet service providers (ISPs) to allow the government to monitor and control internet traffic and to store data on all internet traffic for six months.

China’s Great Firewall creates an intranet (an internal Internet) isolated from the free, open Web that most Internet users use today.

The West is not innocent either. Thanks to the Patriot Act and the FISA Amendments Act, the United States has the ability to monitor the online activities and communications of its citizens. The legislation also allows the state to collect the corresponding metadata. By law, UK residents will have their “internet connection records” stored for up to a year.

We won’t get into the debate over either legislation here, but the crypto community is understandably reluctant to accept the same creeping standards on its own patch.

We need to build technologies that preserve user privacy by design, says Kenny Li, co-founder of Manta Labs. “Legislators are now targeting technology developers with misguided legislative and regulatory measures. Open source code and distributed networks make our digital economy more resilient. Privacy, security, freedom of expression and access to knowledge should not be undermined by bad policies, he says.

“The recent violation of data privacy laws by federal legislators in the United States and Europe made us realize that creating open-source privacy-enhancing technology is more critical than ever.”

Governments need to strike a balance

Smart policy-making by governments should recognize where blockchain-based privacy has its uses. This includes healthcare and certain financial requirements such as KYC (know your customer).

“Several new use cases for blockchain require privacy to function,” says Scott Dykstra, co-founder and CTO of Space and Time. “Today, these activities are managed off-chain by centralized authorities and linked on-chain to anonymous wallets. Privacy is left entirely in the hands of centralized parties, and the decentralized, trustless and tamper-proof nature of the blockchain is breached Some projects are leveraging ZK encryption and proofs to provide a solution where data remains private but verifiable, but these projects are still in development.

There is no doubt that 2023 will be the most dramatic year for privacy in crypto. Builders, users and advocates will inevitably have their say, and the prize for a more balanced system is always up for grabs. “There has always been a delicate balance between security and privacy,” continues Dykstra. “Private coins are simply the latest innovation grappling with these trade-offs.”

Disclaimer

BeInCrypto has reached out to a company or individual involved in the story for an official statement on recent developments, but has yet to receive a response.

[ad_2]