Privacy versus Public and transparent by design.
While many of us involved in cryptocurrency want Blockchains networks to be implemented across the worlds vast computer systems for the sake of efficiency and transparency, Covid Passport creation gave us a glimpse into problems we must solve regarding privacy.
Blockchains are public by design
If you look at Hive blocks, you can see when I publish a post, you can see when I edit a post, you can trace all activity on my account. When you look at my account, all information I have ever published is available. So if my name, birthdate, birthplace, home address and God Forbid my US tax ID number we’re there, everyone could see them.
This was one of the issues countries faced with Covid Passports. The type of personal information needed for Countries to create Covid Passports, often was the type of information that shouldn’t be available to the Public.
So the Covid Passports couldn’t go on the blockchain yet, but possibly in the future.
Apple Pay and Privacy
Apple Pay is a great replacement for the common credit card for similar reasons. Normal credit card transactions use to reveal a lot of personal information about the card user, that were important for fraud prevention, but not for the transaction. The merchant really only needs to know you have enough cash or credit to buy the item. Requiring them to perform KYC or know your customer automatically resulted in credit card issuers sending a lot of your private information to every merchant you used your credit card. This information was stolen SBD used for fraud resulting in billions of dollars of losses to credit card issuers and severe repercussions for consumers.
Apple Pay changed this, by creating a system where Apple does the KYC, and reveals to the vendor only what the vendor needs to know: Do you have the cash or credit to buy the item.
Privacy isn’t just for criminals
Prior to Apple Pay and similar systems being adopted by card issuers, the private information of millions of consumers was floating around at every merchant they used their credit cards at…. This huge privacy problem led to loss of data, lots of fraud and lots of financial problems for consumers, who were not criminals, and it showed that average people’s private information need better protection. In a word they needed more privacy.
Privacy is needed when we make the jump to mainstream institutions to cryptocurrency ledgers because no one has to steal your information on a blockchain ledger, it is public ally available, because that’s the way blockchains are built. They are open, transparent and all blockchain information is publicly available. Transparency is beautiful until it reveals all the information about consumers that is needed to steal their identities and conduct financial fraud.
As financial institutions jump on the blockchain, they have to carefully decide what customer identifying date will be placed on the blockchain, and how to protect their customers from public display of their identifying information.
Just as governments seeking to put Covid passports on line found the situation difficult, so shall banks.
Transparency is beautiful, until it isn’t.
Privacy and trading
Lastly, an additional area where transparency can be bad is exchange trading. As you know much of trading on DEX or decentralized exchanges is evolving away from order books and away from listings of buy and sell orders.
The code in decentralized trading is moving towards encrypted order flow for many reasons, one if which is to eliminate front running. If you look at the recent scandal involving the OPENSEA NFT exchange, where the executive used their unrestricted access to the blockchain to front run their own clients; they knew both buyers and sellers for items, bought the items first, then sold them to buyers at a profit, but generally inflating the ultimate price paid for the items. This abuse of insider knowledge of order books will go away with encrypted order books or buy/sell order. But is another example of why everything on the blockchain shouldn’t be transparent, open and public.
In the future, if you have to identify yourself to trade, KYC regulations lead to large databanks of personal information, which can be stolen and used for fraud. The encryption of user data and control of its release by the consumer/trader will be needed to protect traders.
Currently traders are protected by anonymous DEX trading, except the metamask or other wallet address. When regulations require personal identifying information to be on your Metamask wallet, that Information will become public ally viewable.
I hope this explains that privacy isn’t just for criminals, it’s for honest people.
The End…for now.