Social Media May Spell the End of Default On-Chain Privacy – But There’s a Fix

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Beyond the permanent record of the Web 3.0 industry’s ever-growing array of public blockchains, its community of users and enthusiasts lives predominately on Twitter, the industry’s town square for open dialogue, advertising and public relations.

For better or worse, the fully public nature of both social media and on-chain environments presents a ripe opportunity for savvy data analysts to begin drawing connections.

Much less a product of paranoia, the notion that social media accounts might one day be linked to on-chain wallet addresses is likely a harrowing inevitability.

When that day arrives, default anonymity will be effectively excised from public blockchain ecosystems.

In such a dystopian environment, users seeking privacy from their peers will be sent scrambling back to the centralized, opaque operating environments of legacy finance.

Absent tools and protocols to restore and renew one’s on-chain privacy, a new status quo of default public exposure will set off an exodus of capital and users from crypto and set back the entire industry several years.

Social media and Web 3.0 – a pair of unlikely peers

At this point, it’s nearly a meme – social media companies are internet demons that Web 3.0 users love to hate.

But although they appear to be diametrically opposed, social media platforms and Web 3.0 protocols share one key element – their value propositions preside on the transparent public forums they avail to their user bases.

On streaming platforms like Netflix, e-commerce giants like Amazon and search engines like Google, user data is aggregated and stored by the centralized platforms themselves.

These organizations have an essential monopoly on the wealth vested in user data. Nonetheless, as far as the broader public is concerned, users enjoy a relatively high degree of privacy.

On social media platforms and Web 3.0 protocols, on the other hand, registering, timestamping and maintaining a public record of all events and exchanges is intrinsic to providing value to users.

Free market surveillance – the threat from within

In an ever-expanding virtual domain composed of more than five million terabytes of information, an estimated 4.48 billion humans are active on social media.

In the digitally native Web 3.0 space, social media plays an integral role in communications, community building and marketing.

At this point, it is too late to go back – the data and connections are already established on servers across the world.

Driven by demand from advertisers, it is only a matter of time before entrepreneurs and developer teams raise capital and write proprietary algorithms to corroborate on-chain addresses with real-world names and pseudonymous aliases.

It may well be free market surveillance of the people, by the people – but it is not surveillance for the people.

The stakes are higher than you think

In the financial arena, capital migrates to systems that provide superior features and protections.

At present, credit card transactions, ATM withdrawals and bank statements – albeit fully visible to and shared among financial institutions and regulatory bodies – are shielded from free market surveillance operations.

In a world where on-chain transactions imply instant and permanent public exposure, it’s not difficult to imagine that banks and other legacy institutions might become preferred by privacy-conscious users.

The end of not your keys, not your coins

To that end, algorithms that leverage publicly available metadata stand to jeopardize even the cypherpunk purist’s most revered and repeated mantra, “Not your keys, not your coins.”

In a desperate attempt to hide from the all-seeing eye in the on-chain arena, protecting one’s privacy would mean dumping stablecoin DAI in favor of a dollar-denominated bank account at Chase and departing from on-chain Bitcoin (BTC) in favor of a Vanguard ETF (exchange-traded fund).

More broadly, it would mean departing from decentralized finance (DeFi) in favor of centralized finance (CeFi).

Whether in search of yields or privacy, reigniting CeFi would represent a deplorable regression, as it would entail going back on 2022’s defining (and painful) lesson – don’t trust, verify.

Where does crypto go from here

Like it or not, on-chain data analytics companies merely mark the beginning of the next chapter of the virtual experience – an ultra-public digital panopticon built upon ubiquitous big data, exponentially growing computational capacity and highly refined algorithms for fetching and interpreting data.

In the on-chain domain, default anonymity – even with optimal operational security measures in place – will be no match for an ever-growing repertoire of algorithmic certainty powered by artificial intelligence and propelled by Moore’s Law.

For crypto to retain its utility in the face of free market surveillance, simple, cost-effective tools must be developed to restore anonymity after it is inevitably lost.

(Anonymity) setting the stage

Fortunately, there is a silver lining – growing user bases, global transaction volume and sophisticated algorithms can also be leveraged to protect users and fight surveillance initiatives.

By employing zero-knowledge proofs, one of crypto’s most promising emergent technologies, groups of users can restore their anonymity in on-chain environments by shifting capital through decentralized protocols into new addresses.

Such groups compose what is called an ‘anonymity set.’

Naturally, larger anonymity sets include more individuals and make it increasingly difficult for surveillance algorithms to link a user’s past on-chain addresses to his or her fresh address upon exiting the protocol.

In the future, privacy may not come standard in Web 3.0 ecosystems. But fortunately, simple tools and applications are being developed to help users restore protection.

You might call it a little digital housekeeping.

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Alex Shipp is the chief strategy officer at Offshift, where he contributes to platform tokenomics, produces content and conducts business development on behalf of the project. In addition to his industry role as an expert in PriFi (private decentralized finance), he has also served as a writer at the Elastos Foundation and as an elected ecosystem representative on the Cyber Republic DAO.

 

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