Can Privacy in the Blockchain Be Accountable?

One in all cryptocurrency’s greatest promoting factors is that it grants its customers anonymity by pseudonym. The blockchain is designed to be a decentralized and trustless system, which means no single entity has full management over it. This in flip is what offers customers with anonymity, permitting them to conduct transactions with out revealing their true identification.

Whereas the information on the exercise of crypto wallets is accessible for the general public view on-line, none of those wallets are immediately tied with their house owners’ offline identities. Or extra so, they’re tied, however one must undergo numerous digging to seek out out who these persons are in the actual world. 

Nevertheless, anonymity on the blockchain has raised various eyebrows, considerably from governments worldwide, as the worth of illicit use of cryptocurrencies rose to a brand new all time-high of $20.6 billion in 2022, a study conducted by Chainalysis revealed. So the place does the road between proper to anonymity and accountability stand?

Normally, it may very well be seen as a tough scenario, because the anonymity supplied by such methods tends to step on the toes of the enterprise and laws of banks and different monetary methods. These organizations should observe sure guidelines like anti-money laundering and know your buyer.

The Bitcoin and blockchain house arose out of anarchy and libertarian pondering, which harbors a deep distrust of authorities and monetary establishments. Whereas blockchain expertise aligns with these philosophies by permitting for decentralized methods that aren’t managed by any central authority or authorities, this additionally prevents cryptocurrencies from gaining mainstream adoption the place accountability is among the key necessities.

As well as, anarchy is commonly related to chaos and lawlessness, which may pose an extra risk to the worldwide adoption and regulation of blockchain expertise. In the meantime, libertarian pondering can generally battle with the necessity for regulatory oversight to guard customers and guarantee truthful competitors within the market. 

However, considerations are arising about large tech firms monitoring customers’ on-line actions and doubtlessly violating their privateness for business functions. These worries swing the pendulum in the wrong way.

This brings up concepts of inventing a “center floor,” the place individuals who want to retain their privateness and have full management over their identification on the blockchain will nonetheless have the option to take action, however they may also have the ability to work together with others with belief and certainty and have the potential for figuring out themselves if required. This might additionally open up extra potentialities in easing rules surrounding cryptocurrencies.

And whereas all this sounds good on paper, one of many greatest considerations within the digital house is the usage of false identification, or identification fraud—so can this “center floor” really be applied?

Actually, some blockchain methods have already got applied a design that permits for the selective disclosure of knowledge—sure events like auditors and regulators could also be granted entry to particular knowledge whereas different events could stay nameless. One such blockchain is Concordium. 

Concordium is balancing privateness with accountability via its protocol-level ID layer that ensures that each pockets registered on the blockchain is related to a real-world identification that has been verified via a third-party ID supplier. This manner, individuals and firms can belief each other whereas remaining non-public.

You will need to be aware, nonetheless, that the ID layer is beneath the consumer’s full management and the quantity of private data one can reveal could be tailor-made to what’s related within the scenario.

This may very well be an effective way in bringing much less strict rules to blockchains as authorities will have the ability to entry a consumer’s identification solely after possessing a courtroom order or with the usage of a legislative mandate. As well as, customers have full management and option to reveal solely these features of their identities that they want to be made public, which means they and their actions can stay as non-public as they need.

That is made doable via the usage of cryptographic methods equivalent to zero-knowledge proofs. These encrypt knowledge and transactions on the blockchain, making them non-public and nameless.

That is the fitting steadiness between self-sovereign ID beneath a consumer’s personal management and privateness—but additionally reliable disclosure of personal data and accountability.

I feel these are important options to a well-functioning future economic system, a lot of which is able to ultimately occur in digital environments. 

Lars Seier Christensen is a Danish businessman, entrepreneur and investor. He’s the founding father of Concordium.