On-chain privacy is key to the mass adoption of cryptocurrencies

On-chain privacy is key to the mass adoption of cryptocurrencies

Innovations in the cryptocurrency space appear on a daily basis. Whether through decentralized applications or new ways to implement and use non-fungible tokens (NFTs) within decentralized finance, blockchain technology is innovating at lightning speed. The only thing missing? Widespread adoption. One of the obstacles is the public nature of the blockchain. DeFi as it works now lacks significant privacy. To catalyze broad adoption by businesses, governments, and individuals, those executing blockchain transactions should expect regular and consistent privacy.

First of all, we have to define what privacy means. It does not mean pseudonym, which the cryptocurrency claims to have now. Adequate privacy means that a personal financial account will not be traced and an individual’s wealth will not be exposed. It means that a company can protect its trade secrets. Privacy means that a government’s finances are the business of its people, not dangerous neighbors.

Cryptocurrency is just that: a currency. With the Canadian trucker convoy and the Russian war against Ukraine causing a change in the vibe of cryptocurrencies, they will continue to be treated as a currency, regardless of whether they are regulated as such. It is a financial asset, and our current understanding of personal financial privacy supports the movement towards privacy through DeFi. The European Union has adopted the General Data Protection Regulation, to which all Internet entities operating in the EU are bound. On a more traditional level, trust banks have multiple privacy protocols, many of which are subject to human error. Privacy is natural, and is often not valued until it is removed.

Privacy is crucial for companies’ crypto transactions

It is impossible to deny that corporations and large traditional financial institutions are pivoting towards cryptocurrencies, with news of giants like Commerzbank applying for crypto custody business licenses. Corporate treasuries are beginning to see the benefits of using cryptocurrencies to solve a problem that has plagued them for decades: instant cross-border payments. The lack of privacy of those transactions will hold back wider adoption because until the privacy of those institutional transactions is ensured, it will remain a niche offering.

Companies have the right to protect trade secrets, including those related to finances and payments to employees and contractors. Hedge funds, which will greatly benefit from moving assets to the blockchain, must be able to protect their financial movements. If every movement of assets can be traced, private companies cannot protect themselves and competition is diluted. It is just as reasonable to expect privacy in business as it is in individuals.. As cryptocurrencies experience increased adoption, they will continue to be hampered at every turn until the privacy issue is resolved.

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Privacy is not a threat to regulation

The good news is that it is possible for privacy in DeFi to be both responsible and secure. We all know that regulation is ever increasing, and as frustrating as it can be for the wild west of blockchain projects, security barriers can allow for growth. People don’t trust something they don’t understand, so when regulations come, they point out that the people running the governments know what’s going on and what needs to be monitored. That is something good. Governments can – and should – regulate cryptocurrency exchanges, fiat money inflows and outflows, and individuals who are subject to local, regional, and federal laws wherever they reside. Privacy does not threaten or disable regulation. Governments codify privacy on social networks. Why should financial networks be an exception?

On-chain privacy is key to the mass adoption of cryptocurrencies

The bottom line is that once DeFi is secure and can be used privately, people will feel more comfortable using cryptocurrencies. Since people don’t trust something they don’t understand, we have to invite them using the expectation paradigm that comes with other financial endeavors. Another way to invite people into this space is to disconnect the privacy argument from the anonymity discussion. This will help solve the problem new adopters face when they falsely view cryptocurrencies as an easy way to conduct illegal transactions. Until there is a reasonable expectation of privacy, DeFi will remain a risky venture for individuals and businesses alike.

This article does not contain investment advice or recommendations. All investments and operations involve risk, and readers should do their own research when making a decision.

The views, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Kieran Mosque He is the Chief Scientist of Railgun, a decentralized smart contract project that brings privacy to cryptocurrencies that operate seamlessly with DeFi. He has extensive experience in developing technologies for blockchain and DeFi projects. He was an early adopter of Bitcoin and one of the first people to develop his mining software on the GPU.

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