Mainstream adoption of digital currencies is inevitable, with or without blockchain, but will that currency be sovereign, corporate or decentralized?
– Vitalik Buterin, co-founder of Ethereum
In a digitally-connected world where data, including our personal information, can be easily accessible through databases with a central authority, the decentralised web could be a chance to regain control over our data from the big tech companies such as Facebook, Google and Amazon. A decentralised web does not rely on any centralised operators, thus giving people the option to safeguard their data and privacy.
When the World Wide Web (WWW) first began in 1989 for everyday uses, people were introduced to a digital form of direct communication with their friends through computers. A decade later Web 2.0 was introduced as an enhancement to its predecessor, where digital communications and personal information include using centralised services from companies like Microsoft, Google and Facebook. People were introduced to the concept of Social Media, which allows people from all over the world to connect and interact via a centralised social media network. Fast forward to 2020, we are currently in the midst of ushering a new era of the internet. Dubbed as ‘Web 3.0’, it entails the decentralised web, where people will no longer rely on intermediaries to interact or exchange or data.
When Bitcoin (BTC) was created in 2009, it is the decentralised network which permits a permissionless, transparent and immutable transaction system which were celebrated by enthusiasts and early adopters. Since then, Bitcoin has propelled itself to become one of the highly sought after assets for both users and investors.
Vitalik and Privacy
During a 4th March’s podcast interview by Block TV, Vitalik Buterin, the co-founder of Ethereum told the interviewer that although central bank digital currencies (CBDC) and private stablecoins like Libra coin will like exist in the near future, non-inclusive “centralised chokepoints” of these institutional digital currencies will inevitably drive adoption towards decentralised cryptocurrency which includes Bitcoin. He further added that:
“We've been seeing many situations where even things that are perfectly legal just end up getting restricted because whoever runs the centralized chokepoints just wants to exclude some category of users and I think those are reasons why people will continue to be interested in fully decentralized digital currency like Bitcoin and Ethereum.”
For instance, Facebook’s Libra has been scaled back due to regulatory backlash ever since the project was announced to offer a simple global payment system and financial infrastructure that empowers billions of people. Additionally, it remains debatable whether or not there might be privacy concerns regarding centralised entities issuing centralised cryptocurrencies like Libra, when compared to decentralised currencies like Bitcoin, which have privacy solutions such as mixing service for the people.
Vitalik Buterin believes that the market will ultimately lean towards decentralised cryptocurrencies such as Bitcoin since centralised counterparts without privacy are a huge step back towards decentralising our current systems of finance. As a firm believer of anonymity and privacy, he has acknowledged that privacy protocols are currently lacking in the Ethereum network, and is keen to implement zero-knowledge proofs, trustless zero-knowledge proof systems that are also referred to as ZK-SNARKS, that is made famous by the privacy-oriented cryptocurrency Zcash (ZEC). ZK-SNARKS is a powerful cryptographic primitive that can sever any tractable piece of data between two parties over a public medium — specifically, a public blockchain network.
Ethereum and Privacy
Vitalik Buterin expects ZK-SNARK technology to bolster Ethereum’s scalability to about 500 transactions per second (tps) as compared to its current capacity of 15tps. Scalability and privacy are two issues plaguing companies who are planning to or are building their applications on a blockchain. Unsurprisingly, he was enthusiastic about the emerging world of decentralised finance (DeFi), largely being built on Ethereum. The idea of DeFi allows anyone from anywhere in the world to have access to a system which allows them to pay each other in Bitcoin or other participating cryptocurrencies, and choose their own financial exposure without a central authority (ie. traditional banks).
Even though governments are increasingly looking at launching their own centralised cryptocurrencies, decentralised crypto can still have a fighting chance to compete with national financial infrastructures since solutions such as bitcoin mixers are currently not the primary focus for governments to introduce to the centralised cryptocurrencies. In a recent interview on Block TV’s podcast, Vitalik has claimed that with or without blockchain technology, decentralised cryptocurrencies will be more favorable to the people than CBDC toward mainstream adoption. Unlike Bitcoin and other decentralised currencies, the main challenge with central banks and even corporate currency is basically the concentration of power and data collection, which are not beneficial to the people. Decentralised cryptocurrencies such as Bitcoin are more private and resilient against “centralised chokepoints”.
Available Privacy Tools for the People
As a matter of fact, Bitcoin and other cryptocurrencies were originally designed to transfer the control from a single source of authority back to the hands of the people. Prior to the government's interest in the technology, there are a wide variety of privacy-focused tools already in place to address the demands of users with regards to attaining privacy and anonymity over the use of cryptocurrencies. The main reason people are attracted to the currency is due to the fact that they have greater control over their personal information and data for the transactions made on the public blockchain. Privacy tools add an additional layer of guarantee to users for their transactions, which could otherwise easily reveal information with users’ bitcoin addresses. Bitcoin mixers, for instance, allows users to obfuscate their funds from prying eyes such as the government and blockchain analysis services.
In recent years, bitcoin mixers have been gaining its popularity due to its ease of use and the effectiveness of gaining complete anonymity for Bitcoin-related transactions. Also known as Bitcoin tumblers, there are known trusted bitcoin mixers such as MyCryptoMixers which enable users to enjoy a decentralised experience while maintaining their privacy. Reputable mixers do offer a letter of guarantee as a service warranty to mixing services.
As mentioned in earlier paragraphs, the pioneering cryptocurrency Bitcoin is considered pseudonymous since a mere Bitcoin address is trackable and eventually relate it to the ownership of the address. Blockchain analysis services were built to serve this purpose in line with the need for regulatory practice by the government. Hence, many traders prefer their transactions to be anonymous for the sake of protecting their personal information, from the pervasive law enforcement or company-specific approach to extracting their data.
The Ultimate Goal in the name of Anonymity
The burning desire of Vitalik Buterin to revamping Ethereum with privacy features has also made him come up with the idea of upgrading the privacy of the network through the creation of a coin mixer, which works very similar to a bitcoin mixer. The effective use of mixing as seen in existing bitcoin mixing services are evident of a possibility for Ethereum to also implement such a feature to obfuscate the address of the user whenever sending a fixed quantity of ETH and would make the transactions more anonymous than they are right now. Ultimately, this series of decisions will bring forth a new generation of cryptocurrency and tools which could offer a widespread availability of privacy for users of any cryptocurrencies, as the space tends to replicate the success of dominant players like Ethereum. As the development progresses between decentralised versus corporate currencies, the ultimate solution would be worth it for the people who value privacy, especially in the world that we are living in today.