Innovations in the crypto space appear daily. Whether it’s through distributed applications or new ways to implement and use inflexible tokens (NFTs) within distributed finance, blockchain technology is an innovation at the speed of light. The only thing missing? Extensive adoption. One thing that holds this back is the very official nature of the blockchain. DeFi, as it currently operates, lacks significant privacy. In order to encourage widespread adoption for companies, governments and individuals, those conducting blockchain transactions should expect regular, consistent privacy.
First, we need to define what privacy means. That does not mean a pseudonym, which cryptocurrency pretends to have now. Meaningful privacy means that a personal financial account will not be traced and an individual’s wealth will not be exposed. This means that companies can protect trade secrets. Privacy means that state finances are the business of the people – not the business of dangerous neighbors.
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Cryptocurrency is just that – a currency. As the Canadian freight train and the Russian war against Ukraine entail a change in cryptocurrency, it will continue to be treated as a currency, regardless of whether it is managed as a single entity. It is a financial asset and our current understanding of personal financial privacy supports the policy towards privacy through DeFi. The European Union has adopted the general data protection regulation to which every internet operator operating within the EU is subject. At a more traditional level, fiat banks have many privacy protocols, many of which are subject to human error. Privacy is normal and often underestimated until it is removed.
Privacy is crucial for corporate cryptocurrencies
It is impossible to deny that companies and large traditional financial institutions are turning to cryptocurrencies, with news that giants like Commerzbank are applying for cryptocurrencies. Corporate treasuries are beginning to see the benefits of using cryptocurrencies to solve a problem that has plagued them for decades: immediate cross-border payments. Lack of privacy for these transactions will prevent wider adoption because until the immunity of such institutional transactions is secured, it will continue to be a niche.
Companies have the right to protect trade secrets, including those related to finances and payments to employees and contractors. Hedge funds, which will benefit enormously from the transfer of assets to the blockchain, must be able to protect their financial movements. If every asset movement can be monitored, private companies will not be able to protect themselves and competition will be diluted. It is just as natural to expect privacy in business as it is to expect the privacy of individuals. As cryptocurrencies experience wider recording, it will continue to decline every step of the way until the problem of privacy is resolved.
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Privacy does not threaten regulation
The good news is that it is possible for DeFi’s privacy to be both responsible and secure. We all know that regulations are growing and as frustrating as they can be for wild west blockchain projects, the railing can make it grow. People do not trust something they do not understand, so when rules come, they indicate that the people who lead governments know what is happening and what needs to be monitored. It is a good thing. Governments can – and should – control cryptocurrency exchanges, fiat inbound and outbound lanes, and individuals subject to local, regional, and federal law wherever they reside. Privacy does not threaten or neutralize regulation. Governments legalize privacy on social networks. Why should financial networks be an exception?
The bottom line is that when DeFi is secure and can be used privately, people will feel better using cryptography. Because people do not trust something they do not understand, we must invite them to use the image of expectation that accompanies other financial endeavors. Another way we can invite people into the space is by disconnecting the argument for privacy from the discussion of anonymity. This will help solve the problem that new users face when they mistakenly believe cryptocurrency is an easy way to facilitate illegal transactions. Until there are reasonable expectations about privacy, DeFi will be a risky task for both individuals and companies.
This article does not include investment advice or advice. Every investment and trading business involves risk and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole responsibility of the authors and do not necessarily reflect or represent the views and opinions of the Cointelegraph.
Kieran Mesquita is a senior scientist at Railgun, a distributed smart contract project that brings privacy to cryptocurrencies that work seamlessly with DeFi. He has an extensive background in technology development for blockchain and DeFi projects. He was an early member of Bitcoin and one of the first people to develop his GPU mining software.
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