As a seasoned researcher with years of experience delving into the intricacies of blockchain technology and its applications, I find myself increasingly drawn to the transformative potential that privacy solutions like zero-knowledge technology hold for institutional adoption of Web3 technologies.
Institutions are reluctant to incorporate Web3 technologies because of the extremely open and permissionless nature of public blockchains. However, Avidan Abitbol, director of the Data Ownership Protocol (DOP) privacy solution, stated that selective disclosure through zero-knowledge technology addresses this issue effectively.
According to Abitol, being transparent can potentially expose institutions to theft, make them more vulnerable to scam attacks, and give them a competitive disadvantage in business dealings. This was communicated to CryptoMoon by the project director.
“Institutions want to hide payments, workflow, daily work, who they pay, and when. If you have Bitcoin or Ethereum balances, those things are very relevant to other people.”
Furthermore, transparency might unintentionally introduce market risks, as savvy traders may leverage the portfolios or activities of big financial institutions to artificially inflate or deflate the value of a specific asset, according to Abitol.
Privacy as a form of security
It’s often noted that the transparency of blockchain technology can pose a challenge for its adoption by institutions. In September 2024, Paul Brody, who leads global blockchain efforts at IT consulting firm EY, emphasized to CryptoMoon that privacy is crucial for protecting institutional activities.
The executive said that the lack of blockchain privacy has implications that go beyond corporate finance and impact sectors like health care — where patient-client confidentiality is paramount and medical records must be kept private.
In October 2024, Chainlink, a blockchain data provider, introduced confidential transactions for institutional users. This package contained various privacy-focused tools such as the Blockchain Privacy Manager and the CCIP Private Transactions encryption system.
Australia New Zealand Banking Group (ANZ Bank) was one of the pioneering financial institutions to explore the privacy functions provided by Chainlink for settling actual, tokenized asset transactions in the real world.
The clear nature of blockchain can intensify issues related to Maximal Extractable Value (MEV), which is a term used to describe how miners or validators strategically arrange transactions within a block for maximum financial gain.
This block arrangement entails adding, subtracting, and repositioning transactions to gather the highest possible fees, as well as taking advantage of intricate arbitrage opportunities before other market competitors can do so.
Block producers derive economic benefit by utilizing clear, publicly accessible data within decentralized, open-source blockchain networks, which can potentially disadvantage investors and traders. This issue could be alleviated through techniques like data anonymization and other tools designed to bolster privacy.
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2024-11-27 20:38