As a seasoned analyst with over two decades of experience in the tech and crypto industries, I have witnessed the evolution of privacy concerns in this digital age. While pseudonymity has served as a cornerstone for user protection in the crypto world, recent advancements in AI models necessitate a reevaluation of our approach to privacy and data sovereignty.
From the outset of cryptocurrency’s existence, users have primarily used the anonymity of crypto wallet addresses to safeguard their personal information. Generally speaking, this method has been effective in maintaining user privacy.
On the internet, it’s publicly accessible to see someone’s blockchain transaction records because they’re transparent by design. Yet, typically, the actual identity of the individual is concealed, ensuring a degree of personal privacy.
Since the creation of Bitcoin in 2008, it has offered a degree of privacy protection for its users over the past 26 years.
But some Web3 protocols claim the time has come to rethink the idea that pseudonymity is enough.
Due to the increasing use of AI models, it’s become crucial now more than ever to prioritize privacy and data ownership, as they require a steady stream of data to function effectively.
One hack away from being exposed
According to Leona Hioki, who serves as a system architect at privacy-centric Layer 2 platform INTMAX, anonymity alone is not sufficient to safeguard users effectively. (CryptoMoon was informed of this by her.)
He mentioned that most major trading platforms, often referred to as centralized exchanges, require users to follow Know Your Customer (KYC) regulations and Anti-Money Laundering (AML) guidelines. This means that before they can start trading, users need to submit a photograph of their identification documents.
If even one hacker successfully penetrates the security measures of an exchange, they could potentially discover the user’s deposit address. Once this deposit address is linked to a real-world identity, the entire transaction history associated with that address on the blockchain becomes accessible.
“So many databases are centralized, there’s no incentive to protect that. For example, there was a huge privacy leak on a Japanese exchange, FTX Japan. Its name was ‘Liquid,’ but was renamed to FTX Japan. And now nearly all their records are hacked and leaked. And why did that happen? Because there’s no incentive to protect people’s information from a CEX.”
In 2021, the digital asset exchange platform Liquid based in Japan suffered a cyber attack. Subsequently, it was acquired by FTX and rebranded as “FTX Japan.” Unfortunately, FTX Japan declared bankruptcy in November 2022, which was part of the broader downfall of FTX overall.
According to Hioki, the problem isn’t just that this centralized data sometimes gets stolen.
A more significant concern arises due to the advanced capabilities of blockchain analysis tools, making it extremely challenging for individuals to remain anonymous or avoid having their personal information exposed (doxxed).
Hioki pointed out that there are tools such as Chainanalysis and Crystal, which are sophisticated tracers capable of uncovering almost all the addresses linked to Cryptocurrency Exchanges (CEX). He emphasized that these tools can be misused by criminals, making them accessible to anyone. This, he warned, is not only risky but also far from ensuring anonymity.
To keep such confidential data breaches at bay, INTMAX employs a method known as zero-knowledge proofs. This enables verifiers to authenticate transactions without gaining access to the information held within those transactions.
AI increases privacy risks
As a researcher examining the evolution of AI blockchain systems, I’ve come to believe that pseudonymity, once sufficient for users, is now outdated. In today’s context, AI models require a steady stream of user data to deliver tailored outcomes effectively. Thus, Alex Page, the founder of Nillion, posits that anonymity alone is no longer enough in our data-driven world.
“I think pseudonymity works in a world where you can create an unlimited number of wallets, or you can have an unlimited number of, say, small identities that exist in different connection points. Where it falls apart is when we’re talking about actual use cases where you’re consistently contributing data to an application […] it’s hard to have pseudonymity when it comes to data that you’re creating about yourself […] and so we need systems to solve for that part.”
According to Page, trusting centralized systems for privacy protection may result in disillusionment. He cited Gmail as a case in point.
He asserted that they claim they can’t view the user’s emails, but it’s hard not to notice the ads on Gmail that pertain directly to the content within those very emails.
In his opinion, the answer lies in employing Multi-Party Computation (MPC) tech, which enables controlling access to data, thereby enabling collaboration without requiring individuals to expose their data to large-scale cloud computing platforms or social networks.
On Nillion, Page mentioned that they currently have a private messaging service in operation, which enables collaborators to communicate directly without the need for central servers similar to those used by platforms such as Signal or Telegram.
Bad guys won’t get away
Some people have concerns that blockchain privacy could allow hackers, scammers, and other assorted bad guys to escape judgment.
Nevertheless, Hioki posits that individuals who engage in illegal activities can be barred from networks once their involvement has been confirmed.
As a crypto investor, I appreciate the robust security measures taken by INTMAX. Their decentralized chain analyzer offers risk scoring for deposits, ensuring that even the most determined hackers cannot deposit funds into it. Essentially, we can feel secure knowing that our investments are not an attractive target for money laundering activities.
Regarding concerns about “false positives” or mistakenly blocking funds of innocent users, Hioki stated that the current network maintains a high deposit threshold, which means it’s less likely that smaller users will experience their funds being blocked.
The page contends that malicious users exist in every technology-based system. Yet, he posits that bolstering the privacy of blockchain networks does not facilitate easier manipulation by these bad actors.
He explained that our action is essentially expanding the space for developers to construct their projects, he added. However, it’s important to note that such an expansion will inevitably attract some malicious individuals. Yet, this doesn’t necessarily make it a simpler route for them to carry out their previous misdeeds.
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2024-11-21 16:28