Is Blockchain Technology Compatible With True User Privacy?

Blockchain technology is a form of distributed ledger technology, and it works by recording every transaction that takes place within its network. For the purpose of assisting users in keeping track of transactions and avoiding the need for a centralized record of transactions, every transaction involving cryptocurrency is recorded and maintained in chronological order.

These transactions are visible for anyone to see on the public ledger. In particular, anyone can see transaction amounts, wallet addresses, wallet balances as well as pending and complete transactions. Essentially, it's like having a burner account on a social network, your personal details are not visible to others, instead, you work with a pseudonymous identity.

However, a user's identity can be found out by savvy third parties if they are not careful. Since all of your interactions are public, anyone can trace your payments and create a trail that follows all of your activities. This in turn can reveal the wallets you have used, protocols and dApps you've interacted with as well as the centralized exchanges you use to cash out.

This can pose a problem for the wide-scale adoption of blockchain technology, especially when it comes to corporate entities who may wish to keep their user’s data private.

In this post, we'll look at the relationship between user privacy and blockchain technology.

Privacy and blockchain technology, is it a compatible match-up?

Data privacy has become an increasingly important topic for regulators in the past few years. I'm sure you've all grown tired of the GDPR pop-up notices that appear on every site, blocking out a substantial amount of the screen saying "We value your privacy". You then have to choose to either accept or reject the site’s tracking cookies, with some sites restricting your access if you reject their cookies.

These cookie pop-ups are due to the General Data Protection Regulation (GDPR) framework that was passed by the European Union (EU) in 2016 and has been enforced since 2018. The aim of this law was for websites to let their users know what the cookies on the website are used for, if the data will be shared and who it will be shared with. This regulation was passed to safeguard the personal information of EU citizens whilst dealing with corporations that operate with EU member state nations.

Europe isn't the only place that has seen new data protection laws, the California’s Consumer Privacy Act (CCPA) came into effect in 2020 as well as additional laws in other US states.

How Partisia Aims to Bring Privacy and Interoperability to Web3

Partisia Blockchain Foundation, an independent non-profit, announces the launch of its mainnet. The network's privacy-focused, high-scalability layer-1 genesis block was established on May 31, 2022, and it presently has 89 validator nodes throughout the globe. Partisia plans to employ blockchain technology to promote economic development, wellness, and sustainable ecosystem usage. A privacy-first Web search engine, a decentralized social network, and a medical counterfeit monitoring system were created on Partisia Blockchain.

Lack of anonymity and privacy hinders institutional and general adoption of legacy public blockchains. Partisia Blockchain aims to tackle the privacy challenge by employing Multi-Party Computation (MPC) technology, which it has pioneered since 2008 as a founding member of the MPC Alliance. MPC enables multiple participants to calculate a function with zero-knowledge. Partisia Blockchain uses this technology to provide privacy-first interactions and unique services.

Partisia Blockchain uses MPC to support universal privacy-preserving computing and decentralized cross-chain bridges. Partisia Blockchain's native interoperability solution lets users transact in $ETH while staking $MPC. With Bring Your Own Coin, it may act as a privacy layer for other blockchain networks while utilizing its own token as payment. Partnerships to this aim were announced in May with Emurgo's Cardano and Polygon.

So, how does this relate to blockchain technology?

Well, at this point only personally identifiable information is subject to data privacy laws. Varying legal systems have different definitions for this, but generally speaking, it does not refer to business commercial information, trade secret information, or intellectual property. These are not the types of data that raise privacy issues, despite the fact that they are sensitive and may be covered by a variety of legal and contractual safeguards.

Instead, the kind of information that does raise data privacy issues includes data such as a person's name, address, area of residence, etc. If the data does not include or cannot be connected to personally identifiable information, then blockchain technology may not necessarily entail data privacy problems. This is especially the case when it comes to peer-to-peer wallet transfers, where only the wallet, wallet balances, and transfer amounts are made public.

Simply put, blockchain technology won't raise any data privacy issues if it just includes hashed information about transaction specifics and is not otherwise connected to a person. However, data privacy issues will be raised if personally identifiable information is made public or used to identify a specific person.

Still, blockchain technology has the potential to compromise privacy depending on the use, despite its seeming promise of anonymity. A common misconception is that cryptocurrencies enable anonymous transactions by default. However, blockchain technology by its very nature is pseudonymous.

As mentioned at the beginning of this story, the blockchain does not fully anonymize a user since their transactions and wallet balances are made public. A malicious actor could be able to dox (or disclose the identity of) a person based on their transaction history if they are able to obtain transactional information connected to a user (i.e., by tracing their transaction history on a block explorer). Although a person's identity is somewhat obscured via blockchain technology, it is not entirely hidden.

Smart contracts operate similarly when it comes to transactional information. Smart contracts allow users to see all of the information related to a transaction. This information can be used to determine a user's identity by locating the relevant information in the public domain. For example, NFT owners and crypto project founders have been doxxed by users comparing their alleged wallets to the timing of their tweetson social media.

Private blockchains, which are only accessible by a select group of users, can lower the risks of being doxxed, compared to public blockchains. By leveraging information from the public domain, private blockchains reduce the possibility that a node operator would be able to access and find private identifying information. However, private blockchain applications could still pose a risk. For instance, an insurance provider may utilize a private blockchain to manage insurance records, which include a client's personal data.

By giving those with access (the insurer and the provider) simple access to the chain of information in a client's history, a private blockchain might significantly boost productivity. However, the sensitive nature of such data would include a lot of regulatory frameworks and need strong security to guarantee privacy.

Enterprises will need to weigh the benefits against the risks when deciding to integrate blockchain technology into their systems. The decentralized nature of the blockchain can provide benefits such as increased trust, but this mainly comes from the transparency that distributed ledger technology provides. We will need to find a balance between this transparency and fully protecting user data.

In Closing...

Despite being over 10 years old, blockchain technology is still in its infancy and there are more growing pains that this emerging technology will have to experience as it matures. As privacy becomes more and more important, corporations need to find a way to use blockchain technology whilst maintaining the privacy of their users.