Author: Antoni, co-founder of Aleph Zero Foundation (Switzerland) Translation: Shan Oppa, Golden Finance
Developments from the latest silent phase of the cryptocurrency market cycle suggest that privacy will take center stage during the next bull run. Web3 is moving in many different, promising directions—from much-needed scalability to greater regulatory transparency—and privacy has been one of its main priorities.
All the great work built around privacy solutions in the bear market will stand out in 2024. What's more, privacy features unique to this space will be available to end users.
All of the above should lead to one thing and one thing only: a top-notch user experience.
What we learned in 2023: The need for end-user privacy
This year, We are seeing significant investment in R&D in privacy technologies such as zero-knowledge proofs (ZKP) and secure multi-party computation (sMPC). The 2023 State of Cryptocurrency Report released by a16z found that the number of research papers on ZK technology has reached an all-time high.
Most of the progress is focused on developments such as zk rollups, which leverage these technologies to enable scalability solutions. ZKP has proven to be an effective way to improve the throughput and transaction speed of Web3 applications: it makes sense to focus on this problem first, because it enables other applications in the stack to develop further.
However, the need has begun to shift toward applying these advances to end-user applications, as 2023 also teaches us the importance of having proper privacy in Web3.
We learned that privacy is not a given for blockchain infrastructure: most blockchain networks offer pseudonymity, but not exactly privacy. This is evident in the controversy surrounding Arkham Intelligence, whose “doxx-to-earn” business model incentivizes users to collect information about other users’ activities that could be linked to their real-world identities. The project even ended up doxxing its own users.
On the other hand, when privacy is achieved at the expense of transparency, there are also negative consequences. We saw the results of privacy technology being used for illegal purposes with the Tornado Cash arrests. The cases were controversial because the U.S. Office of Foreign Assets Control (OFAC) was involved in holding mixing services accountable, which led to CoinCenter filing a lawsuit challenging the legality of the sanctions code.
Here, it becomes crucial to strike a balance between privacy and transparency so that Web3 development does not become the bane of illegal activities. This sparked a conversation around building applications that take note of this.
Where we are heading in 2024
Fortunately, the success of last year’s privacy research also Help advance privacy aspects of user-facing applications. Now that scalability issues have been resolved, many projects are starting to work on privacy applications.
Privacy features
Like zero-knowledge proofs (ZKP) and secure multi-party Privacy technologies like Compute (sMPC) have many applications beyond scalability.
We can start by enabling low-level applications to implement features such as zk-attestations and selective disclosure. This allows users to verify on-chain information without revealing its content, and to be able to specify the types of on-chain information that users wish to disclose to certain parties, corresponding to these two functions respectively.
In 2024, we will see the rise of existing end-user applications as well as new applications that take advantage of these capabilities.
Privacy-protecting encrypted DNS
We will also see more advanced versions of this technology application. Some of these applications can even be considered quite urgent. There is a known market need for a privacy-preserving Domain Name System (DNS), where wallet activity for addresses is not publicly available by default. Users should have the option to selectively reveal their on-chain movements and funds when sharing their addresses.
Privacy DeFi
One of the application areas where privacy has developed recently is DeFi. Many of the problems in these markets, such as the Maximum Extractable Value (MEV) issue that leads to front-running and pincer attacks in decentralized exchanges (DEXs), can be solved with the right privacy features such as threshold encryption and MPC. Privacy will also increase price efficiency through an innovative order matching system.
The year privacy went mainstream
Thanks to last year’s privacy developments, we passed the scalable There has been an indirect but important step towards Web3 adoption. However, in the coming year, end-user applications will have a wider impact.
2024 may even be the year that privacy apps cross over to non-encrypted internet users, similar to how NFTs became popular culture during the last market cycle. When this happens, it will be because the hard work of those who built it into the 2023 bear market finally paid off.
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