A lack of privacy protection is a hallmark of all public blockchains, from Satoshi's original Bitcoin whitepaper to state-of-the-art modular parallelized networks that execute 100 million transactions per second with zeptosecond finality times. It is original sin.
Generally speaking, user privacy is against the nature of public blockchains. For a public ledger to work, some transactional data must be shared with nodes and network participants. To bring these systems online quickly, simply make them all public by default.
However, that ultimate transparency exposes users to unintended consequences such as surveillance, coercion, and leakage of trading signals. This is commercially unviable and violates a person's right to decide their fate. If users don't control their data, true self-management doesn't exist. Privacy is about giving users back their freedom to choose what they do and what they don't reveal to the outside world.
Here are seven common fatal flaws in crypto privacy tools.
Sin 1 – Centralized System
In a decentralized world, centralization is laziness. It is easier (faster and cheaper) to run a ledger in a bank’s internal SQL database than to send transactions on the most performant blockchain.
However, decentralization equals resilience. That is why cryptocurrencies have market value. Without it, users would benefit from the speed and cost savings of a centralized authority.
This is even more important for privacy protocols. Centralization means that developers give themselves privileged access to users' data.
Protocol authors must: I never have Give yourself an admin key that allows you to freeze and de-anonymize users. (RAILGUN uses the following mechanism) Key display Provide non-discriminatory and user-controlled transparency when needed. )
Another centralization vector is threshold multisig, especially for protocols that attempt to bypass insecure bridges. Even when configured “properly”, 3/5 multisig is definitely worse than your neighborhood bank when it comes to trust assumptions.
If multisig is not configured correctly…
Sin 2 – Lust for logging
Privacy tools should take all steps to ensure that user activities, especially personally identifiable data such as IP address and browsing activity, are not tracked.
Privacy protocols should be designed around an overarching philosophy that only leverages momentary lapses in judgment to de-anonymize users.
For example, Railway Wallet (with integrated RAILGUN privacy technology) proxies RPC calls for all users by default, so even if someone isn't using a VPN (and they should be 🙁), their IP Not leaked to RPC nodes.
Sin 3 – Encrypted state
Why not keep the entire system private? It's tempting, but having a completely encrypted state is in some ways just as undesirable as being completely public.
The encryption state creates a black box where users and observers have no idea what the dApp is doing. This eliminates the most important security feature of blockchain: public auditability.
If your dApp is private, how do you verify that the economics and actors are working correctly? How do you properly respond to exploits and malicious attempts when you don't know if something happened? Is it ok?
User privacy is good, as is protocol transparency.
Sin 4 – Dependence on specific manufacturers
Being “trustless” means that you do not have to trust a third party (i.e., a company, agency, or bank teller) to ensure that the protocol works. The strength of zero-knowledge-based encryption is that it has fewer dependencies on manufacturers, etc.
For example, consider creating a privacy system that relies on the Software Guard Extensions that Intel has built into its CPUs. The security of your system depends on a potential single point of failure: trusting that Intel is implementing its products correctly.
Intel's incentive is to behave appropriately, but relying on SGX always creates vulnerabilities and unnecessary trust. There are also gatekeeping considerations by design, as SGX requires specialized hardware that is relatively expensive, confusing, and difficult to maintain. In contrast, proof-of-stake validators can run on a Raspberry Pi.
Sin 5 – Challenge the villains
Crypto privacy is a compelling story, but it is not a strong enough value proposition to warrant the construction of entirely new blockchains or rollups (unless a specialized chain brings rigorous innovation).
Privacy systems are most effective when they are available in the chain where users and financial activities exist. For better or worse, DeFi has clustered around Ethereum, EVM, and a few other environments like Solana. Because Solidity is the king, it has benefited the most from security research.
Standing up a new execution environment and attracting developers and users takes time and often creates unsustainable incentives. Meanwhile, billions of dollars worth of value are already sitting on public chains that desperately need privacy.
Dedicated privacy chains also raise additional security questions, such as requiring bridges, which have been proven time and time again to be the least secure component of a blockchain network. Other concerns include consensus, validation, and centralization of sequencers.
Sin 6 – Builder Complexity
Developers are often thought of as geniuses (and some are, in fact). However, cryptography is extremely difficult, so forcing builders to learn and use proprietary languages, toolchains, or ecosystems is unnecessarily complex and counterproductive.
Contracts written in languages like Solidity and Vyper are portable across networks that support EVM. This does not apply to Rust or other WebAssembly chains. They all have their own criteria regarding execution time. From a builder's perspective, this means that they need to maintain separate contract codebases for each chain, even though they use the same language.
As a result, it becomes difficult to access the product.
Sin 7 – Immature technology
“Magic Internet Money” is a really great meme. But cryptocurrency developers are building financial technology that has real-world impact and deals with real money.
Privacy technology has a dual obligation to consider the “realities of money” and “privacy” itself. This means it must be secure against economic exploitation and anything that could de-anonymize users. There is a reason for the major body of existing academic research on this technology.
Don't let that happen iotaA proven axiom is “never roll crypto”.
Privacy technologies in particular need to be thoroughly tested and thought through, including extensive audits by security firms, evaluations by privacy advocacy groups, and penetration testing by white hats.
Otherwise, how can we expect people, especially promising new mainstream users, to risk their identities and money on complex technology platforms?
conclusion
Public blockchains are “dox-by-design”. Building an on-chain privacy system while preserving the reasons for using crypto in the first place, such as auditability and decentralization, is a challenge.
A great resource for evaluating the privacy level of your privacy tool of choice is Web3 Privacy Current efforts We categorize and score various crypto privacy tools. Check it out as a great first step to protecting your identity and finances online.
