To start realising Web 3.0’s promise of giving individuals control of their data and recalibrating the economics of the internet to be fairer, blockchain platforms need to achieve similarly broad adoption as today’s big web platforms. That hasn’t happened yet, and it won’t until blockchains support privacy.
Privacy is a basic human right and many of our personal and commercial interactions rely on it. So deploying privacy-preserving technology is the next pivotal step in making blockchain platforms adoptable at scale.
Window on a Web 3.0-ready world
In the future, acutely privacy-aware Millennials, Gen Z and even Gen Alpha will become the dominant drivers of economic activity. A myriad of products and services will emerge to enable people to access digital offerings in a user-friendly fashion. As adoption spreads and digital IDs are scaled globally, various ownership registries – for land, vehicles, securities and so on – will be able to operate viably on blockchains. Supply chain activity will be tracked across borders using tokenisation and even social networks will migrate to decentralised platforms akin to Subsocial.
By then, we will have accepted cryptography as a secure way to guarantee contract execution and enforcement. Public smart contract platforms, if run by a sufficiently large number of possibly anonymous validators, will be deemed safe and secure. Eventually, there will be broad agreement around what Monetary Authority of Singapore Managing Director Ravi Menon said last year during his speech titled “Yes to Digital Asset Innovation, No to Cryptocurrency Speculation”: Cryptocurrencies exist to “pay transaction fees or incentivize users to keep the network secure”.
Major adoption obstacles overcome
I expect that all major issues preventing broad blockchain adoption will have been resolved by 2030. Stable blockchain platforms will meet the standards demanded of financial services firms today. And importantly, platforms will charge low and predictable fees for executing transactions.
Greater wealth equality will enable more robust decentralised governance and voting mechanisms, which, in turn, would further boost confidence in the platforms.
Regulatory clarity will also have been achieved. Different types of tokens will be recognised for their different functions and consistent frameworks will be implemented across jurisdictions to support orderly markets, both centralised and DeFi.
By 2030, centralized crypto intermediaries providing on- and off-ramps to the fiat money system will be fully regulated, averting the sort of rogue activity and meltdowns witnessed in 2022 and helping to minimize crypto’s use in terrorist financing, money laundering and other illicit activities.
The volume of cryptocurrency speculation will pale in comparison to demand for tokens to make bona fide transactions on platforms that are home to real economic activity.
Professionals and academics will have developed generally accepted valuation frameworks, which the likes of pension funds, endowments and other real asset owners can reference to explain to stakeholders why they chose to take a given cryptocurrency position.
And Bitcoin might have a real chance of replacing gold as a scarce asset and store of value since it is easier to move and better suited for a world that primarily operates digitally, not physically.
Completing the adoption puzzle
This is admittedly a sunny view of the future, especially for those who yearn to break free from Big Tech. But this mass adoption scenario is impossible without privacy. No-one will accept that all their transaction and balance data can be read by anyone who can open a blockchain explorer, subscribe to a service like Nansen and tie wallets to owners’ real identities. Today, most blockchains do not live up to privacy standards stipulated by data protection laws such as PDPA and GDPR.
But this is not just about compliance. Our security and wellbeing is at risk without privacy.
Imagine how a country’s security could be affected if friends and foes alike could monitor its reserves in real time. How an individual’s personal security could be compromised if would-be kidnappers could track their wealth. How a company’s fortunes or stock price might fare if competitors and shareholders could view its investments and free cash-flows at any given time. Or how a foundation that provides financial support to a persecuted minority could be targeted by others able to access information on its disbursements.
Implementing privacy-enhancing technology that helps prevent these scenarios would hinge on three main groups of cryptographic methods (an overview of the academic literature concerning these can be found here):
- Zero-knowledge proofs (ZKp), a method by which one party – the prover – can prove to another party – the verifier – that a given statement is true based on underlying data that does not need to be disclosed. Think of a bartender who only needs to know whether a customer is at least 21 years old in order to buy alcohol, rather than having to know their exact birthdate.
- Multi-party-computation (MPC) methods enable parties to jointly compute a function through inputs while those inputs remain private. This brings to mind the “millionaires’ problem,” in which two rich people want to find out who is richer without giving away additional information about their wealth.
- Fully homomorphic encryption (FHE), where users can perform computations on encrypted data without first decrypting it. This permits, for example, a company to crowdsource a credit rating from many data scientists without having to reveal its balance sheet data to everyone.
The race is on among today’s blockchain platforms to create the economic, social and financial infrastructure of the future. The winners are likely to be those that move fastest to develop and deploy stable, fair, cost-effective and, critically, privacy-enabled platforms.