Will Privacy Concerns Slow Down Enterprise Use of Blockchain?
Blockchain certainly has its cheerleaders. Between those calling it the best thing since sliced internet to Bitcoin and other cryptocurrency pushers, the technology is quickly gaining a patina of disruption among tech-geeks and CIOs alike.
But, as with any technological innovation, it’s not without its problems, some of which are emerging now. One is the amount of energy a typical blockchain requires. The other is privacy, and the question: how much is too much anonymity? And what happens when transactions are hidden and inaccessible?
Before we get to that, though, let’s take a brief look at the how and the why of blockchain.
Most readers will know it as the technology that allows for cryptocurrencies like Bitcoin. Bitcoin, and others like it, are based on a decentralized, distributed ledger system for record-keeping. This shared database of records (blocks) keeps track of all transactions, the details of which are stored and verified by the network. Info on blockchain is encrypted, so everyone can see it but only the owner of each Bitcoin can decrypt it. Each owner is given a private key that they can use to decrypt their Bitcoin. Senders can remain anonymous. Because the network of databases is shared, no central authority determines the ledger or a coin’s value.
Although cryptocurrencies are blockchain’s best-known application, it’s also being used across enterprise. Blockchain’s enterprise uses include supply chain management, smart contracts, the Internet of Things (IoT), artificial intelligence (AI) and machine learning.
As blockchain becomes more prevalent, we are starting to see some of the cracks in its shiny veneer.
Enterprise, blockchain and privacy
Industry leader and entrepreneur Yoav Vilner recently pointed out that as the technology is adopted more widely, the business world will have to figure out how to “reconcile conventional data structures with an accelerated trend towards privacy.”
Data privacy concerns include the selling of personal information to third parties and the adverse potential of a cashless society.
In the latter category, we can look at both digital payments like PayPal and Venmo. These are fintech innovations that are “uncontroversial and largely an engineering and marketing challenge.” They also don’t remove every need for cash. The peer-to-peer handling of old-school cash transactions is permission-less and private.
However, the elimination of cash—if and when it happens—“will make society more vulnerable to surveillance, financial control, and authoritarianism,” as Su Zhu and Hasu wrote on uncommoncore.ca.
In a totally cashless society, an intermediate would be required and a record kept for every transaction—making censorship of transactions and confiscation of funds possible.
Meanwhile, the recent focus on blockchain tech has shed a light on privacy technologies driven by cryptocurrencies. Examples of the latter include zero-knowledge proofs (ZKPs), which allow a prover to verify a set of information like a transaction to a verifier, without revealing details about the data itself. Bulletproofs, zk-SNARKs (which improve scalability and preserve privacy) and the Zether protocol also offer advantages for financial and data privacy.
This high level of anonymity pleases the libertarian tech wizards and others predisposed towards technology that masks identities and transaction details. On the other side of the aisle are the regulators and, often, the enterprises seeking to remain compliant with the regulators. When everything is private and anonymous, accountability becomes more difficult to bring to bear.
By digitizing assets, blockchain is changing how the global economy can operate. It also comes at a time when privacy concerns in the digital realm are as high as they’ve ever been.
Although the new technology promises much in the way of anonymity, that same promise risks reducing our financial options even as it seems to expand them, and preventing oversight of industry, government, and other public institutions.