Innovations in the crypto space appear daily. Whether through decentralized applications or new ways to implement and use non-fungible tokens (NFT) within decentralized finance, blockchain technology is innovating with the speed of light. The only thing missing is? Wide adoption. One thing holding back this is the very public nature of the blockchain. DeFi, as it works now, lacks significant privacy. To catalyze broad adoption for businesses, governments, and individuals, those conducting blockchain transactions should expect regular, consistent privacy.
First, we need to define what privacy means. It does not mean a pseudonym that cryptocurrency claims to have now. Significant privacy means that a personal financial account will not be tracked and an individual’s wealth will not be exposed. It means that trade can protect trade secrets. Privacy means that the government’s finances are the business of its people – not the business of dangerous neighbors.
Related: In crypto, no one cares who you are: That’s why that’s a good thing
Cryptocurrency is just that – currency. With the Canadian truck convoy and the Russian war on Ukraine causing a crypto currency change, it will continue to be treated as a currency regardless of whether it is regulated as one. It is a financial asset, and our current understanding of personal financial privacy supports the move to privacy through DeFi. The European Union has adopted the General Data Protection Regulation, to which every internet entity operating within the EU is liable. On a more traditional level, fiat banks have several privacy protocols, many of which are subject to human error. Privacy is natural, and often worthless until it is removed.
Privacy is key to corporate crypto transactions
There is no denying that corporations and large traditional financial institutions are pivoting to crypto, with news that giants like Commerzbank are applying for crypto-business licenses. Corporate vaults are beginning to see the benefits of using crypto to solve a problem that has plagued them for decades: instant cross-border payments. Lack of privacy for such transactions will hamper wider adoption because until the privacy of such institutional transactions is secured, it will remain a niche proposition.
Companies have the right to protect trade secrets, including those related to finance and payments to employees and contractors. Hedge funds that will benefit greatly from moving assets on the blockchain must be able to protect their financial movements. If every active movement can be tracked, private companies are unable to protect themselves, and competition is diluted. It is as reasonable to expect privacy in business as it is to expect privacy for individuals. As crypto undergoes wider adoption, it will continue to be slowed down every step of the way until the privacy issue is resolved.
Related: The loss of privacy: Why we have to fight for a decentralized future
Privacy does not threaten regulation
The good news is that privacy in DeFi may be both responsible and secure. We all know that regulation is growing, and as frustrating as it can be for the Wild West of blockchain projects, barriers can enable growth. People don’t trust something they don’t understand, so when regulations come along, they signal that the people leading governments know what’s going on and what needs to be controlled. That is a good thing. Governments can – and must – regulate crypto exchanges, fiat-on and off-ramps, and individuals who are subject to local, regional, and federal laws wherever they reside. Privacy does not threaten or disable regulation. Governments encrypt privacy on social networks. Why should financial networks be an exception?
The bottom line is that once DeFi is secure and can be used privately, people will feel more comfortable using crypto. Because people don’t trust something they don’t understand, we need to invite them using the expectation paradigm that comes with other financial endeavors. Another way we can invite people into space is to disconnect the argument for privacy from the discussion of anonymity. This will help solve the problem that new adopters face when they falsely consider crypto as an easy way to facilitate illegal transactions. As long as there is a reasonable expectation of privacy, DeFi will remain a risky venture for both private parties and businesses.
This article does not contain investment advice or recommendations. Every investment and business move involves risk, and readers need to do their own research when making a decision.
The opinions, thoughts and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Kieran Mosque is a chief scientist at Railgun, a decentralized smart contract project that brings privacy to cryptocurrencies that work perfectly with DeFi. He has an extensive background in developing technologies for blockchain and DeFi projects. He was an early adopter of Bitcoin and one of the first people to develop its GPU mining software.