Crypto-privacy is in greater danger than ever before – here’s the reason

Despite the latest technology, the world has not yet cracked the code for online privacy and security. But that is not the only major problem we need to worry about.

Hackers and robbers trick innocent users into giving up their private information as society becomes increasingly digital – and virtual currencies play a role in all of this.

Cryptocurrencies broke records in 2022, with the market topping $ 2 trillion for the first time ever.

And while this has been met with excitement by current investors, it has made others more on guard.

Why? As the asset class grows, it becomes more attractive to malicious actors. And for proof of this, you just need to look at the growing number of users who are targets of cryptocurrency robbery.

The big question is this: If these crimes against individuals are so dangerous and will only increase as the market expands, why is the value of privacy still overlooked by the rest of the world? The answer is a lack of clarity about why security and privacy matter – and how they relate.

Let’s imagine that an investor has a significant crypto stock – 50 BTC – which at $ 30,000 per coin amounts to $ 1.5 million.

Their wallet would inevitably become a target for hackers and robbers, which is why privacy is so important. No one needs to know that millions are kept in that investor’s wallet.

Security is a crucial principle if adoption levels are to continue to grow, but it is often overlooked. Precautions and robust measures are needed to give investors a sense of privacy as security – and to prove to newcomers that digital assets have value over fiat currencies.

Related: Identity is the antidote to DEX’s regulatory problem

The story of crypto privacy

A few years ago, the world went through a currency boom for privacy. It was 2016 and 2017 – a time when this was new and unlike anything most of us had ever seen before.

This popularity was quickly overshadowed by decentralized finance (DeFi) and smart contracts. The attention was so significant that the world began to recognize smart contracts as a requirement, leaving “anonymous transactions”.

Out of the box, smart contract transactions are not confidential, which means that anyone can access and view all information sent and stored through this method. And while they are secure, their details are built into the blockchain forever.

Around the same time, the development of Lightning Network, a Layer 2 payment protocol implemented to improve transaction speeds, and Taproot, an upgrade that brought multiple signatures and transactions together for easier transaction verification, was attributed to much improved Bitcoin privacy.

Another contributing factor is that the world generally misunderstands “privacy technology” as an obstacle to fee stability through scaling and functionalities of a smart contract, which can only be described as a trade-off.

Few understand how crucial privacy is for cryptocurrency assets, and even fewer have any idea how much greater the effort has become.

Related: Self-defense, control and identity – How regulators made mistakes

Why privacy is equal to security

As crypto-adoption has increased, the regulation of exchanges has become much stricter, especially with regard to the retention of identification data, including many addresses.

Unfortunately, this creates a single error point – resulting in significantly more reported cases of hacks and data leaks. These negative results come down to the fact that regulation is aimed at finding opponents in a given list of users, and the list of users who should not exist in the customer list of an external opponent.

Businesses that cannot afford to operate are too busy complying with regulations that control user identity data and do not pay the cost of actually storing user identity data securely.

An accompanying concern comes down to the vulnerability in the design of control panels for internal leaks. In a cryptographic context, even a bad actor, among an “N” number of innocent people, can effectively affect security and thus privacy.

As another important factor, blockchain analysis and other tracking technologies have proven to be a powerful game changer when it comes to catching former perpetrators in old hacking cases. Unfortunately, despite good intentions, the same tracking tools have the potential to help facilitate targeted attacks when put in the wrong hands.

In this example, privacy, a key differentiator of decentralized assets, is quickly eliminated, emphasizing the purpose of the basic infrastructure.

Related: Necessary – A Massive Education Project to Fight Hacking and Fraud

Create a case for cryptographic privacy

Privacy concerns are not new, and that is why several technologies have received attention because they do not allow privacy to interfere with fee stability through scaling – namely the Lightning Network.

In practice, Lightning Network assumes that users are online and can communicate with protocol participants based on web-based assumptions. The process effectively ensures that scaling and privacy are compatible.

Together, the online assumption, combined with zero proof of knowledge, makes it possible to enforce successful online communication, an opportunity that can be extended to an Ethereum-type smart contract. The belief is that if privacy can be effectively linked to a smart contract, cryptocurrency users will soon realize the importance of privacy.