The Urgent Need for Crypto Privacy Tools

As artificial intelligence and natural language processing are increasingly used to analyze vast amounts of financial data, privacy concerns are more pressing than ever.

Several AI startups are developing tools related to blockchain analytics, leading to a new generation of analytics companies, such as Blocktrace, Arkham and Nansen. A notable example is Austin-based startup Blocktrace, founded in 2018 by software engineer Shaun Magruder, who previously served as head of training at blockchain investigative firm Chainalysis. Blocktrace has created an AI chatbot called Robby the Robot that interacts with Bitcoin blockchain data. This AI chatbot allows users to engage with a virtual assistant-like feature by asking questions in natural language, which is enhanced by an AI team.

Leveraging AI chatbots and NLP technology, these startups facilitate blockchain transaction tracking and data analysis, providing users with valuable insights. However, the increasing public availability of these services puts users’ personal information at risk, potentially exposing and linking it to real-life identities. If one doesn’t want someone using AI to make all of their Venmo transactions and balances publicly searchable, then it becomes clear why shielded transactions must be prioritized to protect user information in this rapidly evolving landscape.

AI’s impact on crypto: The need for privacy tools

The rise of artificial intelligence has spurred a surge in interest in AI-centric cryptocurrency projects, such as The Graph, Numerai, Fetch.ai, SingularityNet, and Vectorspace AI. Many of these projects have experienced skyrocketing prices for their original tokens through 2023.

The increased demand for AI-based cryptoassets shows the growing recognition of the potential synergies between AI and blockchain technologies, as well as the appetite for innovative solutions that take advantage of the unique characteristics of both. And yet this realm of opportunity is also fraught with risk.

As generative AI tools like ChatGPT become more widespread, the crypto community must prioritize best practices for protecting personal information in an increasingly interconnected digital world.

Rethinking Privacy: Crypto’s Exposure to AI-Driven Analytics

Until now, the threat of tracking one’s crypto activity and wealth and tied to real-world identity has largely been the domain of government. But with the rise of blockchain analytics startups like Blocktrace and their AI-powered tools, this concern escalates to a whole new level.

As these services become more accessible to the general public, it becomes important to address privacy in the crypto space. The flawed assumption that only exchanges, banks and governments can access users’ information on transparent blockchains is being debunked by the rise of these new analytics startups. As a result, the narrative around crypto privacy needs to change and users should be made aware of the need for shielded transactions to protect their personal information.

As Garry Kasparov, chess grandmaster and Avast Security Ambassador, pointed out in a recent Forbes interview, most cyber attacks are not due to AI hacking systems, but rather the result of users being tricked by bad actors who exploit their trust and personal information . shared across social networks. Individuals must take responsibility for their own digital security by implementing simple measures such as verifying email senders, avoiding clicking on suspicious links and not reusing passwords.

While individuals can take preventive measures, the role of AI-powered analytics tools in revealing personal information raises even greater concerns. It’s not implausible to imagine an AI-powered analytics tool that combines public blockchain data with public data collection sites like Spokeo, Mylife and Radaris, which can post people’s home addresses and real-life family relationships without consent. Some data aggregation services may even reveal medical and criminal records, or the schools attended by family members. This amount of sensitive information can be easily exploited by bad actors, leading to dangerous situations such as stalking, identity theft, blackmail, extortion or even kidnapping and other violent crimes. The frightening reality is that the combination of artificial intelligence and transparent blockchains has the potential to create a world where our financial information is more easily accessible for malicious purposes than ever before. The urgent need to prioritize shielded transactions and like-minded privacy tools becomes all the more apparent when considering the potential consequences of this dangerous combination.

Privacy, shielded transactions and AI analysis

As Julia Angwin described in a recent guest essay for The New York Times, targeted advertising and online tracking have raised serious concerns about the privacy and societal consequences of surveillance-based business models. As AI-powered analytics tools continue to evolve and become more accessible to the general public, the potential for misuse and abuse of personal information in the blockchain and cryptocurrency space is even greater.

Protected transactions, such as those used in crypto platforms like Zcash (the focus of my employer, Electric Coin Co.), and privacy-focused cryptocurrencies like Monero, provide a solution to some of the privacy concerns surrounding blockchain analytics. Essentially, shielded transactions allow users to protect their transaction details, such as sender, recipient and amount, from the public while still maintaining the integrity of the underlying blockchain.

This has the potential to positively impact Ethereum as well, as Ethereum founder Vitalik Buterin signaled his focus on crypto privacy tools in January 2023 by publishing a guide to stealth addresses. Similarly, Bain Capital Crypto cryptographer Wei Dai advocated incorporating “zcash-style privacy” into Ethereum at the recent DevCon conference in Bogota.

By prioritizing privacy and offering shielded transactions as a standard feature for altcoins, the crypto community can help protect users’ personal information while enabling transparency and accountability that contribute to the revolutionary nature of blockchain technology. By learning from the pitfalls of targeted advertising and online tracking, the crypto community can develop best practices that prioritize privacy and promote a safer ecosystem for all users.

Finally, developers and policymakers must continue to explore the privacy implications of AI-powered analytics tools, promoting a more secure and privacy-centric crypto ecosystem for all users. Given the potential these AI developments offer, technologists and lawmakers now face an equally urgent need for privacy tools, such as shielded transactions. And protecting personal information becomes even more important as blockchain technology continues to evolve in sync with AI.

Dissemination: I am an employee of Electric Coin Co., a company dedicated to advancing secure transaction technology in the crypto industry, and a long-term holder of ZEC tokens. The views and opinions expressed in this article are my own and do not necessarily reflect the official policy or position of Electric Coin Co. This article is for informational purposes only and should not be construed as legal or financial advice.

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