Misconception #1: Your Business Is Hidden
The idea that blockchain technology hides your business is one of the biggest things people get wrong about blockchains. This idea is often mistakenly attributed to the belief that cryptocurrencies are used by organized crime to launder money. This idea has been continuously promoted by the mainstream media, particularly regarding the stories about The Silk Road market and its use of Bitcoin as a form of payment.
The reality is that this couldn’t be further from the truth. This is especially true with an open source public blockchain like Bitcoin where every transaction is recorded and searchable through block explorers. Blockchains are designed as distributed ledgers, meaning that whoever manages a node has a complete copy of the entire blockchain. This distribution of the blockchain and the hash function within it creates an almost immutable form of data collection. Once a transaction has been recorded on the blockchain, it is permanent and immutable. The concept of immutable data is key to why blockchains are such a disruptive force.
However, as more adoption occurs and more transactions are recorded on blockchain, the opportunity to leverage this information also arises. AI forensic projects like Chainalysis are already tracking and monetizing transaction history on blockchain. This becomes problematic because it allows the ability to identify and potentially expose the private identity of a public address. This is particularly concerning when it comes to financial transactions and raises the question of an individual’s right to financial privacy. Imagine that you have all your financial transactions transmitted to the world. In addition, identifying and transmitting the amount of cryptocurrencies that someone owns or who owns the most valuable NFTs can make owners an unwanted target.
Wrong Idea #2: There’s No Way to Hide Your Activity
Despite the immutable nature of blockchain transactions, there are or are being developed several protocols and projects that aim to add a layer of privacy to the equation. Wallet generation or tumbler services like blender.io allow a user to send cryptocurrencies from one wallet to another without a trace. These tumbler services work by masking the end address through a central forwarding address.
In addition, there are protocols like Railgun that use smart contracts to create shielded wallet addresses. Transactions made by the Railgun smart contract are obfuscated through zk-SNARK encryption. Essentially transactions are still recorded, but the sending address will only reveal that it comes from the Railgun smart contract rather than a specific public address.
Misconception #3: Everything is Open Source
It is important to understand that not all blockchains are open or created equal. The same technology that powers the Bitcoin network can also be used in a private or semi-private function. The technology can be coded to give privileged access or block access to certain parts within the blockchain. This can be very beneficial in the private sector, especially within supply chains where not all parts of the supply chain have to see every step of supply outside of what they are responsible for.
Other examples where privacy is beneficial can be seen in blockchain use cases for storing medical records and verifying elections. Blockchain technology can create a more efficient and secure system where individuals have autonomy and can determine who has access to their medical records. Here privacy becomes fundamental.
In elections, blockchain technology can provide a safe and secure method of holding elections. An individual’s identity can be verified but hidden from those conducting elections, while still showing their results. This is an incredibly important aspect of elections, as it allows you to cast a vote without fear of repercussions.
Conclusion: Despite privacy concerns, blockchain has huge potential
Blockchain technology extends far beyond the cryptocurrency and NFT craze we’ve seen in recent years. It has many different uses and the potential to destroy large sects of society.
Bitcoin and other open-source public blockchains use alphanumeric public key addresses to hide personal identity. With the advancement of AI forensic projects and the ability to reveal an individual’s identity, a countermovement to re-establish privacy as a necessary component of these blockchains has begun. Today, privacy is rarely talked about in terms of blockchain, but it’s safe to assume that it will soon become a major topic as more people start adopting the technology.