The non-fungible token (NFT) market is now worth more than $40 billion — and that’s just conservative estimates talking. Also, its 2022 and nearly every well-known media personality, artist, celebrity today has their very own NFT range, with Algorand quickly becoming the go-to destination for many of these folks.
For example, Algo-based NFT marketplace Artsquare.io is now viewed as a premier platform for investors looking to co-own art created by a host of well-known artists like Keith Haring, Damien Hirst, and Andy Warhol. Similarly, Republic.co is another Algorand-centric NFT ecosystem giving users the freedom to invest in everything from real estate to startups, to video games.
In fact, Republic.co’s business setup is so unique that it has already seen over $2 million flow into Elon Musk-led SpaceX and over $10 million into premier stock/crypto trading platform Robinhood via a unique NFT hybrid called S-NFTs (short for security NFTs) that represent partial ownership of a project’s royalty rights.
Studies have shown that over the course of the next five odd years, this market will continue to grow at a CAGR of 180+%, showcasing the immense growth potential of the sector. That said, a sizable portion of all NFT platforms in existence today have been built atop Ethereum, a network which despite its widespread appeal and regular upgrades (over the past couple of years) has continued to be faced with a host of transactional bottlenecks.
For example, even after last August’s highly anticipated London Hardfork (that sought to make the project more efficient ) gas fee rates on Ethereum have continued to remain extremely high, resulting in artists/content creators having to shell out anywhere between $50-$800 — in addition to transfer charges and other hidden costs — to issue a single NFT.
Algorand is continuing to redefine the NFT landscape
In terms of why Alogrand is highly suited to meet the growing needs of the rapidly evolving NFT market, the project’s highly scalable framework allows it to offer extremely affordable minting rates — often under 10 cents. This is in stark contrast to most other blockchains, most notably Ethereum, that levy significantly higher charges for the exact same thing.
Therefore, Algorand can enable the creation of high-volume NFTs in a manner that is both practical and feasible, especially for smaller, independent artists who may not have access to a lot of capital. Not only that, it also helps in the creation of diverse markets where a wide range of NFT offerings can co-exist with each other.
On a technical note, Algorand can support upward of 1,000 transactions per second while offering a finality rate of under 4.5 seconds, thus providing token issuers with the ability to facilitate sizable price discovery events as well as supports on-chain proof points of auctions, which can help prevent an artist’s name from being attached to a bad network event.
Lastly, the project affords artists a high degree of NFT customization benefits such as the use of Algorand Atomic Transfers. Atomic Transfers allow users to submit up to 16 transactions at the same time, such that if any single transaction fails, they all fail. By utilizing Atomic Transfers in conjunction with multiple assets and smart contracts, developers have the ability to devise many unique applications.
Algorand’s ARC3 functionality is a gamechanger
Most marketplaces currently operating atop the Ethereum network — including prominent ones such as OpenSea, Rarible, Zora — offer artists with a ‘creator’s royalty’ option on all subsequent secondary sales of their work, however, what is never mentioned is the fact that these funds are only available when the subsequent sale is initiated via the platform through which the original transaction took place.
When one takes into consideration that oftentimes buyers re-list NFTs across different platforms after purchasing them, the earning potential of the original artist is greatly depleted. Algorand’s ARC3 model corrects this issue seamlessly, allowing the creator of an NFT to earn royalties from their work irrespective of where any subsequent sales of their work may have taken place.
Furthermore, to enhance the overall designability and customization aspect of NFTs, Algorand’s ARC3 module helps provide users with an added layer of functionality and features that go beyond just the basic non-fungibility utility of this novel asset class. Such mechanisms are difficult to achieve on Ethereum-based marketplaces, thanks, in large part, to the fact that the network charges extremely high txn and gas fees that cut into the royalties generated.
Lastly, the ARC3 module allows users to program NFTs, helping in the creation and issuance of novel offerings such as digital tickets, interactive ids, etc on a larger scale as well as in a more feasible manner.
Algorand’s growing list of partnerships make it primed for future success
Another aspect of Algorand that has helped the project garner mainstream traction amongst many NFT enthusiasts and artists is that the project has continued to foster a growing community of backers including many independent developers as well as various mainstream firms including Alchemy Pay, Mozaik Capital, MetaStable, etc — all of whom are looking to capitalize upon the platform’s amazing scalability benefits and devise a wide range of novel DeFi and dApp projects atop it.
Also, just a few months ago, the Algorand Foundation released a $300 million dollar DeFi fund that sought to help promote innovation across the global DeFi landscape. Not only that, earlier in 2020, the organization invested approx. 250 million ALGO (worth $50 million back then) to help spread education in relation to blockchain systems worldwide.
Lastly, Algorand’s continued rise can also be attributed to the fact that the project has partnered with a number of major scientific entities such as CERN — one of the world’s largest and most respected centers for research — allowing for continual research regarding this space to grow steadily.
Therefore, in closing, it stands to reason that as the global crypto ecosystem continues to mature and people continue to become increasingly more educated about the benefits of Algorand — especially those it has to offer in relation to projects like Ethereum — its popularity and widespread adoption will continue to increase, especially within the global NFT arena.
Wormhole Interview
1) The Wormhole exploit that took place on Wednesday, saw $326 million worth of ETH and SOL stolen via the Ethereum-Solana token bridge – who is to blame?
It isn’t so much about pointing fingers as it is about ensuring the same doesn’t happen again. Bridges collateralize user funds on an originating chain and ‘wrap’ them in a corresponding token standard on the destination chain. This process is often handled by smart contracts, and realistically, if there’s an exploit to be found in the code, someone will find it.
While bridges have proven invaluable for network interoperability, there’s a lot to be said for moving away from this method. Creating tokenized assets by trusting them to a third party will always lead to issues, even when the company involved is completely honest.
That’s why there needs to be a more direct integration between Bitcoin and DeFi, and that’s what Internet Computer offers. The upcoming Bitcoin integration will allow smart contracts on the Internet Computer to receive, hold, and transfer Bitcoin on the Bitcoin network — bypassing risky bridging and wrapping protocols.
2) Since the attack drained the smart contract holding Ethereum collateral, all wrapped ETH within the Solana ecosystem is now effectively backed by nothing – how can DFINITY help?
If you aren’t creating wrapped assets, there’s nothing to become uncollateralized. The Internet Computer will interact with the Bitcoin network directly, and eventually Ethereum and many others. With this integration, each smart contract on the Internet Computer will receive its own Bitcoin ECDSA public key, allowing them to send, receive and hold BTC natively. This significantly reduces the attack vectors and makes the process as robust and secure as the blockchain it’s running on. On the other hand, Bridges will only ever be as secure as the code they’re built on, which, as we’ve witnessed, can be less than sound. Bridges introduce a level of human error into the process, and that’s where things can go wrong.
3) What would you suggest for such a situation not to repeat?
We need to move away from wrapped assets. As long as the process is controlled by third parties and unaudited smart contact code, vulnerabilities will continue to exist. The Internet Computer’s Bitcoin integration will take this out of the equation altogether. The situation can’t repeat if there is no bridge to attack.
4) When saying Bitcoin will realize powerful new smart contract functionality – can you elaborate this for our readers?
With direct integration, Internet Computer smart contracts will be able to hold and transfer funds on the Bitcoin network in a trustless manner, with absolutely no other parties involved. Utilizing both advanced cryptography and engineering, this will also bring smart contract functionality to Bitcoin itself, without the need for bridging or wrapping services. Now, the Bitcoin network will have native access to a wide variety of DeFi use cases that it never has before.
5) What possibilities of DeFi capabilities on Bitcoin are we looking at?
Anything you can do on a smart contract platform will now be available for Bitcoin. So you can expect to see Bitcoin traded on decentralized exchanges, used in gaming, decentralized loans, liquidity pools, prediction markets, and even staked — the sky’s the limit.
6) Tell us more about the Internet Computer’s Developer Preview of the Bitcoin Integration that went live
The Developer Preview takes us one step closer to mainnet integration and enables developers to start working with the Bitcoin integration feature within a local sandbox environment.
Several IC developers are already looking to integrate the feature into their services, including OpenChat, a decentralized messaging and money transfer app, and InfinitySwap, a decentralized exchange. As a result of the integration, these dapps will unlock native DeFi capabilities for bitcoin for the first time.
7) Anything else you’d like to add
DeFi desperately needs decentralized solutions, and the current situation with bridges is unsustainable. The Internet Computer’s direct Bitcoin integration ensures a more secure multi-chain future.
Stablecoin Regulation in 2022 Will Drive Global Financial Adoption
Stablecoin regulation was a hotly debated topic in 2021 — particularly in the United States. But despite the president’s working group recommending strict regulations, regulators continued to drag their heels. The group — consisting of top leaders from the FDIC, US Treasury, and OCC — wants the federal government to legislate stablecoin reserves to ensure they’re backed by stable assets.
The U.S. isn’t alone; crypto legislation is looming around the world, and it’s still unclear how most governments will treat stablecoins. Some countries, like China, are outright banning crypto activity. Proponents of the technology look to areas that have been fairly opposed to integrating stablecoins into the financial system and fear more governments will follow China’s lead.
However, it is just as likely (maybe more so) that lawmakers will see the potential waiting to be tapped into. For example, conflict zones like Myanmar are already proving the utility of dollar-backed stablecoins to circumvent high inflation of their national currency as well as avoid censorship and tracing. One thing is for sure, however, without clear stablecoin regulation, business innovation in our ever-digitizing society may suffer as a consequence.
The growing scrutiny of stablecoins
Stablecoins have been around since 2015, with the creation of Tether — a token pegged to the US Dollar. In the time since then, they have become a $160 billion component of the cryptocurrency ecosystem. Stablecoins are useful because they combine the utility of crypto borderless peer-to-peer transfers with the value stability of fiat.
This makes stablecoins practical for daily purchases and bill payments, whereas more volatile crypto tokens, such as Bitcoin or Ether, can have tumultuous price swings. As such, stablecoins serve as a great way to hedge against declining crypto prices, enabling investors to easily hop into stable assets in times of volatility. These assets are now considered by many to be systemically important. There is, however, a downside to this.
Regulation is necessary for governments to accept stablecoins as a legitimate currency — particularly in light of lessons learned from past experience in an unregulated market. Tether faced tough accusations of price manipulation in 2017, and government officials worry this could happen again if reserves aren’t adequately audited. Issuing a government-backed stablecoin could sow even more distrust if used in international trade.
As the stablecoin market share continues to grow, so does the attention coming to it, and the rest of crypto, from regulators worldwide. Different jurisdictions have responded in varying ways. As touched upon, China has completely outlawed transactions in any form of cryptocurrency save for their own, state-sponsored one. On the other hand, the EU has been far more accomodating, with their Markets in Crypto-Assets (MiCA) framework allowing institutions to handle stablecoins as long as they are appropriately licensed.
Meanwhile, in jurisdictions such as the United States, the final say is not laid down yet. The US Senate’s Banking, Housing, and Urban Affairs Committee recently held a hearing on stablecoins, their role, and their dangers. Despite fairly intense rhetoric coming from both sides, no decisive action or recommendations have been settled upon, not unlike what happened at the House Finance Committee hearing the week prior.
What Will 2022 Bring
2022 is set to stage several stablecoin themes that will ripple through the crypto market. For one, we will likely see continued expansion of the DeFi ecosystem, much of which is powered by these assets. This, in turn, will see the continued growth in the size of the market capitalization of stablecoins.
This will undoubtedly translate into even more heated discussions from regulators, as well as some action. While many in the crypto industry are concerned about just what the legislation could look like, it is also fair to note that bringing clarity to how stablecoins should be treated stands to be a major boon for the whole industry.
Up until now, financial institutions have been wary at best surrounding stablecoins and cryptocurrency. Not the least of the reasons for this is that no institution wants to risk significant portions of money on an asset class with an uncertain legal standing, especially when other options exist. However, if regulators can find a balance and bring reasonable clarity into the digital asset space in the coming year, it opens up a wide range of possibilities.
Indeed, a recent research note from the Bank of America submits that regulation of stablecoins could be vital in sparking economic growth and innovation.
One area ripe for stablecoin innovation is the trade finance sector. The use of stablecoins in trade finance can feasibly promote greater liquidity by reducing reliance on intermediaries and extending financial services to remote small and medium enterprises (SMEs) — many of which remain impacted by the ongoing coronavirus disruptions.
Estimates place the trade finance gap at approximately $1.7tn in the fallout of the coronavirus. To make matters worse, banks have started to eschew small and medium-sized enterprises (SMEs) in developing countries in favor of established connections.
The XDC network, an enterprise-ready, open-source, hybrid blockchain protocol specializing in tokenization for real-world decentralized finance, is one firm combatting this liquidity crisis by bringing trade finance on-chain. This will allow those working in the sector to leverage their assets through tokenization to provide liquidity and funding.
Stablecoins will affect both a microeconomic and macroeconomic level in the near future, thanks to these innovations. And regulation is crucial to ensuring this occurs in a standardized and secure way.
A New Way Of Doing Business
If this is what plays out, it will lead to a paradigm shift — one that takes the somewhat clunky embrace of digital trade finance over the last few decades and streamlines it to become a much smoother and more organic transition.
Businesses won’t be limited by the current costly and relatively slow payment rails. Global transactions can be settled in seconds and even across multiple jurisdictions, all while staying in line with local laws on both ends. This could shift eCommerce and trade finance into hyperdrive, allowing for a much more efficient worldwide economy.
What’s important is that, while some cryptocurrency purists may have legitimate concerns over what regulators will have to say, we already see signs lawmakers understand the benefits and competitive edge this technology can offer. Inversely, stifling the use or development of such assets only stands to put a given economy behind the rest of the developing world.
Why Polygon is the best fit for the metaverse
It seems that in 2021 one of the new words you can’t escape from is “Metaverse.” From Mark Zuckerberg to CNBC, it seems like everyone is starting to wake up to the possibilities of web 3.0. While that’s great, there currently isn’t appropriate infrastructure or latency to connect all of the digital platforms that will form the Metaverse. Fortunately, Polygon Studios and their network are coming to the rescue, to make tomorrow’s internet both far more functional, and in fact much more safe.
What’s Holding Back The Metaverse Today
Lately, people have been talking more and more about the Metaverse. If you weren’t aware, the Metaverse is basically the new buzz word for the coming interconnected virtual worlds powered by web 3.0. Basically, anyone will be able to seamlessly transfer data and value across any platform, in a way that is secure and transparent. This vision is being built on platforms like Ethereum, but there’s a problem. Currently neither Ethereum nor most blockchains have the ability to scale, which will be necessary if this is truly to be a global platform.
Enter Polygon. Polygon is what is known as a parachain. Basically, Polygon works alongside Ethereum and actually helps take some of the data off of the network. Furthermore, it’s built as a Proof of Stake network so it is much faster and has a lot more capacity, all while keeping a low carbon footprint. It also can act as a bridge between other, currently standalone chains, improving all of the networks it connects to and allowing for liquidity to pass between blockchains. In fact, just recently Polygon created a cross-chain bridge to decentralized storage network Filecoin, further enhancing connectivity and aiding the development of the Metaverse. This will allow for the level of capacity that is needed to bring the true vision of the metaverse to life.
How Polygon Will Allow for New Models of Commerce
Thanks to Polygon, as well as the technology of Non Fungible Tokens (NFTs), the idea of transferring digital assets across various gaming, entertainment or personal finance applications can become trivial. Gamers can actually have tangible ownership of their in-game items and currency. Subscription services will become unnecessary as all entertainment can be shared as NFTs with expiration dates. This means anybody could just “pay as you go,” and these services may actually see an increase in revenue, as there won’t be a paywall blocking non-subscribers.
Then there’s the ways that users will be able to take control of their investing and monetary planning thanks to Decentralized Finance (DeFi) tools. Now, individuals can put their money to work in ways that traditionally were only available through institutions. Not to mention, leveraging NFTs, this type of system could actually provide more verifiable identity services, in a way that is completely trustless.
Companies Are Already Getting Involved
This all sets the stage for an internet that is actually both safer and more accessible at the same time. Furthermore, this isn’t all just hypothetical. Already, various projects and companies are beginning to turn to Polygon to make their web 3.0 visions take form.
Take as an example, Decentraland. Decentraland is an already vibrant and active 3D world powered by Ethereum, and now, Polygon. The speed of Polygon’s network let’s users create games, art houses, casinos and much more, all powered with actual cryptocurrency. Decentraland isn’t alone either, with other decentralized game worlds, like The Sandbox, also tapping into the benefits of the parachain. There’s even been interest from established game developers, such as Atari. Considering how new this technology is on the scene, we have to feel this is only the beginning.
Furthermore, exciting news is coming out about the Polygon network all the time. For one, the network actually just recently merged with rollup platform Hermez Network in a $250 million deal, settled in Polygon’s native MATIC token. Then there’s the addition of metaverse visionary Mathew Ball, as well as Jonathan Glick, a former SVP of Product & Technology at The New York Times, to Polygon Studio’s advisory team. All of this then comes just as the Studio has also announced it will be offering $100 million to fund new NFT and gaming projects.
All of this combined positions Polygon Studios to be at the forefront of Metaverse development. There are absolutely other amazing solutions out there, but most of them could actually also work with Polygon and not need to directly compete. Ultimately, the goal is to roll out what stands to be the cutting edge of entertainment, business and finance, in a way that is both more powerful but also safer than what the internet has ever truly been. The only way to get there is together, and Polygon is perfectly suited to bring everyone along for the ride.
Five Important Roles That DAOs Will Play For Web3
Decentralized autonomous organizations, or DAOs, are no longer fringe, and we should be paying attention to how they’re disrupting the traditional structure of governance. Several DAOs have already proved the concept, and the DAO is arguably becoming one of the most important applications of blockchain technology to date.
These user-governed, internet-native businesses will be crucial for building a Web3 that can address all of the shortcomings present on the current internet. They represent what amounts to the opposite of big tech, in which a handful of founders or investors hold centralized control over the entire user base and their content.
Instead, DAOs distribute this administration transparently and equitably, conferring authority to the actual end-users. This article will focus on those end-users, the roles DAOs can play in heightening the Web3 experience, and how the Internet Computer (IC) is building out an entire ecosystem that is encouraging mainstream adoption.
- Community-owned services
DAOs represent a lot more than just decentralized technology, they’re decentralized business models becoming increasingly more powerful. Everything from infrastructure to governance and revenue is distributed, so DAOs are true, user-owned services for web3 applications and more. They engender a more egalitarian approach to organizations and businesses, enabling the user base to fully control their online experience.
What’s more, any individual can simultaneously be a consumer, shareholder, and director on these decentralized platforms.
Take, for example, CanCan – a TikTok-like, decentralized social networking service run on Internet Computer – which allows users to stream and share videos on their mobile device directly from the internet. What sets CanCan apart is that this is all handled 100% on-chain. This provides a truly secure decentralized platform that incentivises all users to produce, engage with, and moderate content, effectively making them members of the team that manages the dApp.
This is accomplished through the use of reward points which can be traded for governance tokens, as well as gifted to other users.
Rewards points can be earned through various forms of interaction on the platform, such as helping a video go viral or flagging content that is offensive or otherwise inappropriate for general audiences. What is important to note is that this system puts virtually all of the power in the hands of the people who actually use the service, in a way that cannot realistically be manipulated or wrested away.
Compare that to centralized services like TikTok, where user’s have very little control of their data. TikTok (and arguably the Chinese government) dictates and enforces the rules on its content, and the community has very little input. It’s not alone either; user-generated platforms like YouTube, Quora, and Facebook have ultimate control, and that leads to a lot of problems.
- Fair Distribution of Value
On the subject of rewards tokens, DAOs are perfectly suited for seamlessly handling the distribution of resources. Because every part of how these organizations work is hard coded into the canisters that run them, there is no “middle man” who can affect the fair compensation given to those who participate. Effectively, every user will be rewarded directly according to the nature of their service and the amount they get involved.
There will be no need for “performance reviews” – everything will just function automatically.
This means startups can now compete on a level playing field with incumbent services, attracting a user base via incentivization and driving network effects to extend their reach. Beyond just individual incentivization, DAO communities can also decide as a whole how their treasuries are allocated. Do they want to put their collateral towards a collective investment, a development fund, or a project incubator?
For too long, startups lacked the resources to scale, and DAOs can democratize the traditional VC fund to distribute the power of resource allocation. And because VCs typically provide both organizational structure and financial support, we also must discuss fundraising.
- Decentralized Fundraising
Through a DAO, any Startup could secure funding in a decentralized manner, led by the community. Instead of offering IPOs or securing specific investors, DAO-led fundraising will enable anyone with an internet connection to get involved. It won’t matter who the user is or even how much capital they have. As long as they are interested in a new service or platform, they can easily invest in it, with virtually no barriers to entry.
This can help small companies with limited capital still grow and compete even without specific, large backers. It also keeps those teams autonomous, as sometimes a project will have to bend to the whims of whoever is paying them, lest they lose funding. Traditional VC funding stifles both productivity and creativity, but it doesn’t have to be this way anymore.
It is exactly this structure for both fundraising and distribution of assets that attracted so many projects to the Internet Computer so quickly. Take Distrikt, a full, complex social media platform that was built in just a matter of months. That would be pretty impressive even for a fairly simple Web2 startup, let alone for a social media platform that is completely blockchain native. However, the tools and resources afforded by DAOs run on IC actually streamline much of the process.
DAOs are so successful these days that even Kickstarter is developing one to bring its crowdfunding platform into the new generation. It resolves the fundamental flaws in crowdfunding models in which investors often get fleeced by failed projects while legitimate ones lose steam due to lack of funding.
- Content Moderation
The next two considerations on our list are intrinsically tied, but we’ll begin with general content moderation. DAOs can be highly effective in properly curating the content on any platform, in a fair and even manner, all based around general consensus. Nobody wants their feed filled with offensive material, it creates a poor overall experience and drives decent users off the platform.
However, by allowing votes on either content policies, individual pieces of content, or both, DAOs can enforce the net will of the users to silence any bad actors. This can lead to a balance where the only voices being taken away would be ones that the majority of the community don’t want to hear.
This will be essential for the next generation of messaging services, like OpenChat. OpenChat is a truly decentralized messaging service that functions much like existing messaging apps such as WhatsApp and Signal. Because of the underlying structure, users get to have a say as to what types of speech and media are allowed, and in fact these rules could change in real time as cultural opinions shift.
And users will still have the same military-grade, end-to-end encryption for their private conversations.
OpenChat represents a much more balanced system than one where policies are decided in business meetings between a few dozen people and then “handed down” to the platform, with no choice for users but to accept or leave. Companies like Facebook and Twitter have repeatedly shown that they will interfere with what can be said on their services, with little account for the average user. In fact, this brings us to our final point:
- Combating Censorship
On the other side of moderation is preventing outright censorship, particularly the kind imposed by tech companies who may have different sensibilities from their users. Platforms like Facebook and Twitter famously censor certain content and people, many times for conduct that may not have even occurred on the platform. Cancel culture is a real problem in the U.S., and DAOs are a more viable solution than giving corporations power over our speech.
Again, that’s not to say every type of media or every opinion needs to be allowed, just that these choices should be made at the community level based around voting. The content that is deemed acceptable, then, cannot ever be censored by any other source.
To help ensure this guarantee, website developers can begin building on the IC via Fleek. Fleek is a frictionless hosting solution, like Netlify but for the open web. Its suite of tools enables developers to deploy websites to the IC in just a matter of minutes, including hosting static front ends for decentralized services.
This provides an accessible interface that minimizes the complexity of creating and updating content on these websites, with the powerful benefit of them being immune to being taken down from any business or political entity. The IC can become a very important tool for journalists, documentarians, or anybody who is living under an oppressive government as a means to public content that’s immutable..
Conclusion
As you can see, there are many important roles that DAOs will play as we build out the true vision for web3. The ability for any business or project to be community-led, community-funded and community-moderated is going to change how people look at the internet forever.
Of course, none of this would work without a platform that can not only act as its own “bedrock” DAO, but provide all the tools to maintain this level of decentralization and functionality at literally any scale. That’s exactly what Internet Computer is, and now, we’re at the beginning of the next stage of truly remote business, finance and entertainment.
The End of the Web 3.0 Privacy Conundrum
Although the modern internet connects us like never before, one thing younger generations never knew was the feeling of privacy. Even older generations forget what life was like before our every thought was tracked. Fortunately, blockchain has emerged as a potential solution.
Web 3.0 envisions an open, trustless, and permissionless internet where users can interact with each other peer-to-peer without giving up ownership control, privacy, or relying on intermediaries.
Underlying that vision, blockchains create a direct relationship between users and service providers, based on immutable ledgers that enable direct interactions between them – without the need for third parties and their servers. Blockchain also fundamentally reconfigures the structures and power balances in data ownership.
With blockchains, Individuals can now bypass centralized websites and costly intermediaries and interact directly with each other with end-to-end encryption. People can buy assets, like a house or a work of art; access public resources and participate in high-level decisions. Moreover, control and management of those processes are much simpler using a decentralized platform where third parties are unable to gain access to data unless participants agree to enable that.
That’s the theory.
The reality of blockchain privacy
In reality, today’s blockchains are “pseudonymous,” where users can only be identified by an alphanumeric string of characters, known as a public key. However, associations between the activity in a transaction and metadata can often undermine anonymity or pseudonymity. This renders one of the main proposed benefits of blockchain useless and potentially exposes sensitive information to all participants in a network.
We may not know who Satoshi Nakamoto is, but we can track transactions on their address. Blockchain forensics firms, including CipherTrace, and Elliptic regularly use the digital ledger to trace financial activity on the blockchain.
Another example of this can be seen in the ever-growing world of blockchain-based markets, where trades, visible to miners, become subject to “frontrunning.”
This type of attack occurs when a miner is able to see the transactions submitted on-chain and insert their own transactions ahead of users — getting the best deals and leaving the rest of us with less value. Known as “miner-extractable value” or MEV refers to the amount of value that miners can suck out of the system by front-running — this is the value that users would otherwise receive.
Since January 2020, miners have extracted over $766 million in value from Ethereum users. In fact, over $23 million in front-running attacks have occurred in the last 30 days alone, and it’s a real problem the industry needs to address.
Which begs the question: Where are the blockchain layers that deliver real privacy?
As things currently stand, they have not been given the implementation priority they need and deserve. Instead, the blockchain community chose other priorities, notably the scalability, speed, and cost challenges that have been holding blockchain back from mass adoption.
The solution for Web 3.0 privacy already exists
It’s not just willful negligence, of course. There is a good technical reason why web applications today are unable to execute on existing blockchain architectures. As all participants are currently forced to re-execute all transactions in order to verify the state of their ledger, every service on a blockchain is effectively time-sharing a single, finite, global compute resource.
Another reason privacy has not been prioritized is that it’s very hard to guarantee. Historically, privacy tools have been slow and inefficient, and making them more scalable is hard work. But just because privacy is hard to implement doesn’t mean it shouldn’t be a priority.
The first step is to make privacy simpler. Achieving privacy in crypto should not require clunky workarounds, shady tools, or a deep expertise of complex cryptography. Blockchain networks, including smart contract platforms, should support optional privacy that works as easily as clicking a button.
Blockchain technology is poised to answer these calls with security measures that guarantee utmost privacy with social accountability.
Zero-knowledge proofs (ZK-SNARKs) and Secure Multiparty Computation (sMPC) are two of the technologies that can revolutionize the way we perceive internet privacy and help us regain control over the personas we create online. ZK-SNARKs works by passing a secure and secret key between users. Whereas sMPCs secure data through multiple computers which cannot access data without unanimous consensus.
Both solutions will allow the internet to become a place where our sensitive data is released only with our approval. However, each solution has its own drawbacks.
Kinks in blockchain privacy
While ZK-SNARKs allow for basic transfers, they do not allow multi-user interactions. And while sMPC allows for multiple users, it can be prohibitively slow on its own. The obvious answer is to couple the two technologies together to cancel out the pitfalls and create a fast, secure, and highly private framework from which to stage Web 3.0 projects.
Perhaps the right way to look at web privacy today is that we are finally at the end of a huge log jam. The destination was never in doubt — a better form of privacy where the user is in control — but there were other fish to fry.
The jam was caused by an understandable focus on solving scalability, speed, and cost, leaving too little energy and investment to address privacy.
But that’s the past. The technical and logjam issues preventing the advantages of Web 3.0 privacy can be put to bed as long as the right solutions are adopted.