Blockchain Isn’t As Private As You May Think
When most people think of digital privacy, they expect cryptography is preventing prying eyes from being able to see what they’re doing online. But encryption on its own isn’t enough. When it comes to blockchain, you need to know how it works to understand why it is an exposure risk.
At its basic level, a blockchain is simply a computer file of information. “Blockchain is a relatively new method of storing data online, which is built around the two core concepts of encryption and distributed computing.” Instead of being stored on a single server, blockchains are duplicated across many computers. Many are surprised to learn they are permanent, public records and, therefore, transparent.
Transparency Isn’t Always A Good Thing
Since blockchain is mostly associated with cryptocurrency, consider this. When you use crypto to pay for goods and services, each transaction is forever recorded using Distributed Ledger Technology. Blockchain critic Molly White paints a shocking reality of blockchain's transparency.
"Imagine if you went on a first date, and when you paid them back for your half of the meal, they could now see every other transaction you’d ever made — not just the public transactions on some app you used to transfer the cash but any transactions… And this would also be visible to your ex-partners, your estranged family members, your prospective employers, or any number of outside parties interested in collecting your data and using it for any purpose they like. If you had a stalker or had left an abusive relationship or were the target of harassment, the granular details of your life are right there."
White says there was a huge shift in how people talked about crypto and blockchain in the last year. “Instead of being primarily used for speculative investments by people who were willing to take on a lot of risk in exchange for hopes of huge returns, people began to talk about how the whole web was going to shift toward services that were built using blockchains. Everyone would have a crypto wallet, and everyone would adopt these new blockchain-based projects for social networks, video games, online communities, and so on.”
Decentralization through Blockchain
Centralized or general ledgers have been used since ancient times to record business transactions, which you can think of as bookkeeping. With blockchain technology, the ledger is decentralized into blocks that are distributed across a network of computers.
“Every computer, or node, stores a complete record of every transaction, so no one can control or destroy the network without first taking over a majority of the nodes. This makes it impossible for anyone to manipulate the database, say by giving themselves more tokens. Every change and transaction is logged on the chain, for all the world to see. There’s no central authority that must be trusted to enforce the rules.” (Unless of a blockchain 51% attack.)
Although it is celebrated as a privacy-based technology, a Cointelegraph blog notes “In reality, today’s blockchains are “pseudonymous,” where users are 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 pseudonymity. This renders one of the main proposed benefits of blockchain useless and potentially exposes sensitive information to all participants in a network.”
But would it really be possible to decentralize the internet using blockchains? After all, that’s how the first iteration of the internet was envisioned.
How did Blockchain get Rebranded as Web3?
In 2006, Time Magazine named “You” the Person of the Year “for seizing the reins of the global media, for founding and framing the new digital democracy” and popularized the Silicon Valley term Web 2.0, which it deemed “a massive social experiment. Individuals generated content on social media and were able to influence everything from the news to brands, some even became an overnight sensation. But the power quickly shifted to the Tech Giants, like Google and Facebook, who took control of the internet.
In the last year, it seems everyone suddenly began talking about Web3. But it means different things to different people.
Web3 was a term coined in 2014 by one of the creators of the Ethereum crypto coin, Gavin Woods, who runs the Web3 Foundation and another company focused on creating blockchain infrastructure for the internet’s next generation.
Wired notes, “Web3 refers to a decentralized online ecosystem based on the blockchain. Platforms and apps built on Web3 won’t be owned by a central gatekeeper, but rather by users, who will earn their ownership stake by helping to develop and maintain those services.”
The Wikipedia page for Web3 notes, “Some experts argue that Web3 will provide increased data security, scalability, and privacy for users and combat the influence of large technology companies. Others have raised concerns about a decentralized web, citing the potential for low moderation and the proliferation of harmful content, the centralization of wealth to a small group of investors and individuals, or a loss of privacy due to more expansive data collection. Others, such as Elon Musk and Jack Dorsey, have argued that Web3 only serves as a buzzword.”
Some use Web3 to describe anything to do with blockchain and cryptocurrency. They see it as a way to take power back from financial institutions to decentralize the economy. This is seen by some as a libertarian or capitalistic utopia, where transactions can flow between trading partners without the need for third parties. It would effectively create a new monetary system. Of course, there’s an acronym for that: DeFi, which stands for Decentralized Finance.
Yet, as this Barron’s blog post notes, “Web3 has Marxist ideas of collective ownership and distributed profits, according to some views.” The article goes on to say, “Governments aren’t eager to allow financial products and services to shift from regulated brokerages, exchanges, and banks onto DeFi networks. Some legal scholars argue that DeFi is “Shadow Banking 2.0,” a high-tech version of the loosely regulated securities and other products that led to the financial collapse of 2008-09.”
Beware of Blockchain’s Vulnerabilities
TechTarget did a three-part blog series on blockchain, which notes (despite security enhancements) there are significant security issues with the technology. “Where there is money, there are hackers, and blockchain networks are proliferating both. Decentralized finance-related breaches constituted 76% of all major hacks in 2021, with over $1 billion lost in the third quarter alone . . . Blockchain-based attacks come from outside actors, as well as insiders. Many of these hacks used common tactics, such as phishing, social engineering, attacking data in transit or targeting coding mistakes.”
As a company that builds software for privacy focused secure mobile solutions, our perspective is to separate the internet from encrypted phones. This means no trading crypto from your device and no need to worry about your communications being recorded on a public ledger.
In the push towards building Web3 with blockchain, it is more important than ever to protect your anonymity.
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