Transparency or privacy, which should be fundamental in crypto?

A nearly $3 trillion industry is facing a dilemma, build to be transparent by default or be private fundamentally, and in either case, have the alternative as an optional feature.

Make no mistake, both transparency and privacy are part of the base design stack, but the idea of what's fundamental here is about what should be the default settings until chosen otherwise, voluntarily by users.

I'm revisiting this topic because of two recent reports. One involving the Jack Dorsey's payment company Block and the other, the Aptos blockchain.

Below are excerpts from said reports:

Block

Online payments firm Block has launched proof-of-reserves for its corporate Bitcoin treasury and two of its flagship products, Cash App and Square, joining a growing list of crypto companies proving their holdings onchain.

“People shouldn't have to trust that their bitcoin is there, they should be able to verify it,” the Jack Dorsey-led company said in a post to X after announcing the proof-of-reserves feature and other new offerings in Las Vegas on Monday.

Block said anyone can “independently confirm Block's holdings” through on-chain signatures. “Reserves are actively controlled, not just historically observed,” it added. — Cointelegraph report

Aptos

Aptos Labs founding engineer Sherry Xiao said Aptos’ newly introduced privacy coin could fix a long-standing trade-off between protecting user privacy and preserving transparency for compliance.

“Confidential APT” launched on the Aptos mainnet on Friday after a governance proposal to integrate the privacy feature passed in a near-unanimous vote. It uses zero-knowledge proofs to conceal token balances and transfer amounts while still enabling transactions to be verified.

While blockchains offer a level of transparency that most traditional ledgers do not, the lack of privacy has slowed individual and enterprise adoption due to the risk of exposing financially sensitive information.

In an interview with Cointelegraph, Xiao said Confidential APT — which is pegged 1:1 to Aptos (APT) — reduces the risks of users being subjected to wallet profiling or targeted scams — Cointelegraph report

Deciding the fundamental

In respect to the conversations around traditional entities like Block, we've had personalities like Michael Saylor argue against transparency of holdings, saying that it's a security risk, for not just the investing company but also the issuers or custodians.

That said, it is interesting how the Aptos blockchain chooses to implement privacy. Certainly, this is the first time I'd be reading about a dual-token network where one token is the private version of the other, holding a 1:1 peg.

Usually, privacy layers are built atop the existing transparent ledger for the same assets, but having a new asset entirely? That's new to my knowledge.

On deciding what should be fundamental, it helps to understand that both transparency and privacy carry risks, but in complete honesty, there's more risks associated with involuntary transparency.

Transparency is a feature that's only needed on special occasions, it's a feature that ought to be demanded when necessary, but privacy is a fundamental human right that needs to be enforced as such on blockchains.

All networks should come with the base design being private plus an optional transparency feature. That said, specific layers, like governance could benefit from being more transparent fundamentally than private.

So that means, it ought to be thought of in layers. Not everything needs to be fundamentally transparent, but the general public must enjoy privacy on the base layer.

Posted Using INLEO