While blockchain networks are more secure than existing web solutions due to their decentralized architecture, this same technology has become a point of concern for data privacy.
For instance, since every transaction is permanently recorded in a public blockchain, it can also be used to track people and their spending habits. To understand why this happens, it's essential to review how blockchain transactions work.
If sender A wishes to transact with receiver B, the network of interconnected computers validates the transaction. Although blockchain nodes are pseudonymous, which means data points can't be directly traced back to specific individuals, multiple transactions from identical wallets can be easily linked together (cops and cybercriminals both already do this).
Why Privacy Matters, Even On the Blockchain
The current internet infrastructure, Web2 or Web 2.0, is all about user interface and interactivity. Although it is more collaborative and social, the downside of Web2 is that users have to provide their personal (and confidential) data with companies like Facebook, Google, Twitter, Amazon, and many others.
By comparison, Web3 or Web 3.0 brings a disruptive change to the existing internet infrastructure (Web2) and is fully decentralized, giving users more control over their data and privacy.
However, the decentralized universe is very fragmented. Hundreds of decentralized applications (dApps) and decentralized finance (DeFi) protocols are deployed across multiple, disconnected blockchains.
Accordingly, users regularly have to perform cross-chain transactions (transactions that involve numerous, disconnected blockchains) where they connect their personal data (crypto wallet, KYC documents, etc.) to different platforms operating across various networks.
Together, these numerous transactions can lead to data infringement attempts. Therefore, a strong mix of interoperability and privacy-focused solutions will grant users better assurances when transacting in this newer web framework.
The Privacy Layers Shaping Web 3.0 Applications
As mentioned earlier, the transparent nature of public blockchains makes decentralized finance users prone to economic espionage and surveillance without their knowledge or approval. In essence, blockchains are secure, but privacy on-chain is limited.
To overcome the track and trace problem, Panther Protocol delivers an end-to-end privacy solution for DeFi and Web3 users across public blockchains. Simply put, Panther Protocol ensures "private connections" on public blockchains, bringing the idea of "private DeFi" to life. The platform recently raised $22 million in a successful public sale in partnership with Tokensoft, setting a new record after the sale closed in less than 90 minutes.
The protocol delivers interoperable on-chain privacy, irrespective of the public blockchain network they're using. The solution creates a "private connection" between users and DeFi applications while ensuring transactional privacy and regulatory compliance.
It enables you to share limited data with a service provider as and when needed. For instance, if a dApp needs your date of birth for some reason, you can provide them with just your date of birth (which is already verified and stored in the ledger) without supplying a driver's license or passport.
Another project, Partisia Blockchain, aims to elevate data privacy on blockchain by merging two unique technologies. Partisia Blockchain is integrating blockchain technology with another type of distributed cryptography called Secure Multi-Party Computation (MPC).
Multi-party computation (MPC) is a method that ensures confidentiality by using encrypted data which maintains no knowledge of the data. Simply put, the Partisia platform adds a privacy layer that automatically accesses user data only when requested without exposing the data source itself.
For instance, imagine an office of 100 employees where the human resources department wants to determine the average salary of the employees. However, these employees aren't willing to publicly share their salary figures. By leveraging Partisia, each employee can share their salary with the human resources department through "private connections" to ensure that the data (salary figures) they shared can't be publicly linked to them.
While MPC solves the problem of data privacy, the underlying blockchain technology secures the data against breaches via its decentralization. Effectively, Partisia Blockchain ensures that the user's data remains secure, private, and confidential across all cross-chain transactions.
On top of this, Partisia also introduces the concept of Bring Your Own Coin (BYOC), which enables dApps and DeFi protocols to integrate with other individual blockchain networks via a cross-chain account, giving them greater interoperability and faster transaction speeds while ensuring end-to-end privacy.
The Bottom Line
DeFi is growing at an unprecedented rate, with billions of dollars at stake. To top it all, the increasing number of DeFi dApps and protocols across scattered blockchain networks will only inflate existing privacy-related concerns.
As such, privacy-focused blockchain projects will play a critical role in helping ensure that users exert greater control over their private data for all transactions across the entire Web3 ecosystem while leaving blockchains' embedded transparency and decentralization intact.
Disclosure: At the time of publication, Reuben Jackson did not have a position in any of the securities mentioned in this article.
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