The privacy problem

Blockchains are transparent, but...

Most blockchains are transparent, which means that every transaction is open for anyone to see. If, on the one hand, this is important for data security and validation, on the other hand, user's privacy is compromised.

Even though most accounts have pseudonymity, increasing usage of blockchain for day to day affairs and advanced chain analysis tools combined have the power to overcome blockchain's pseudonymity and connect accounts to their owners.

It means that it is possible for anyone (including hackers and malicious actors) to track your balance, your transactions, the people and apps that you have been transacting with, and any other sensitive information that is displayed on-chain.

In the traditional financial system, we have banking secrecy (at least in most countries in the free world). All your financial data is kept in secret and can only be accessed by governments and other institutions through a court order.

Blockchains such as Ethereum and Near Protocol don't provide not even close the same level of privacy necessary for us to have freedom and comfort on our daily transactions.

If we want the blockchain to have mass adoption, we need to create at least the same level of privacy that the current system offers.

The compliance problem

Even thought we must enhance privacy on the blockchain, it has to be weighed with compliance.

Many privacy tools, such as mixers like Tornado Cash, have been largely used to help malicious actors to launder money from illicit financial activities, such as hacks.

The permissionless nature of decentralized apps on the blockchain is failing in preventing bad actors from using such tools for their illegal goals.

In the traditional financial system, any money transmitter is required to comply with numerous Anti-Money Laundering and Anti-terrorism financing regulations, which helps the society to fight these illegal activities.

If we want the blockchain to have mass adoption, we need to strike the balance between privacy and compliance, by crafting solutions that enhance user's privacy while preventing malicious activities.