Blockchain transparency is a bug.
Transparency is not a feature of decentralization that is really necessary to conduct on-chain transactions securely; it’s a bug that forces Web3 users to reveal their most sensitive financial data to anyone who wants to see it.
Several blockchain marketing tools have emerged in recent years, allowing marketers and merchants to leverage the free-flowing on-chain data for user insights and targeted advertising.
But this time it’s not just behavioral data that’s being analyzed. Now your most sensitive financial information is added to the mix.
Web3 will never go mainstream unless we manage to solve this transparency problem.
Blockchain and Web3 were an escape from centralized power, making information transparent so that centralized entities cannot take ownership of someone’s data.
As 2020 dawned, Web3 and NFTs blossomed, and many started talking about how free-flowing, publicly available data is a marked improvement over having your data as a customer “stolen” by big data companies.
Some may think that if everyone can see the data, transparency will allow users to own and benefit from their own data. Yet transparency does not mean that data cannot be appropriated, nor does it mean that users are actually in control.
Just because data is transparent and flows freely doesn’t mean it can’t be appropriated; in fact, data appropriation is already happening in Web3. Many are taking advantage of all this open data to simplify data analysis within the chain and monetize it for anyone interested in learning the behavioral patterns of Web3 users.
With the sheer number of transactions and portfolios, the large amount of data becomes a gold mine for those skilled enough to understand it. Transparency opened doors for Web2’s profiling practices to invade Web3.
Tools like Nansen or Addressable help agencies and advertisers collect transaction and asset data to analyze consumer behavior and holdings to understand trends, create potential customer profiles and launch targeted advertising programs.
Privacy projects will argue that total privacy as a given is the only way to protect users. Yet they are not right either.
Users already need – and will increasingly need – to use their on-chain data to verify holdings and transactions for regulatory purposes and verifications. If everything is private and cannot be selectively encrypted, there is no way to verify the funds and their origins. Many such privacy solutions have already been approved by governments.
Read more in our opinion section: Ethereum L2s are a bug masquerading as a feature
At the same time, users may want to proudly showcase some of their assets (such as NFTs). But this doesn’t mean they want to allow anyone to look into all their other crypto holdings and transactions (which they do, since an address can be verified with a particular NFT). Take 50 people who own NFTs for one project, analyze their other holdings and trends in transaction patterns, and you have a pretty accurate user profile to target.
Web3 must move from appropriating free-flowing data to a data ownership model, giving users full control over what data is shared, with whom, when and how. Vitalik Buterin addressed this transparency issue and proposed a similar solution in his September article on blockchain privacy and regulatory compliance. He argued that transparency is a security issue and showed that there is a way to make Web3 be compliant and transparent only when necessary.
The solutions and technology to make this shift are here. What is needed now is a change in user mindset and awareness that this transparency bug exists.
The transparency of the blockchain has made Web3 the surveillance tool it was intended to rid societies of. It’s a growing concern, especially as the popularity of community rewards platforms increases and more users combine their wallet addresses with social media accounts.
The Web3 public needs to be educated about the risks of keeping all their data public. In the decentralized world, change must happen bottom-up as people realize how their blockchain transactions are being monetized for uses they have no control over.
Matan Almakis, head of project at DOP, is reshaping Web3 by developing groundbreaking data ownership. With a track record of driving growth at Lamina, where he contributed to Israel’s first IoT-focused layer1 blockchain, Matan now leads DOP to ensure Web3 users share their data exactly how and with whom they want. Matan believes that encrypting sensitive financial data on-chain is a basic human right and often speaks about how data ownership is crucial to the mass adoption of Web3. Matan uses blockchain to solve real-world problems with a human-centered approach.
