privacy

BLOCKCHAIN: Do Criminals or Bankers want Crypto-Privacy?

Source:  ChainLink

Source: ChainLink

Ask any self-respecting financial incumbent about why public blockchains aren't good enough for enterprise use, and you get roughly the following response on why private chains (e.g., Ripple, Chain, R3, Hyperledger/IBM) are preferred. First, public blockchains don't have privacy, and large financial clients (e.g., hedge funds that do not want to reveal their trading positions) require it by definition. Second, interoperability is a problem -- financial institutions already have large enterprise technology vendors that power their complex workflows. Those workflows are the lifeblood of the middle office. One cannot just "put data on the blockchain" and disconnect the internal glue of the institution. Third, scale and speed are a problem. And last, banks are in the business of being Trusted Counterparties, not some hacker scheme like Bitcoin.

And yet when it comes to those exact same characteristics for the public blockchains, the banks assume that crypto-privacy is for criminal activity. At a recent ICO panel, we discussed whether gray market activity frequency was different on public chains vs banks. CEO of blockchain compliance company Coinfirm and former head of global AML for Royal Bank of Scotland in Europe suggested that the rates of illegal activity are similar inside of crypto and traditional finance. The only exceptions were Zcash and Monero, which are essentially impenetrable to crypto-Regtech firms.

Well, crypto-privacy is about to get another big boost. The Dandelion project could make Bitcoin transactions more anonymous. And the Metropolis upgrade for Ethereum will allow developers to leverage zero knowledge proofs, which are the cryptographic tool that make Zcash tick. Crypto-scalability is also around the corner with several projects -- LightningPlasmaRaiden -- and could get Ethereum to be competitive with Visa and Mastercard networks within a few years. On interoperability, consider Chainlink linking external data through APIs to blockchains and raising 32 million, or TenX converting any crypto-asset into purchasing power in the real economy, or the decentralized crypto-transactions that are powered by "atomic swaps". Privacy and scalability are pretty good when everything happens in a global interconnected decentralized mesh. Which leaves us the last point -- who is the Trusted Counterparty? Not banks.