Thinking about privacy on Ethereum. 🔒
I have been thinking about privacy on Ethereum. I don't mean those fancy cryptographic innovations or research. Â
Ethereum is an open money protocol. So, the apparent downside is everything is visible to everyone - Your transactions, balance, investments, and even identity. With the increasing craze growing around DeFi, this has become more important than ever. Because people are now continually watching "whale wallets" to see their activity. It's akin to following Berkshire Hathaway's account to see which companies they invest in. Incomprehensible in the non-crypto world.
Nansen shows us the benefits and perils of having all of these things out in the open. On one side, it is good to see information democratized and open for anyone to see it; on the other hand, it does not respect the said "user" 's financial privacy. It is scary and beautiful at the same time.
Why does this matter?
Ethereum is an account-based blockchain. Meaning, it tracks the user's ether balance. The general analogy considers an Ethereum wallet similar to your bank account. That means a single careless action and a user can be easily doxxed. There have been cases where hackers were identified based on their on-chain historical transactions and returned the source's money. So, financial privacy is important. No one wants their bank account balance to be public, whether you are a whale or a pup. However, I believe the fundamental assumption is wrong.
 Think of an Ethereum account like Twitter.Â
Twitter does the following
keeps tracks of the tweets sent by a person
Twitter verifies a few users who choose to verify
Twitter allows pseudonymity
It allows sending a tweet to anyone in the world
Now, consider EthereumÂ
Keeps track of the ether balance
Simplifies verification by using ENS domains tied to an ethereum wallet
Allows pseudonymity
It allows sending "ether" to anyone in the world
When you think about it in this manner, you realize the nature of privacy Ethereum offers to the user. Comparison with Twitter also reminds me of Paul Graham's quote about Twitter in 2009Â
Why is Twitter such a big deal?
The reason is that it's a new messaging protocol, where you don't specify the recipients. New protocols are rare. Or, more precisely, new protocols that take off are. There are only a handful of commonly used ones: TCP/IP (the Internet), SMTP (email), HTTP (the web), and so on. So any new protocol is a big deal. But Twitter is a protocol owned by a private company. That's even rarer.
Similarly, I would imagine we can say something about Ethereum.
Why is Ethereum such a big deal?
The reason is that it's a new open finance protocol, where you don't require anyone's permission to send money. New protocols are rare. Or, more precisely, new protocols that take off are. There are only a handful of commonly used ones: TCP/IP (the Internet), SMTP (email), HTTP (the web), and so on. So any new protocol is a big deal. But Ethereum is a protocol owned by no one and everyone - it's a community owner protocol. That's even rarer.
The Big Picture
While building the Internet, security was an after-thought; similarly, while creating a public blockchain, privacy is an after-thought (exceptions exist such as Monero). That does not mean it's binary. There are ways to safeguard your security as an internet user, and there are ways to protect your financial privacy as a blockchain user. Remember it, and you can enjoy your complete financial freedom; else, be ready to get doxxed by Nansen.
Until next time...ensure you are a careful Ethereum user always.