Introduction to Stablecoins and Data Protection
Stablecoins have emerged as a widely accepted form of payment on the internet, offering fast, global, and programmable transactions. However, their current public-by-default nature poses significant risks to data protection, making them a ticking time bomb for individuals and companies alike. In this article, we will explore the importance of confidential, compliant stablecoins and their role in maintaining trust and regulation without compromising financial privacy.
Radical On-Chain Transparency: A Threat to Financial Privacy
Financial transactions reveal sensitive information about individuals and companies, including their spending habits, relationships, and vulnerabilities. The use of public stablecoins exacerbates this issue, making it possible for anyone with a scraper or bot to access and exploit this data. This can lead to insurance discrimination, B2B espionage, predatory pricing, and other forms of economic harm.
Consequences of Public Stablecoins
The consequences of public stablecoins are far-reaching and can have severe impacts on individuals and businesses. For instance, insurance companies can use on-chain data to build customer profiles, leading to higher premiums or even denial of coverage. Similarly, competitors can use blockchain scrapers to gather intelligence on their rivals, gaining an unfair advantage in the market.
Insurance Redlining via On-Chain Spending
Imagine filling a prescription using a public stablecoin. The transaction is visible to everyone, including your health insurance provider. Insurers can use this information to build a profile of your health and adjust your premiums accordingly. This is just one example of how public stablecoins can compromise financial privacy and lead to discriminatory practices.
B2B Espionage as a Service
A medium-sized hardware startup pays its suppliers using public stablecoins. A competitor can simply run a blockchain scraper to gather intelligence on the startup’s operations, including its suppliers, quantities, and payment times. This information can be used to undercut prices, identify potential vulnerabilities, and gain a competitive advantage.
Predatory Terms for Small Businesses
A small bakery uses public stablecoins to pay rent and purchase flour. A large buyer notices that the bakery has made fewer deposits this month and concludes that it is suffering from a cash shortage. The buyer can use this information as leverage in negotiations, taking advantage of the bakery’s vulnerable position.
Wire Transfers as a Beacon of Extortion
A migrant worker sends $300 worth of stablecoins to their family. The transaction is public, and cartels can steal the blockchain data, putting the family at risk of extortion. This is just one example of how public stablecoins can compromise the safety and security of individuals and families.
Solution: Confidential, Compliant Stablecoins
The solution to these problems is confidential, compliant stablecoins that offer private transfers by default with selective disclosure via cryptography. This approach maintains regulation and trust without compromising financial privacy. Techniques such as zero-knowledge proofs, trusted execution environments, and encrypted audit trails can enable selective disclosure to regulators, proof of KYC, AML, and tax compliance, and jurisdictional controls such as geo-fencing.
Conclusion
In conclusion, stablecoins have the potential to become the internet’s everyday form of payment, but their current public-by-default nature poses significant risks to data protection. Confidential, compliant stablecoins are the way forward, offering a solution that balances financial privacy with regulation and trust. By adopting this approach, we can create a safer, more secure, and more private financial system for all.
Read the full article at https://crypto.news/if-stablecoins-arent-private-nothing-is-opinion/
Rob Viglione is co-founder and CEO of Horizen Labs, the development studio behind several leading Web3 projects including zkVerify, Horizen and ApeChain. Rob served in the US Air Force for several years and was deployed to Afghanistan, where he supported the intelligence efforts of the Special Operations Task Force. During this time, he developed an early interest in Bitcoin and recognized its potential benefits for countries with unstable economies. Rob is very interested in Web3 scalability, blockchain efficiency and zero-knowledge proofs. His work focuses on developing innovative solutions for zk rollups to improve scalability, achieve cost savings and increase efficiency. He holds a doctorate in finance, an MBA in finance and marketing, and a bachelor’s degree in physics and applied mathematics. Rob currently serves on the Board of Directors of the Puerto Rico Blockchain Trade Association.
