Investigating the Vitalik’s Effect on ETH Anonymity
Mainstream adoption of digital currencies is inevitable, with or without blockchain, but will that currency be sovereign, corporate, or decentralized?
– Vitalik Buterin, co-founder of Ethereum
In a digitally-connected world where data, including our personal information, can be easily accessible through databases with a central authority, the decentralized web could be a chance to regain control over our data from the big tech companies such as Facebook, Google, and Amazon. A decentralized web does not rely on any centralized operators, thus giving people the option to safeguard their data and privacy.
When the World Wide Web began in 1989 for everyday use, people were introduced to a digital form of direct communication with their friends through computers. A decade later, Web 2.0 was introduced as an enhancement to its predecessor, where digital communications and personal information include using centralized services from companies like Microsoft, Google, and Facebook. People were introduced to the concept of Social Media, which allows people from all over the world to connect and interact via a centralized social media network. Fast forward to 2020, and we are ushering in a new era of the internet. Dubbed ‘Web 3.0’, it entails a decentralized web where people will no longer rely on intermediaries to interact or exchange data.
When Bitcoin (BTC) was created in 2009, it was a decentralized network that permitted a permissionless, transparent and immutable transaction system that enthusiasts and early adopters celebrated. Since then, Bitcoin has propelled itself to become one of the highly sought-after assets for both users and investors.
Vitalik and Privacy
During a 4th March podcast interview by Block TV, Vitalik Buterin, the co-founder of Ethereum, told the interviewer that although central bank digital currencies (CBDC) and private stablecoins like Libra coin will like exist shortly, non-inclusive “centralized chokepoints” of these institutional digital currencies will inevitably drive adoption towards decentralized cryptocurrency which includes Bitcoin. He further added that:
“We’ve been seeing many situations where even things that are perfectly legal just end up getting restricted because whoever runs the centralized chokepoints just wants to exclude some category of users, and I think those are reasons why people will continue to be interested in fully decentralized digital currency like Bitcoin and Ethereum.“
For instance, Facebook’s Libra has been scaled back due to regulatory backlash. The project was announced to offer a simple global payment system and financial infrastructure that empowers billions of people. Additionally, it remains debatable whether or not there might be privacy concerns regarding centralized entities issuing centralized cryptocurrencies like Libra when compared to decentralized currencies like Bitcoin, which have privacy solutions such as mixing services for the people.
Vitalik Buterin believes that the market will ultimately lean towards decentralized cryptocurrencies such as Bitcoin since centralized counterparts without privacy are a huge step back towards decentralizing our current financial systems. As a firm believer in Anonymity and privacy, he has acknowledged that privacy protocols are currently lacking in the Ethereum network and is keen to implement zero-knowledge proofs. These trustless zero-knowledge proof systems are also referred to as ZK-SNARKS, which is made famous by the privacy-oriented cryptocurrency Zcash (ZEC). ZK-SNARKS is a powerful cryptographic primitive that can sever any tractable piece of data between two parties over a public medium — specifically, a public blockchain network.
Ethereum and Privacy
Scalability and privacy are two issues plaguing companies planning to or building their applications on a blockchain. Vitalik Buterin expects ZK-SNARK technology to bolster Ethereum’s scalability to about 500 transactions per second (fps) compared to its current capacity of 15tps. Unsurprisingly, he was enthusiastic about the emerging world of decentralized finance (DeFi), built mainly on Ethereum. The idea of DeFi allows anyone from anywhere in the world to have access to a system that will enable them to pay each other in Bitcoin or other participating cryptocurrencies and choose their financial exposure without a central authority (i.e., traditional banks).
Even though governments are increasingly looking at launching their centralized cryptocurrencies, decentralized crypto can still have a fighting chance to compete with national financial infrastructures since solutions such as bitcoin mixers are currently not the primary focus for governments to introduce centralized cryptocurrencies. In a recent interview on Block TV’s podcast, Vitalik claimed that with or without blockchain technology, decentralized cryptocurrencies would be more favorable to the people than CBDC toward mainstream adoption. Unlike Bitcoin and other decentralized currencies, the main challenge with central banks and even corporate currency is the concentration of power and data collection, which are not beneficial to the people. Decentralized cryptocurrencies such as Bitcoin are more private and resilient against “centralized chokepoints.”
Available Privacy Tools for the People
Bitcoin and other cryptocurrencies were initially designed to transfer control from a single source of authority back to the hands of the people. Before the government’s interest in the technology, there was a wide variety of privacy-focused tools already in place to address the demands of users concerning attaining privacy and Anonymity over the use of cryptocurrencies. People are attracted to the currency mainly because they have greater control over their personal information and data for the transactions made on the public blockchain. Privacy tools give users a layer of guarantee for their transactions, which could otherwise quickly reveal information with users’ bitcoin addresses. Bitcoin mixers, for instance, allow users to obfuscate their funds from prying eyes, such as the government and blockchain analysis services.
In recent years, bitcoin mixers have been gaining popularity due to their ease of use and the effectiveness of achieving complete Anonymity for Bitcoin-related transactions. Also known as Bitcoin tumblers, there are known trusted bitcoin mixers, which enable users to enjoy a decentralized experience while maintaining their privacy.
As mentioned in earlier paragraphs, the pioneering cryptocurrency Bitcoin is pseudonymous since a mere Bitcoin address is trackable and eventually relates to the ownership of the address. Hence, many traders prefer their transactions to be anonymous to protect their personal information from the pervasive law enforcement or company-specific approach to extracting their data. Blockchain analysis services were built to serve this purpose in line with the need for regulatory practice by the government.
The Ultimate Goal in the name of Anonymity
The burning desire of Vitalik Buterin to revamp Ethereum with privacy features has also made him come up with the idea of upgrading the network’s privacy by creating a coin mixer, which works very similarly to a bitcoin mixer. As seen in existing bitcoin mixing services, the effective use of mixing is evident of a possibility for Ethereum also to implement such a feature to obfuscate the user’s address whenever sending a fixed quantity of ETH. It would make the transactions more anonymous than they are right now. Ultimately, this series of decisions will bring forth a new generation of cryptocurrency and tools which could offer a widespread availability of privacy for users of any cryptocurrencies, as the space tends to replicate the success of dominant players like Ethereum. As the development progresses between decentralized versus corporate currencies, the ultimate solution would be worth it for the people who value privacy, especially in the world that we are living in today.