The difference between pseudonymity and anonymity: when zero is more

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Blockchain is a generational technology that fundamentally changes the way we communicate, communicate and act by merging these three activities, as no one could have foreseen before Satoshi published his groundbreaking paper 14 years ago.

At a basic level, distributed blockchain architecture is simply a new way to store data. But the core is transparency and immutability that unlock a cascade of new functionalities and possibilities. These two features make blockchain particularly suitable for use cases such as international financial settlement, non-replaceable tokens or supply chain management. However, for many mainstream scenarios that Web3 needs to tackle to satisfy the broadest segment of users, a data layer that requires this level of transparency is a non-starter.

Blockchain is not as private as you may think

Possibly because of the ever-present and compelling stories of cryptocurrency being used to transact on the black market without detection, people tend to think that blockchains are more private than they actually are. If they were truly anonymous, blockchains would completely mask user identities and actions so that they cannot be linked to individual people. However, that is not what blockchains typically offer.

Instead of anonymity, blockchains provide pseudonymity. Being a pseudonym is using a false name or persona to hide your real identity. For example, Alexander Hamilton, James Madison, and John Jay wrote under the pseudonym “Publius” to promote the US Constitution.

Likewise, blockchain-based applications do not require users to share personal identifiers such as name, social security number, etc. This can feel deceptive like anonymity, but the truth is almost the opposite. On the blockchain, rather than anonymity, each transaction identifies its participants by a crypto wallet address, which becomes more personal with each additional transaction it is associated with. Basically, anyone who transacts with someone’s wallet on a public blockchain has immediate access to every action the wallet owner has ever taken as long as that chain exists.

Some transactions must remain private, even in a digital world

As we live more of our lives online, most of us have accepted that we have to sacrifice some of our personal privacy to participate in the digital world. Whether it’s our phones that track and record our real-time locations in exchange for navigation, search engines that keep a history of our searches in exchange for easy access to information, or email services that parse our messages to offer us more relevant advertisements, consumers are increasingly understanding that these “free” services are provided at the expense of their data.

Still, there are instances where the need for privacy still prevails. Making our medical records public — especially in a way that is permanent and publicly visible — would still be unacceptable to most of us.

For better or worse, as the data layer for Web3, traditional blockchains are perfectly transparent. With blockchain-based applications, it’s not just your ISP or search engine that understands what you’re doing. It’s everyone. This represents a huge departure from the existing web architecture, where while you may not have a choice in what data you disclose, at least you only disclose it to one counterparty.

On a public blockchain, your information is visible to everyone. For certain use cases, such as supply chain auditability, contact tracing, or government accountability, this can make sense. But for the average user who wants to maintain some semblance of confidentiality, it’s a daunting price to pay.

Moreover, especially as Web3 utilities become more compileable and interconnected, pseudonymity will become increasingly inadequate. The larger the web of information associated with a wallet address, the more vulnerable it is to exposing the person behind it. At least some degree of privacy is a must for the mainstream use cases that users and institutions want to use decentralized blockchain-based solutions. The question of privacy is not becoming a matter of philosophy, but of security. Pseudonymity is not enough protection for institutions that store privileged information.

Zero-knowledge provides just enough information for proof

Fortunately, there is a new technology that offers a solution: zero-knowledge proofs. The so-called zero technology allows individuals to prove the truth of an alleged fact without revealing anything more than that fact. This is analogous to someone proving they’re old enough to buy a beer without having to divulge all the other irrelevant personal information on their driver’s license. As a result, individuals can only disclose information when necessary.

By applying zero-knowledge to public blockchains, we can achieve flexible privacy, compliance and scalability. The combination of these blockchains with zero-knowledge technologies can enable use cases such as self-sovereign identification, so that someone can, for example, prove that he or she has passed a health requirement, obtained a degree, etc., without any other irrelevant information. to reveal. Likewise, self-sovereign identity could lead to more secure forms of secure digital voting that reveal only the verified candidate selection, while preserving the anonymity of individual voters.

In short, zero-knowledge technology enables the programmability of blockchains while allowing users to truly own and protect the data that matters most to them. This technology has huge implications for the viability of the emerging Web 3 sector, as well as for the wider Web.

Alex Pruden is the chief operating officer at Aleo.

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