Quote from ephraim on October 29, 2023, 11:44 am

For Web3, privacy is the elephant in the room. It is at once crypto’s biggest selling point, going hand in hand with the principles of decentralization, anonymity, and trustlessness, and its biggest pain point, with excruciating KYCs, easily trackable PII, and an ever-suspicious gaze from the outside world.

Unfortunately, this is also a topic that is largely misunderstood and misconceived, with many people viewing crypto “privacy” as simply an excuse to finance terrorists and conduct money laundering. The fact that crypto Twitter prides itself for its “anon culture” and that mainstream media often (intentionally or unintentionally) reinforces these biases doesn’t help a case in dissolving these stereotypes.

Because Web3 privacy is such an all-encompassing concept, touching upon everything from ape profile pictures to cryptography and Zero Knowledge Proofs, its useless to talk about it in the aggregate, and make lump-sum judgements on whether it is good or bad. Instead, we must break down the problem into different smaller segments. In this essay, I will first break down and analyze Web3’s “privacy” infrastructure at three distinct levels — network level privacy, protocol level privacy, and user level privacy — before exploring the role that technological solutions such as Zero Knowledge Proofs play in the future of Web3 privacy.

Network Level Privacy

The first and oldest conception of privacy is at the network level. Network level privacy is where every transaction of a cryptocurrency on a given blockchain network is guaranteed privacy through underlying consensus mechanisms of the blockchain and network-level design choices. As such, these are also called “privacy coins.”

This conception of privacy traces its roots all the way back to the Bitcoin protocol, and its idea of anonymizing “wallet addresses” as 160-bit cryptographic hashes [1]. While Bitcoin itself has fully transparent transactions, where any user can inspect any transaction on its network, Bitcoin’s design principles of decentralization and anonymity have undoubtedly inspired the driving force behind the development of “network level privacy” and privacy-first blockchains.