Until Satoshi released his landmark article 14 years ago, no one had imagined how the three activities of communicating, interacting, and transacting would be combined in a new way.

Distributed blockchain architecture is nothing more than an entirely new approach to store data. At its foundation, though, is the transparency and immutability that is opening the floodgates to new features and possibilities. International financial settlement, non-fungible tokens, and supply chain management are all examples of application cases where blockchain is extremely useful. Many of the common situations that Web3 will have to solve in order to satisfy the majority of its users will not work with a data layer with this level of openness.

As you may have guessed, blockchain is not as private as you may have feared

Many people believe that blockchains are more private than they actually are because of the intriguing tales of cryptocurrencies being used to conduct illegal transactions without discovery. Blockchains, if they were genuinely anonymous, would conceal the names and acts of its users, making it impossible to trace them to specific individuals. Blockchains often don’t supply this.

A blockchain provides pseudonymity instead of anonymity. Pseudonymy is the practise of concealing one’s true identity under a different name or persona. As an example, to support the Constitution of the United States, Alexander Hamilton, James Madison, and John Jay all wrote under the pseudonym “Publius.”.

Blockchain-based apps don’t need users to provide personal identifiers such as their name, social security number, or other personal information. This may provide the impression of anonymity, but it’s really the exact reverse. It is impossible to remain anonymous on the blockchain since each transaction is linked to a unique crypto wallet address, which gets more personalised with each subsequent transaction it is linked to. To put it simply, anybody who uses a wallet on a public blockchain may instantly see all of the transactions made by the wallet’s owner throughout the course of the chain’s lifetime.

Even in a digital environment, certain transactions should be kept private

In order to engage in the digital world, many of us are willing to give up some of our personal privacy to do so. Consumers are increasingly aware that these “free” services are rendered at the cost of their data, whether it’s our phones tracking and recording our real-time locations in exchange for navigation, search engines maintaining a history of our queries, or email services parsing our messages to offer us more relevant advertising.

There are, nevertheless, certain situations when privacy is still a must. For example, most of us would still find it undesirable if our medical records were made public, particularly in a form that is permanently and publicly available.

Whether you like it or not, conventional blockchains are completely visible when used as the data layer for Web3. It’s not only your ISP or search engine that can see what you’re doing with blockchain-based apps. Everyone is affected. While you may not be able to control what data you divulge, at least you are only disclosing it to one counterparty, which is a significant difference from the current web design.

Everyone has access to your private information on a public blockchain. If you’re looking for supply chain auditability, contact tracking, or government accountability, this may be a good fit. However, this is a high price to pay for the typical user who wants to maintain some sort of privacy.

Furthermore, pseudonymity will become progressively insufficient as Web3 services grow more composable and networked. The more information a wallet address is linked to, the more exposed it is to revealing the identity of the person behind it. For the majority of use cases, individuals and organisations will need at least some level of anonymity when implementing decentralised blockchain-based solutions. Suddenly, the issue of privacy is no longer one of ethics, but rather of safety. In the case of organisations that hold sensitive data, pseudonymity offers insufficient security.

Only a little amount of information is needed to prove a point

Fortunately, zero-knowledge proofs, a new technique, offers a solution. Using so-called zero-technology, persons may confirm the veracity of an alleged fact without disclosing anything else. People may prove they’re old enough to purchase beer at a liquor store without having to disclose their whole driver’s licence. As a consequence, people may only provide information when it is absolutely required to do so.

This means that we may accomplish a wide range of privacy, compliance, and scalability options by using zero-knowledge public blockchains. For example, a person might show they’ve passed a health requirement or acquired a degree without disclosing any other useless information by combining blockchains with zero-knowledge technology. Similar to self-sovereign identification, more secure digital voting methods might be developed, which would allow voters to see just the confirmed candidates they’ve chosen while protecting their anonymity.

For the most part, zero-knowledge technology makes it possible for blockchains to be programmed while also allowing its users to take full ownership and control of the data they store. For the viability of the growing Web 3 industry and the larger web, this technology has enormous significance.