February 6, 2023

Privacy, anonymity and surveillance on the blockchain

Learn about the challenges of privacy, anonymity, and surveillance on the blockchain and the solutions being developed, such as Zero Knowledge Proofs, to enhance privacy on the blockchain. Subscribe to stay updated.

In October 2017, I first published this post on the blockchain technology. At that time, I was fascinated by the potential for the technology to bring privacy and data ownership. Even today, privacy remains a challenge for the blockchain as it tries to attract more users while balancing the need for privacy

The blockchain is a decentralized, digital ledger that records transactions on multiple computers in a secure and transparent manner. It eliminates the need for intermediaries, allowing parties to make direct, secure transactions without the risk of tampering or fraud.

The four key characteristics behind the blockchain technology are:

1. CRYPTOGRAPHIC SECURITY: All transactions are signed by a public/private key protecting them from fraud.

2. DECENTRALIZED: Blockchain is a decentralized peer-to-peer network where all transactions are replicated, which means that no single participant can tamper with the data. To update the data a majority consensus is required.

3. IMMUTABLE LEDGER: A write-once database that records every transaction that occurs. An immutable history of every transaction.

4. SMART CONTRACTS: Smart contracts are programmable contracts that secure, enforce and execute settlement of recorded agreement between people and organizations. The definition proposed by Nick Szabo.

There are several types of blockchain, including:

Public blockchain: Anyone can participate to the consensus of validation the chain and decide which one gets added to the blockchain. All transactions are public and anyone can read them. Examples include Bitcoin and Ethereum.

Consortium blockchain: The blockchain consensus is validated by set of nodes. The right to read may be public or restricted.

Fully private blockchain: This is a centralized server controlled by one organization. How to ensure privacy on the public blockchain?

Hybrid blockchain: A combination of two or more blockchain networks to create a new, unified network.

Sidechain: A separate blockchain that operates alongside a main blockchain, providing additional functionality."

We will focus on public blockchains, which are open ledgers accessible to anyone and where all transactions can be viewed.

This transparency is good for:

1. Ensuring that all transaction are valid (e.g: people want to be able to see that their vote has been counted).

2. Transparency: all transactions are public and everyone can access the history to know how it got to the current state (e.g: for public service or government, anyone can see, how the taxes they are paying are spend and fight corruption.)

3. Immutability: the “Proof of work” which is the process used to validate each block makes it impossible to modify the state of the blockchain.

The transparency can be used against user.

There are several cases where the transparency of blockchain could be used against people. For example, it is possible, knowing someone’s address, to track how he spends money, to whom he sends money.

How about fungibility?

Fungibility refers to the property of a commodity, currency or asset that makes it interchangeable with another unit of the same value. Fungibility is important in financial transactions, as it ensures that each unit of currency or asset has the same value, regardless of its history or origin."

With the transparency of an open ledger like a public blockchain, where the provenance of every coin can be traced, we can envision a scenario where individuals begin to reject money for various reasons. For example, if a coin has been traded on an illegal exchange platform, it may be refused. Similarly, one could imagine being refused credit at an organic shop if their bank is associated with deforestation in the Amazon.

How can we bring more privacy for users?

Different solutions are being developed to bring more privacy on the blockchain.

Private blockchain can ensure you the privacy for the transaction made on the blockchain if you trust the node in charge of the private blockchain not to disclose the information but in this case it is really difficult to guarantee the integrity of the process.

Mixers, CoinJoins offer solutions to privacy with the only problem that you must trust the middle man and hope that it never get compromised or hacked by a third party.

Public blockchain ledger offers a solution if you build application that make sure that private data doesn’t get on the ledger or in encrypted form.

One of the challenge is to guarantee the integrity of the process and ensuring privacy in same time.

How to encrypt data and prove that the encrypted data satisfy some sets of rules?

Linkable ring signature is one of the option being explored. The linkable ring signature is a cryptographic signature where the identity of the signer in a ring signature remains anonymous, but two ring signatures can be linked if they are signed by the same person.

For e-voting, linkable ring signature can be used to allow a person’s vote without revealing her identity but two votes from the same person will be invalid.

The Ethereum Metropolis (Byzantium) upgrade adds a new cryptographic tool (zk-SNARKs) that can do linkable ring signature and we are probably going to see new features in the near future to improve privacy.

In 2023, various solutions are being developed to enhance privacy on the blockchain. One such technology is Zero Knowledge Proof, which offers a secure way to verify information without revealing the actual data.

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