How Web3 is Redefining Privacy on the Internet

KEY TAKEAWAYS

The evolution of Web3 continues to redefine online privacy, putting users in control with decentralized finance, self-sovereign identities and cryptographic safeguards. As the internet continues to evolve, embracing privacy-enhancing technologies becomes a pivotal aspect in our daily lives. Hear from experts on how Web3 is redefining privacy on the internet.

Since the inception of the internet, users have been concerned with how they can keep their data and personal information private.

In broad terms, today’s internet is what we might consider Web2 —interactive but largely centralized and key players running the show.

With centralization being the key aspect of Web2, major companies such as Google and Meta have been using closed protocols that collect user data to sell ads back to them.

Which raises questions about truly how private one can be on the internet and whether there are better ways.

Keeping decentralization at its core, Web3 is acting as a stepping stone in redefining privacy on the internet. How can that be achieved?

User Control and Data Ownership Key to Web3 Privacy

Nibras Stiebar-Bang, the CTO of Concordium, a blockchain focused on building ID-centred and privacy-preserving solutions across verticals such as Web3, says that “one of the most disruptive components of blockchain technology and the advent of Web3 is that the focus is placed on the user, empowering them to decide who has access to their personal data and information and how much of that they are willing to share”.

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The sole essence of Web3 and decentralized finance (DeFi) aligns with the concepts of privacy and freedom, ensuring user data is not exploited or manipulated by third parties.

Slater Heil, the CEO and co-founder of Blueberry Protocol, added:

“Embracing these principles can lead to a more inclusive and user-centric financial system, reflecting universal ideals of independence and privacy. Web3 gives users growing access to financial instruments that can disenthrall them from centralized limiting forces.”

However, it is also important to note that Web3’s biggest flaw is that “it forces every participant to reveal their assets, balances and all associated transaction activity” on a blockchain, Alan Scott, contributor for Railgun noted, which is where privacy protocols come into play.

“Only user private keys should hold the right to decrypt transaction and asset information… Systems should be designed with this in mind and any privacy protocol worth its salt will avoid mechanisms like centrally held admin keys that can deanonymise transactions like the plague.”

Decentralization Is Key in Shifting User Privacy

Jerad Finck, the CEO of Cosmic Wire, tells Techopedia that Web3’s decentralized nature is perhaps one of the main aspects that impact user privacy by shifting the control away from centralized authorities to distributed networks and minimizing single points of failure and reducing the risk of data breaches, Cosmic Wire’s Finck explained.

It can help bring added transparency in data handling, an opportunity for pseudonymity or anonymity, robust encryption, and security measures.

He added:

“This decentralization enables users to have greater ownership and control over their personal data, as it’s stored and managed across a network of nodes rather than in a central repository in a true zero-trust environment.

 

With encryption and permission mechanisms inherent in decentralized systems, users can transact and interact pseudonymously or anonymously, enhancing privacy by dissociating actions from identifiable individuals.”

Moreover, blockchain technology moves towards improving personal data security by removing centralized hubs and data storage centers, particularly those that can act as vulnerable points and prime targets for hackers.

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This is achieved through data being hosted in digital wallets, ensuring only the owners have access to that wallet and the information stored on it, as opposed to the vast intermediary stakeholders who handle private data in Web2, Concordium’s Stiebar-Bang noted.

Additionally, Web3 technology introduces a “compelling trade-off”, Blueberry Protocol’s Heil said, summarized as freedom versus responsibility.

Essentially, this trade-off involves increased freedom but demands greater personal responsibility for financial decisions since, in a self-executing environment, such as Bitcoin (BTC), transactions can occur without confirmation from a centralized authority, making them irreversible.

Overall, the trade-off’s main advantage is granting users complete freedom to do what they want with their money when they want, thus enhancing user privacy, too.

“Compare using a DeFi protocol to signing up for a prime brokerage account and the rigorous KYC processes and personal information exchanged, or the complete inability to participate at all.

 

“The layman can buy a lottery ticket but not a startup. This contrast makes clear the failure of a centralized system for deciding what people can or should do with their money.”

Self-Sovereign Identity Models Enhance Web3 Privacy

The prioritization of privacy and security in Web3 can also be enhanced by introducing self-sovereign identity models, which decentralize identity verification and enable users to control their personal information through cryptographic keys stored in digital wallets.

Finck explained:

“Cryptographic principles like zero-knowledge proofs allow for the verification of identity or credentials without exposing underlying sensitive information, bolstering security.

 

This approach shifts the paradigm from centralized authorities storing and controlling identity data to users managing their identities across various applications, thereby significantly enhancing both privacy and security in the digital realm.”

Moreover, because of the decentralized nature of Web3, personal data is also spread across the blockchain, ensuring that even if there were to be a breach in the system, personal data would be fragmented and hard to access without the appropriate keys.

“Concordium’s Web3 ID platform is an example of such a programmable ID tool that prioritizes both safety and privacy. Using ZK-proof technology, Web3 ID empowers users to disclose only necessary information, ensuring that all personal data remains secure,” Stiebar-Bang said.

Web3 Privacy: Key Lessons

Railgun’s Scott explained that one of the biggest mistakes companies make when it comes to data storage is keeping it in one big data lake, which essentially acts as a “treasure trove for hackers”.

“Even the most well-capitalized companies have proven themselves inadequate. This is why we need strong encryption at the end-user level…

 

Instead, I think it is more interesting to not store it at all and explore ways to give control and onus over data back to the people who created it in the first place, rather than have themselves be liable for the risk of storing it securely.”

Cosmic Wire’s Finck that prioritizing user control and data ownership is essential when implementing decentralized systems that enable users to manage their own information. This, in turn, will foster trust and enhance privacy.

Moreover, transparency in data handling practices and incorporating strong encryption and security measures while also allowing for pseudonymous or anonymous interactions can further safeguard user privacy while maintaining functionality.

With the European Digital Privacy Act and its more recent consideration of implementing European Digital IDs, the world is shifting into a digital realm, highlighting just how important it is to keep user data safe in the digital space.

Concordium’s Stiebar-Bang highlighted:

“The implementation of tools such as self-sovereign IDs is not only for the benefit of their customers but for the corporate entities as well, as these features will secure interactions for all parties in the space. It is key to remember that it is not Web2 or Web3; new tools developed within the Web3 space can help elevate our existing systems and services.”

Doxing Could Surge, but Tech Advancements to Continue

Despite Web3 being able to handle privacy on the internet quite well, Railgun’s Scott noted that there is a possibility for doxing to surge, and people who have not dealt with their Web3 privacy could end up feeling the effects.

“Linking real-world identities to crypto wallets is becoming easier by the day with forensic software or doxing as a service platform like Arkham. It is likely we will see an increased focus on the privacy sector and within that focus, users will want to discern which tools actually are private.”

However, Scott noted that tech advancements could allow users to hold and privately spend their cryptocurrency funds.

“In fact, smart contract-based protocols like Railgun already enable users to interact with Ethereum (ETH) privately. There’s also new emerging scratch-made private-by-default L1s like DarkFi which could prove to be interesting.”

Concordium’s Stiebar-Bang added that in the future, more users will demand robust data privacy measures on behalf of Web3 companies, and significant institutions could look to migrate to the blockchain to enhance user privacy.

“The Web3 companies that prioritize privacy will fare the best, which will push others to adapt by implementing existing frameworks or creating new tools to protect user data.”

The Bottom Line

“In the evolving Web3 landscape, future trends in privacy are likely to revolve around enhanced user control and privacy-centric innovations,” Cosmic Wire’s Finck concluded.

With DeFi at its core, Web3 champions user control, data ownership, and self-sovereign identity models, allowing companies still considerably operating on Web2 to learn some critical lessons regarding user privacy and security. As Web3 continues to pioneer innovation, the future continues to hold promise.

However, vigilance remains crucial.

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Iliana Mavrou

Iliana is an experienced crypto/tech journalist reporting on blockchain, regulation, DeFi, and Web3 industries. Before joining Techopedia, she contributed to a number of online publications, including Capital.com, Cryptonews, and Business2Community, among others. In addition to working in journalism, she also has experience in tech and crypto PR.  Iliana graduated from the City University of London with a degree in Journalism in 2021. She is currently pursuing a Master's degree in Communication.