Privacy on the blockchain

Feb 27, 2024 3:14:38 PM

Privacy is one of the most critical issues in the environment. Although blockchains use cryptography for network security, most do not ensure the privacy of the data recorded on them; in other words, all data on most blockchains can be accessed by anyone. Everything is transparent; nothing is private.

For many applications, however, privacy is required. It is not feasible to store personal data, such as medical or financial records, on a blockchain that does not provide privacy. Currently, anyone’s balance in bitcoins or other tokens can be consulted just by knowing the person’s account . It’s as if anyone can access all your bank transactions just by knowing your account number.

There are a few ways to address the issue of privacy on blockchains. One way is using private blockchains; unlike public blockchains like , , and Bitcoin, private blockchains are not open to everyone; permission is required to participate. Thus, access to the stored data is restricted to some participants.

Such private blockchains, or permissioned blockchains, are being used by several companies worldwide to store information in a fail-safe environment. During the last few years, several protocols have been developed for this purpose, and we can highlight the Hyperledger project.

The Hyperledger projects, maintained by the Hyperledger foundation, are a set of protocols developed by different companies to provide blockchain protocols that are modular, permissioned, secure, and private. Broadly speaking, Hyperledger is an umbrella for various enterprise blockchain implementations. Currently, the project is maintained by the Linux foundation. Within the Hyperledger projects, the most famous implementation is the Hyperledger Factory, initially created by IBM.

In addition to private blockchains, some public blockchains have also implemented privacy schemes. Monero and ZCash are two examples of protocols for public blockchains that employ encryption schemes intending to keep transactions private. Monero uses ring signatures, while ZCash uses a zero-knowledge proof scheme. In them, users cannot obtain information about transactions carried out by others.

Blockchain privacy is a subject of great debate and is still in development. What we know is that if we want blockchains to be used in all business areas, they must have some data privacy scheme. We can expect significant advances in this area over the next few years.