Crypto Is Still Arguing About How Much It Should Focus on Privacy

In many ways, cryptocurrency is the embodiment of the Cypherpunk vision. However, its focus on privacy has been lost in recent years.

A group of cryptography experts and libertarians called the Cypherpunks played a critical role in developing cryptocurrency and blockchain technology. Formed in the late 1980s and early 1990s, they were driven by a shared vision of using cryptography to protect privacy, resist censorship, and promote individual freedom in a digital age.

Alongside cryptocurrencies, their movement inspired the development of other privacy-enhancing technologies, such as encrypted messaging apps, privacy-focused browsers, and virtual private networks (VPNs). 

There Is Increasing Concern About Digital Privacy

Various surveys have shown that the public is increasingly in tune with their vision. In 2021, the Edelman Trust Barometer survey showed that 74% of people worldwide believe their personal data is less secure than it was five years ago, and 66% are more concerned about their privacy than they were 12 months earlier. In the same year, PWC’s Global Data Protection Study” found that 72% of consumers are more concerned about how companies use their data than they were a year earlier. 81% said they would stop doing business with a company that misused their personal data.

And yet, compared with the early crypto community — which was populated by privacy radicals and broad-spectrum libertarians — today’s crypto users are in many ways less skeptical. As cryptocurrency adoption has risen, it has become populated with speculators and those transfixed by the performance of the markets. Perhaps this move towards openness is not very surprising. Blockchain, after all, has transparency at the heart of its technology. 

The Crypto Community Needs to Refocus on Core Values

For Grace Rachmany, co-founder of PricelessDAO, privacy has always been at the heart of the crypto ecosystem. It comes as a package along with freedom and decentralization. “While the bulk of the crypto community is drawn in by the financial gains, there is and always has been a core of people who are concerned about these issues,” she says.

“Projects such as, Starkware, and are working on solutions in the area of privacy and freedom. They aren’t the big money makers and you won’t find a lot of mainstream coverage for them, but people concerned with privacy aren’t always looking for mainstream coverage. Most of the crypto community has lost its way in terms of privacy, both in terms of the transfer of funds and in terms of data privacy. You still hear crypto advocates talking about how people will be able to paid for their data at the same time they are talking about soul-bound tokens (SBTs) that show you someone’s reputation.”

(A soulbound token is a type of NFT that is tied to a specific individual and cannot be transferred to another person or traded on a marketplace. They are often used to moderate the downsides of crypto-anonymity by allowing individuals to build up trust and reputation.)

The Rise of Self-Sovereign Identities

Self-sovereign identity (SSI) is a newer concept that builds on the cypherpunk vision of privacy and anti-censorship. SSI is a decentralized approach to identity management where individuals have control over their own personal data and can choose to share it with others on their own terms. With SSI, individuals have full ownership of their data and can use cryptographic technologies to secure, store, and share their personal information. This approach gives individuals more control over their personal information and reduces the power of intermediaries to control access to it.

Dr. Phil Windley, a computer scientist and CEO of Sovrin Foundation, has called SSI the “key to unlocking the potential of blockchain technology.” 

“The entire industry has ignored two decades of work in the self-sovereign identity community and is mostly trying to justify the transparency of everything,” continues Rachmany. “Patches such as ZkSnarks and other privacy layers are a start, but the industry has never gone down to the fundamental need for self-sovereign identity. What we saw with Tornado cash is that the Ethereum community is swimming in so much money that they will mostly ignore the fact that the network is no longer censorship-proof.”

“Crypto should be working closely with the self-sovereign identity community to create identity solutions and privacy-preserving wallets. Right now, too much of the Verifiable Credential (VC) work is based on government and corporate authorities rather than decentralized identities. There’s a ton of work to do in order to create institutions or decentralized capabilities that people can trust.”

Privacy Is Less Important for Some

The crypto community has never been a homogenous block. Whilst the hardcore cypherpunk types have always wanted to maintain a private sphere away from the eyes of the government, for many, privacy was not part of the original technology’s value proposition and should be considered separately. “The ethos of crypto has been to have an accessible and trust-less, open financial system,” says Dhruv Patel, co-founder, and CEO at Arch Lending. “Privacy is a separate piece that gets layered on top. Different use cases in crypto make require/want varying levels of privacy and so I don’t think there’s a one size fits all solution with respect to privacy in crypto.”

“I think varying uses cases will have different types of privacy. We see this in DeFi protocols with permissioned pools where users need to go through a KYC (Know Your Customer) process in order to transact with the protocol. One key action item is in advocacy and work with the government to educate and enhance privacy practices in crypto. Without government buy-in, situations like what happened in Dubai will continue to occur.”


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