Vitalik Buterin, alongside Jacob Illum with Chainalysis and other industry experts, recently published research that explores how blockchains can be both private and compliant. Utilizing a “smart contract-based privacy-enhancing protocol” called Privacy Pools, the paper offers a way to balance the needs of regulators and privacy advocates.
While this approach is promising, focusing on Zero-Knowledge proofs (ZK) for enabling privacy and compliance, it leaves some questions unanswered. ZK tech comes with its own challenges, particularly regarding scalability and mass adoption.
– One of the most significant barriers to its adoption is scalability. Implementing ZK protocols on a large scale can be computationally intensive. This not only leads to higher costs but also slows down transaction processing times, which is a significant drawback for a technology aiming for mass adoption.
– For ZK technology to ensure an acceptable level of privacy, it needs to be widely accepted and used across the crypto ecosystem. However, the technical complexities associated with ZK could deter average users and small-scale developers from integrating it into their platforms or daily activities.
While ZK proofs are theoretically sound, the practical applications are still in a maturing phase.
The Alternative: Shift to B2C
An often overlooked part of this equation is the untapped potential of existing companies that hold massive amounts of data and analytics. These companies can make a real difference by shifting their focus from a Business-to-Business (B2B) model to a Business-to-Consumer (B2C) model. Why?
1. Direct User Engagement. Shifting to B2C enables these companies to offer customized compliance solutions directly to consumers, thereby simplifying the process for individual users. A direct engagement with users means that companies can offer individualized privacy settings, allowing users to have greater control over their own data.
2. Optimised Data Use. With their wealth of data, these companies can tailor compliance services to suit the unique needs of crypto users, improving both accuracy and efficiency. Tailoring services to individual needs results in less extraneous data collection and therefore, a lesser risk of personal information misuse.
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3. Bringing Compliance Closer to Users. A B2C approach takes compliance to the grassroots level where actual blockchain interactions occur, easing the user’s journey toward a fully compliant transaction.
4. Revenue and Safety. Companies can monetize these new consumer interactions while also contributing to a safer, more compliant crypto environment.
In summary, the B2C approach enables a triad of benefits: compliance, privacy, and user control. This robust solution complements existing technologies like Zero-Knowledge proofs and could serve as the missing link between complex regulatory requirements and user-friendly crypto experiences.
While Vitalik Buterin’s paper on using ZK proofs for compliance is significant, it doesn’t address all the challenges that lie ahead. The shift from a B2B to a B2C business model for data-rich companies could be the key to bridging the existing gaps. This not only streamlines compliance for everyday users but also opens new revenue streams for businesses, thereby potentially accelerating mass adoption of both ZK technology and blockchain transactions in a regulated environment.
Gintarė Košubiene
CEO and Co-Founder at “Micapass”, PMP certified project manager, 5y+ experience in the digital passports industry, senior product manager at R&D Super How? specialized in DARQ technologies, proven history of leading digital identity, privacy, CBDC, and securities-related projects.
