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Source: Twitter
Original title: Some thoughts on the future of privacy networks
In view of the ban on TornadoCash, I have some thoughts on the future of privacy networks and want to share them with you. Despite the current darkness, there are reasons to be optimistic about the future of Web3, and let me tell you why.
Treating open source encryption software as a sanctioned entity is a throwback and reminds me of the 1990s, when sharing encryption software could get you labeled an international arms trafficker.
1. What does the future hold?
The web of the future can protect user privacy while aligning with the goals of regulators, but will not conform to existing regulatory structures.
regulators need to take substantial action. That may seem unlikely, but it's inevitable given the events of this week.
why? The current approach of the U.S. government will fail to achieve its strategic goals.
Before getting into this, I want to describe what the privacy web might look like in the near future:
1. Private by default
2. Fully decentralized
3. Client-side compliance: users can optionally certify their parts Identities such as not being on the sanctions list
4. Open and programmable
programmable privacy will create exponential growth opportunities for cryptocurrencies. Once users can link cryptographic identities to cryptocurrency accounts, off-chain assets can be issued and traded on-chain without a custodial middleman.
Forward-looking governments will consider issuing base currencies directly on networks such as Ethereum. If you add to this the superpower of real-world assets, private self-custody, and the low barriers to entry of an open network, we will see the dawn of a new financial renaissance.
2. Privacy Consequences
The openness of a decentralized privacy network will lead to two very different outcomes, which are contradictory:
"Compliant Network" : Comply with existing laws and regulations, but require regulatory changes to comply with cryptographic applications and digital currency regulations.
“Darknet” : Applications and digital currencies without built-in compliance at the protocol level.
From the perspective of Western governments, the latter is undesirable, which is understandable for . However, the existence of compliant networks requires tolerance of the darknet at the network level. Why?
In a decentralized web, there are no arbiters, auditors or third parties that can determine whether an application is compliant. The decentralized web is permissionless by design and necessity.
continuing on the path set by the Tornado Cash ban will prevent compliant networks from being established as legitimate use of these networks will disappear due to fear and uncertainty.
3. Where will we end?
There is a place for regulation in Web3, but it is not at the network layer, but at the application layer: companies and entities that leverage Web3 to provide services to users and businesses , such as fiat import and export of cryptocurrencies and custodial wallets.
It would be more effective for the United States to require exports to use the TornadoCash compliance tool rather than a blanket ban. The frustrating thing about
is that we've already experienced this on the World Wide Web. We're not going to arrest ISPs for their data, and we're not going to arrest DNS providers for signing illegal traffic. For Web3 to develop, it must remain trustworthy and neutral .
4. Will regulators see the light?
The current approach has not accomplished the strategic goals of the United States. North Korean hackers will still use TornadoCash (or clones), and problematic entity service providers will still secretly provide services to qualified bad actors..
Their actions also undermined the hegemony of the US dollar.The damage these actions have done to USDC is immeasurable, and the centrally-backed USD stablecoin now has an risk premium attached to it. In retrospect, the TornadoCash ban will be seen as an act of self-harm that limited the United States from reaping the wealth generated and jobs created by this revolutionary industry.
I do understand the actions of US regulators, the emergence of a new disruptive technology undermines their enforcement capabilities, Anything less than a blanket ban on TornadoCash would be an admission that their ability to exercise their power has been diminished .
The problem is that they are not fighting people or institutions, they are fighting a technology, and trying to ban cryptographic algorithms is the same as trying to ban mathematics.
The reality is that decentralized cryptocurrency networks have reduced the power of states to enforce their regulations (the TornadoCash ban will not stop North Korean hacking), and pretending otherwise will only harm their interests.
The state can take back much of that power, but this will require working with good-faith actors in Web3 to create a new regulatory framework that acknowledges that the status quo has changed. For the first Western country to solve this problem, it was and the first to try .
It seems to me that the key players we are building are not yet fully present in our emerging industry. The technologies we are building are not yet advanced enough to meet their needs, and heavy-handed regulation could stifle the innovation needed to get us there.
If we don't have control over our finances, we are not truly free. Without financial privacy, we have no control over our finances.
This is the beginning of a long and grueling war of attrition. I believe that after exhausting all possible alternatives, regulators will gradually move towards a future where user privacy is protected and celebrated.
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