Without the help of states like the United States, the sector will be unable to remedy what ails Web 2 and issues like crypto privacy.

The difficulty of achieving complete anonymity in our digital lives, including crypto privacy, has been highlighted in recent weeks.

Perhaps it’s time to admit that we can’t rely just on technology to defend this vital right. It’s time to tackle the difficult challenge of persuading governments to enact legislative safeguards.

Consider the following recent events: the doxing of the founders of the Bored Ape Yacht Club (BAYC); a New York couple arrested for conspiring to launder the proceeds of the Bitfinex hack; the discovery of the pseudonymous co-founder of Avalanche money market Wonderland as the co-founder of the notorious failed exchange QuadrigaX; the seizure of crypto funds donated to Canada’s protesting truckers; and the apparent unveiling of the mastermind behind the 2016 attack on The DAO.

All of these cases indicate how difficult, if not impossible, it is to elude someone hell-bent on catching you. Know-your-customer (KYC) policies, multiple passwords, and data-tracking systems, as well as permanent repositories of data about our online and offline activities housed on corporate-owned servers throughout the world, all work against our online privacy.

The people who disclosed these identities justified their acts in the public interest in each case, with various degrees of widespread acceptance. On the other hand, crypto proponents, particularly in the BAYC and trucker cases, were frequently enraged by these crypto privacy violations.

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I don’t want to revisit the two-week-old trade-off between the right to privacy and the public’s desire for transparency. Crypto fans would have nothing to complain about if coin mixers, pseudonymous identities, and self-custody wallets were delivered on their promises. However, the industry’s criticism of such behavior is also a sign of its failure.

The bad guys aren’t the only ones who get caught off guard.

If the only people looking for privacy in their crypto transactions were crooks, the idea that there’s nowhere to hide might be optimistic. In reality, the risk of being tracked provides a whole new degree of security to the crypto ecosystem. It acts as a deterrent to hackers. It could provide a model of liberty that is more enticing than China’s panopticon and consistent with its Constitution.

However, thieves aren’t the only ones who commit crimes. Money flows must be hidden for democracy and markets to work properly. Activists working for good causes, such as Afghan women in Taliban-controlled Afghanistan, Myanmar’s exiled government, or Nigerian demonstrators, increasingly rely on crypto to circumvent government censorship and support their activities. On the other hand, businesses require secrecy to avoid their competitors learning about their activities and outrunning them.

Perhaps a totally crypto circular economy, in which funds never enter or exit the fiat financial system, would better secure our identities.

However, some institutions can be subpoenaed in the crypto world, such as centralized exchanges, hosted wallets, and stablecoin reserve managers. The foundations that administer the codebases of decentralized exchanges are also accessible for examination.

Since the iconic DAO hack, the sheer number of breaches and rug pulls in decentralized finance has continued to make DeFi a peripheral sector where privacy benefits are overshadowed by volatility, the difficulty of use, and security threats for the typical individual.

We already know that zero-knowledge-proof technologies like zk-Snarks safeguard privacy. Human failure makes crypto privacy so challenging to attain. That is the issue we must address.

We require a risk-based strategy. Suppose people have more control over their assets. In that case, criminals will have less incentive to invest the time and effort to go after those relatively modest nodes or for governments to monitor them. The value derived from criminal behavior and surveillance deployment is only truly realized when the stakes are significant. The trick is to alter crime’s economics in crypto privacy.