The Development and Challenges of Privacy Technology in the Web3 Era

The origin of blockchain is closely tied to privacy technologies, especially in the field of cryptography. From elliptic curves to zero-knowledge proofs, these technologies highlight the important role of privacy economics in the Web 3.0 era. However, reality is not as promising. The frequent delisting of a well-known privacy coin on trading platforms and the arrest of the founder of Tornado Cash both indicate that even if emerging projects can launch on mainstream platforms, the geek spirit of privacy projects is waning, and their actual delivery capabilities of final products are far from perfect.

In the development process of privacy products, blockchain projects may need to learn from their peers in the Web2 field to enhance their technical capabilities and product quality.

Proton: A Successful Example of Privacy Products

"Privacy is a feature, not a product itself." This statement reveals the essence of the application of privacy technology. Simply discussing the supplementary significance of privacy to product forms is not very meaningful; in other words, privacy technology also needs to find a suitable market. Large tech companies can maintain user engagement while infringing on user privacy, primarily due to the convenience of their products and strong network effects. Users often accept the full suite of services from these companies for the sake of convenience.

In the face of this situation, the fines imposed by regulatory authorities have not had ideal effects. Even when imposing hefty fines on certain tech giants, these companies usually manage to earn back the amount in a short time, and these fines have not effectively supported the development of local tech companies in Europe.

Proton's strategy is to build its own product ecosystem. Its research background from the European Organization for Nuclear Research has earned it a high level of credibility. Through cryptographic technology, open-source code, and product audits, Proton has created privacy products with real significance—users can achieve corresponding functions without relying on the services of certain large companies.

Although Proton's network effects and scale effects cannot currently compete with those of tech giants, the products they offer are sufficient to meet everyday usage needs compared to their peers in the blockchain field, making them a qualified alternative.

Proton's products mainly revolve around its core email service. It is worth mentioning that Proton Mail has also been favored by the founder of a certain social platform. Unlike ordinary email services, Proton Mail can be used without linking a mobile phone number and supports end-to-end encryption, ensuring the privacy of email transmission. Before a certain instant messaging software was regulated, using both services in conjunction with their end-to-end encryption model could essentially create a higher-level commercial privacy experience.

Proton has also ventured into the Web3 space with the launch of Proton Wallet. Unlike other transaction-oriented wallets, Proton Wallet has relatively simple features. The significance of Proton lies in proving the feasibility of building products based on privacy technology. Unlike the advertising profit models of traditional giants and the token economics of Web3 projects, Proton adopts a paid system, which can be referred to as "non-tokenized practices of cryptographic technology."

From Skiff to Nillion: Tokenization Attempts in Cryptocurrency Technology

Compared to Proton's pragmatic approach, projects like Skiff, Nym, Privasea, and Nillion seem to be progressing through exploration. Their product-market fit is not yet clear, but they have already started attempts at tokenization.

In February 2024, a well-known collaboration platform announced the acquisition of Skiff, marking the first instance of a large Web2 product acquiring a Web3 startup. Skiff offers services similar to a certain search engine suite, including IPFS-based document tools and encrypted email. However, its user interface experience is lacking, which is a common issue faced by many current Web3 products. Limited by the performance bottlenecks of the underlying blockchain, large applications developed on this basis struggle to compete with Web2 products.

The development of other Web3 privacy projects has also been unsatisfactory. One project shifted its focus to the VPN field in the later stages, while another project in the FHE direction emphasizes more on applications in the AI field. Meanwhile, Nillion remains stuck in the MPC narrative from the previous cycle.

The MPC and blind computation concepts built by Nillion represent a derivative narrative of Ethereum and ZK applications in the L2/Rollup space. As the price of Ethereum weakens, privacy technology products are being marginalized by the market. This does not mean that privacy technology is no longer important, but rather that the combination of privacy technology and tokens has lost its appeal at the current stage.

For projects like Nillion, the support of investment institutions seems to be more important than the product itself. Concepts such as trust layer, multi-ecosystem, and privacy AI may not be the real profit points of Nillion; its core product might just be its own token.

In the latest technical paper, Nillion's research focus remains on the practical application of MPC, primarily concentrating on how to reduce algorithm complexity to enhance computational efficiency. However, it is challenging for such AI-integrated Web3 privacy technology projects to find real application scenarios, as mainstream AI companies have already dominated the market without adopting these technologies.

Conclusion

Monero (XMR) may seem somewhat unfamiliar in the rapidly evolving cryptocurrency market today, but it should be considered the last attempt to truly integrate cryptographic technology with practical application scenarios after Bitcoin.

In February 2024, XMR was delisted by a major trading platform, losing its largest source of liquidity. This may mark the gradual decline of so-called privacy technology projects into speculative tools, while the prospects of Web3 privacy economics remain full of uncertainty.