Author: a16z crypto

Translator: Blockchain in Plain Language

People often say that users do not really care about privacy, and in the age of social media, this may be true. But in the financial sector, the rules are completely different. A16Z Crypto partner Ali Yahya has made a bold prediction: privacy will become the most important moat in the cryptocurrency space, triggering a "winner-takes-all" network effect.

Host: Robert Hackett (A16Z Crypto) Guest: Ali Yahya (General Partner at A16Z Crypto)

1. Why is performance no longer a moat?

Host: Ali, you recently expressed the view that "privacy will become the most important moat in cryptocurrency." That's a big conclusion. What makes you so sure?

Ali: This idea stems from my thoughts on the commoditization of "block space." High-performance blockchains are now in oversupply, and with convenient cross-chain solutions, the block space across different chains is functionally becoming more and more similar.

In this context, mere "high performance" is no longer sufficient to create a defensive barrier. Privacy is a feature that the vast majority of existing public chains do not possess. More importantly, privacy can create a special "lock-in effect," thereby strengthening the network effect.

Host: Current blockchain teams might argue otherwise, citing Solana and Ethereum, which have completely different technical trade-offs and roadmaps. How would you respond to those who believe "my chain is unique and irreplaceable"?

Ali: I believe that as a general-purpose blockchain, performance is just the entry ticket. To stand out, you must possess one of three things: a thriving ecosystem, an unfair distribution advantage (like Coinbase's Base), or a killer application.

What makes privacy special is that once users enter a privacy chain, their willingness to leave significantly decreases because "moving secrets" is much more difficult than "moving assets." This stickiness is something that transparent public chains currently lack.

2. Do users really care about privacy?

Host: Many people think users don't care about privacy, just look at Facebook. What makes you think the situation will be different in the crypto space?

Ali: People may not care about like data, but they absolutely care about financial data.

If cryptocurrency is to go mainstream, privacy is a must-have. Not only individuals but also businesses and financial institutions cannot tolerate their payrolls, transaction histories, and asset preferences being monitored in real-time by the entire world. In a financial context, privacy is a necessity.

Host: Can you give a few specific examples? What data do people most want to keep confidential?

Ali: There are too many. What did you buy on Amazon? What websites did you subscribe to? How much money did you transfer to which friend? What are your salary, rent, and balance? This information can be easily inferred from your financial activities. Without privacy, it’s like walking down the street with a transparent wallet that everyone can see.

3. Why is "secrets" difficult to migrate?

Host: You mentioned a core point: "secrets are difficult to migrate." Is this a technical issue or a social issue?

Ali: It is a core technical issue. Privacy systems rely on an "anonymity set." Your privacy is secure because your activities are mixed with those of thousands of other users.

The larger the anonymity set, the more secure the privacy.

Cross-chain risk: When you transfer privacy assets from one anonymous zone to another, a lot of metadata leaks occur (such as transaction time, amount associations, and network layer characteristics).

This leads to users tending to stay on the chain with the most users and the largest anonymity set. Because cross-chain is not only troublesome but also poses the risk of "identity exposure." This self-reinforcing feedback effect will ultimately result in only a few large privacy chains remaining in the market.

4. Technical Path: How to Achieve Privacy?

Host: What technical means do we currently have to realize the vision you described?

Ali: There are mainly four technologies:

Zero-Knowledge Proofs (ZK Proofs): Proving the validity of transactions without revealing content, currently making the fastest progress.

Fully Homomorphic Encryption (FHE): Allows computation on encrypted data, the most powerful function but with significant computational overhead, still in the theoretical stage.

Multi-Party Computation (MPC): Collaborative computation without revealing individual data, commonly used for key management.

Trusted Execution Environment (TEE): Relies on "isolation zones" provided by hardware manufacturers like Intel or Nvidia for encrypted computation, currently the most practical and highest-performing method.

Ali: In fact, we may see these technologies layered together. For example, using TEE to ensure performance, plus an MPC layer as a defensive barrier, ensuring that even if the hardware is physically compromised, privacy remains secure.

5. The Conflict Between Decentralization and "Winner-Takes-All"

Host: The core of the crypto spirit is decentralization and interoperability. If privacy chains present a "winner-takes-all" scenario in the future, does that contradict the original intention?

Ali: I don't think so. Decentralization refers to "control" rather than "fragmentation."

As long as a privacy chain is open-source, code verifiable, and has decentralized validator nodes, it is decentralized. This provides developers with a platform guarantee of "not doing evil." Compared to the Web2 era, where user behavior was locked in through API blocking, privacy lock-in in the crypto space is based on algorithms and security risks, with rules still being fair and neutral.

6. Future Perspective: Quantum Threats and AI

Host: Considering the long-term future, will quantum computing be able to crack these privacy technologies?

Ali: This is a very real issue. According to assessments from our research team (like Dan Boneh), quantum attackers may not be able to break modern cryptography for the next 15 years. While we should start preparing "quantum-resistant" solutions now, there is no need to panic excessively at this point.

Host: One last question, when AI entities start to take over the internet, what will happen to your privacy theory?

Ali: In the age of AI, each of us lives in a "panopticon," where every activity we engage in provides training data for the next generation of models. As AI becomes ubiquitous, the human demand for privacy will only become stronger than it is now.

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