The Evolution of Privacy Technology: From Products to Tokenization

Privacy technology has always been an important cornerstone in the blockchain field, from the early cryptography to today's zero-knowledge proofs, all reflecting the significance of privacy economics in the Web 3.0 era. However, the development of privacy projects has not been smooth sailing. From certain privacy coins being frequently delisted from exchanges to the arrest of the founder of an anonymous mixing tool, it is not difficult to find that even with emerging projects landing on mainstream trading platforms, the geek spirit of privacy projects seems to be fading, and the practicality of their final products still needs improvement.

In developing privacy products, blockchain projects may need to learn from their Web2 counterparts to enhance their product design capabilities.

Proton: Proving that privacy can be a practical product form

"Privacy is a feature, not a product itself."

Simply discussing the supplementary significance of privacy to product forms is not very meaningful. In other words, privacy also needs to find a suitable market. Some tech giants can still be favored while infringing on user privacy, and the key lies in the convenience of their products and network effects. Products that are ready to use and widely applied, even if not needed in personal scenarios, are often unavoidable in work environments, leading users to ultimately have to accept the full suite of services from these companies.

In this regard, the fines imposed by regulatory authorities have had little effect. Taking a certain tech giant as an example, even after being fined nearly $3 billion, the company can earn back this amount in just about 16 days. Worse still, these fines have not translated into income for local European tech companies, making them even more powerless when facing the giants.

Proton's strategy is to build its own full set of services. With a research background from the European Organization for Nuclear Research, it is inherently more credible than commercial companies. Through cryptographic technology, open-source code, and product audits, Proton has created truly meaningful privacy products—users can achieve corresponding functionalities without relying on the all-in-one packages of certain giants.

Although the current network effects and scale effects cannot compete with the giants, Proton's products are sufficient to meet daily usage needs compared to its blockchain peers, making it a qualified alternative.

Proton's product line mainly revolves around its core email service. It is worth mentioning that Proton Mail is also the preferred choice of a certain social platform founder. Unlike ordinary email services, Proton Mail can be used without binding a mobile phone number, and it supports end-to-end encryption, ensuring the privacy of email transmission. Before a certain instant messaging software faced regulation, when used in conjunction with its end-to-end encryption mode, it could basically provide a high level of commercial privacy experience.

Of course, after the restrictions on this instant messaging software, Proton Mail combined with Signal can also meet the privacy needs of most people.

Similar to a certain instant messaging platform, Proton has also begun to venture into the Web3 space, with its first product being Proton Wallet. Unlike some 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 model of traditional giants, Proton adopts a paid system. Different from the token economy model of Web3 peers, Proton has not issued its own Token. We can refer to it as:

Non-tokenization practices of cryptographic technology.

From Skiff to Emerging Projects: The Tokenization of Cryptographic Technology

In contrast, some emerging privacy projects such as Skiff, although their product market fit has not yet been established, are leading in token issuance.

In February 2024, a well-known collaboration platform announced the acquisition of Skiff, marking the first acquisition of a Web3 startup by a major Web2 product, setting a new trend in the industry. It is worth mentioning that the acquisition of Bridge by a certain payment giant is actually the second similar case.

Skiff's product line is quite similar to that of a certain tech giant's suite, ranging from IPFS-based document services to encrypted email, but there is a significant issue: the user interface is not aesthetically pleasing, and the user experience is lacking. This is also one of the biggest challenges currently faced by Web3 products, limited by the performance bottlenecks of the underlying blockchain, making it difficult for large applications developed on it to surpass Web2 competitors in terms of user experience.

Proton is a suitable alternative, but Skiff is difficult to become a qualified substitute for Proton.

In addition, the development of other Web3 privacy products has also been unsatisfactory. Some projects are gradually shifting their focus to the VPN field, others emphasize applications in the AI field, while certain emerging projects remain stuck in the narrative of the previous round of popular technologies.

In fact, the technological narrative changes with the cycles. The technical concepts built by certain projects are extensions of the applications of Ethereum and zero-knowledge proofs in the layer two network field, such as AA wallets, MPC paradigms, etc. As Ethereum's price performance weakens, privacy technology products are gradually being neglected by the market, with the most obvious example being fully homomorphic encryption (FHE), which has not become the next hotspot for zero-knowledge proofs as expected.

This does not mean that privacy technology is no longer important, but rather that the combination of privacy technology and Token has lost its appeal at the current stage.

Without privacy technology, Proton cannot build its own business logic and product matrix, which is a good product-market fit model. However, for some emerging projects, investment from a well-known exchange and investment institution seems to be more crucial.

As for some new concepts, such as trusted layers, multi-ecosystems, privacy AI, etc., they are unlikely to be the real sources of profit for such projects. We all know that their only "product" may be their own Token. From this perspective, at least some projects are still genuinely competing for a share of the VPN market.

In the latest technical papers, the research focus of certain projects still remains on the practice of MPC. Traditional secret-sharing MPC algorithms can lead to a dramatic increase in data volume during computation, and these projects are researching ways to reduce algorithm complexity to improve computational efficiency.

It is difficult to find real application scenarios for this type of AI-integrated Web3 privacy technology, as mainstream AI companies do not rely on these technologies. It would be meaningful innovation if new products could seize market share from them by adding privacy technologies.

While the idea that "privacy is important" is commendable, we still need practical privacy products to validate it. Talking about technologies such as MPC/ZK/TEE/FHE/AI without practical application is meaningless. Empty slogans that do not solve real problems can be easily said by anyone, but ultimately may harm the social credibility behind these technologies.

Negative impacts have already emerged, and now people have doubts about layer 2 networks, even starting to question the reliability of zero-knowledge proofs.

After certain security incidents resulted in huge losses for the exchange, not only the founder of Ethereum remained silent, but also front-end developers and the multi-signature mechanism.

Conclusion

Monero ( XMR ) may be somewhat unfamiliar to participants in today's rapidly developing cryptocurrency market, but it should be the last attempt to truly consider how to combine cryptographic technology with real-world application scenarios after Bitcoin.

In early February 2024, just two days after a certain privacy email service announced its integration into a well-known collaboration platform, XMR was delisted from a major trading platform, losing its largest source of liquidity. Perhaps from now on, so-called privacy technologies will become part of an idea, much like certain military technologies. However, the Web3 privacy economy may not have completely gone bankrupt yet.