The transparency of blockchains is often marketed as a benefit. It’s not. Main Street financial consumers are never going to adopt blockchain-based financial tools as long as blockchains are radically transparent. Regular folks have secrets that they want to keep.
One of the most promising use cases for blockchains is decentralized finance (DeFi). The people who are building DeFi tools aspire for DeFi to be something more than a skate park for the risk-loving crypto-rich. They want their tools to solve real-world financial problems faced by individuals and companies, including America’s 31.7 million small businesses.
This article is part of CoinDesk’s Privacy Week series. J.P. Koning, a CoinDesk columnist, worked as an equity researcher at a Canadian brokerage firm and a financial writer at a large Canadian bank. He runs the popular Moneyness blog.
Imagine a cash-starved manufacturer in Toledo, Ohio, that has a good idea for a product. It could go to its banker for financing, but instead it turns to DeFi. In a jiffy, it tokenizes a bunch of receivables onto a blockchain and lodges them as collateral on a decentralized lending platform in return for U.S. dollar stablecoins. A few moments later, it swaps these dollars for Euro stablecoins using a decentralized exchange, sending them to its French supplier to purchase inventory.
This chain of transactions has the promise of being cheap, fast and avoiding the walled garden of regular banks. Unfortunately, our Toledo manufacturer probably won’t bother.
All blockchain transactions are public by default. The government, your competitors and your mother can all see what you are doing. Blockchain analytics firms like Chainalysis and CipherTrace make it their business to track, analyze and interpret every trade and transaction.
Secrecy is vital to commerce. Not only is it important for businesses to protect the privacy of their customers, they must also keep their competitors in the dark lest their long-term strategy be…
