The post-Merge Ethereum ecosystem needs privacy more than ever

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On September 15, 2022, the Ethereum network migrated from a proof-of-work to a proof-of-stake consensus mechanism called the Merge. Apart from reducing energy consumption by 99%, the Merge laid the foundations for building a highly secure and scalable blockchain. However, despite the benefits of the Merge, it also marks a regression in privacy, which is a significant concern for Ethereum users.

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Privacy generally takes a backseat to other core blockchain topics such as decentralization and scalability. In fact, blockchain networks’ zeal for data transparency often comes at the cost of compromising individual and enterprise privacy. But without a privacy-focused approach — even one that gives users optional privacy — Ethereum decentralized applications (dapps) will repeat the same mistakes of Web2 applications.

But before proposing solutions, it is necessary to understand the importance of privacy for Ethereum, the second-largest blockchain ecosystem.

Analyzing the detrimental effects of lack of privacy

In a 2020 paper titled ‘Blockchain is Watching You,’ researchers demonstrated that Ethereum’s account-based model suffers from privacy issues. Ethereum users lack financial privacy, as they’re prone to surveillance from third parties like analytics platforms, malicious state actors, and hackers. Moreover, technologies like Ethereum Name Service (ENS) make user identification and tracking easier. The lack of privacy affects companies and users in different ways.