In this series, I’ll discuss the privacy trade-offs of public blockchains: what can and can’t be done today, why privacy on the blockchain matters, and popular approaches to ensuring privacy in today’s applications.

In 2009, a person or group of people named Satoshi Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System”. If you haven’t already, give it a read. The Bitcoin design was revolutionary — it elegantly tied cryptography, game theory, and economics into a trustless solution to the double-spend problem, and introduced the world to the first “chain of blocks”, a censorship-resistant public ledger protected by proof-of-work.

This is a big deal. Unlike traditional payments, Bitcoin transactions don’t rely on a trusted third-party. Anyone can connect to the network and transact, without fear of censorship. Satoshi’s work solved these problems, and founded the field of cryptoeconomics.

In 2013, Vitalik Buterin proposed a new cryptocurrency — Ethereum. Ethereum was Vitalik’s answer to Bitcoin’s poor scripting capabilities. Instead of focusing on financial transactions and their outputs, Ethereum transactions are about state: agreeing on a computed state, and transitioning from one state to the next.

Each transaction in Ethereum includes a sender, recipient, funds, and data, similar enough to Bitcoin. Unlike Bitcoin, however, a recipient can be a user or a smart contract.

Smart contracts are cool. You can build complex financial services, and even self-governing organizations. Consider 0x, a decentralized exchange protocol, or Aragon, a governance layer for DAOs. Smart contracts can also provide a backend for user-facing decentralized applications (“dApps”). Think censorship-resistant Twitter.

Today’s blockchains hold the promise of more open, participatory systems. But while these technologies are powerful, they aren’t ready to take on the world¹.

Hurdles to mainstream adoption

There are a number of technical hurdles to mainstream adoption, but by far the most pressing are scalability and privacy.

When I and others talk to companies about building their applications on a blockchain, two primary issues always come up: scalability and privacy.” ― Vitalik Buterin

Replicating transactions globally across thousands of computers, as the Bitcoin and Ethereum networks each do, is incredibly inefficient. We need many orders-of-magnitude improvements to scale to what would be considered a reasonable consumer success.

Luckily, some of the best minds in the space are working on blockchain scalability. In Bitcoin, the Lightning team is preparing to test on the main network. In Ethereum, there are multiple promising efforts, including sharding and the recently announced Plasma.

Privacy efforts don’t always get the same attention as scaling. Scale is a problem any growing tech startup will encounter. Systems need to scale to handle more users. And while scaling solutions in decentralized systems are much more difficult than in your typical web app, the problem is familiar and easy to understand.

Privacy, on the other hand, is nuanced, and often leads to uncomfortable questions. What needs to be kept private? Why, and from whom?

The baby and the bathwater

In the pursuit of the benefits blockchains can bring to financial systems — immutability, censorship-resistance, and open and permissionless innovation — what are we losing? Do we need to become accustomed to living and transacting in the open to enjoy these benefits?