In this Outlier Ventures Twitter Spaces, Elliot is joined by Sylvia and Enricro from Polygon ID, Anthony and Sam from Aleo, and Jon Wu from Aztec to discuss privacy solution but in the context of compliance and regulation.
Read our notes below to learn more.
Intro
Sylvia (@OnChainPrivacy) is the Business Development Lead at Polygon since March 22.
Enrico (@backaes) works at Polygon and is excited to speak about compliance.
Jon Wu (@jonwu_) works at Aztec for a year now. Aztec is the privacy layer for Ethereum.
Anthony (@adiprinzio_) is the the Head of Growth at Aleo. Aleo is a ZK VM L1 blockchain.
Sam (@sparker2357) is also from Aleo and has a VC role on the Aleo’s grants program.
Regulation at Protocol level vs Application level
Sam
The general consensus among protocol builders is to build a decentralized protocol.
On OFAC Compliance
Jon
OFAC is more of an intelligence agency and not a regulator. The best way to maintain neutral credibility is to follow effective countermeasures to illicit activity.
Steps to Mitigate Risk Until More Regulatory Clarity
Sylvia
Poylgon is evaluating the possibility to become a member of an alliance called Universal Privacy Alliance.
Need to move forward with discussing lobbying with regulators to achieve privacy at every level.
ZK tech can be used to verify without revealing personal information.
Anthony
Aleo lends itself to the application developer that wants to remain complaint when the developer is writing the program.
Aleo’s system is private by default. The application developer has the ability to decide what information should be public.
Enrico
A decentralized social media could have a system where a certain amount of downvotes could reveal the identity of the user that posted. This system could be embedded inside the code.
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How Will the Risk of User Privacy Getting Comprised Be Mitigated?
Enrico
The design circuit should be open-sourced so everyone is able to understand and audit it.
If everyone agrees to the design, it becomes a censorship system.
How Do You Plan On Mitigating Regulators Abusing Power to Gain Access to Information?
Enrico
There will not be a way for the code embedded in the system to selectively reveal some information to the government.
Sam
The backdoors should be at the level of application and not at the lowest level of the protocol which should remain 100% private.
Will Financial Institutions Accept This Form of Compliance?
Slyvia
Long way to go before TradFi institutions use Zero Knowledge Proofs.
Jon
One of the biggested elephants in the room is compliance implies centralization.
Independent centralized party will be the KYC provider bearing all the liability.
We need to determine as a society to convince the regulators that it is not necessary to see every single thing somebody does.
It will be hard to convince them not necessarily because the tech is not legitimate.
Regulators need to be educated on why the tech is a sufficient replacement.
Sam
Governments wouldn’t want data about their citizens to be viewed by the rest of the world, it is a national security risk.
Could Governments Get Involved in Building Zk Tech?
Jon
Personally doesn’t think so.
Looking at the ZK proofs, it should be verifiable that nothing bad is happening here.
The approach should be proving with evidence to the governments that the tech is good.
Enrico
Recently, Vitalik wrote an article about using ZK proofs to verify proof of solvency for CEX.
Institutions will see the benefit of the ZK tech applied to this industry.
Could ZK Alleviate Regulatory Burden?
Slyvia
Governments could issue digital identities, they could also use it to prove to a entity the personal info of the person using ZK Tech.
Making them understand should be the first priority, then proving to them that the tech works.
What Applications Could Be Developed Using Zk Tech?
Anthony
ZK based KYC for proving identity.
Checking a user’s credit worthiness in DeFi.
The goal with Zk Tech is minimize the amount of information leakage.
Enrico
There are a lot of tools being built to use with Zk Tech on Polygon.
The tooling will make it easier to build applications in this field.
Jon
The next generation blockchains are programmable with private state and private execution.
NFT, DAO, and DeFI should have private execution.
Why Is It Important to Build Private Applications?
Anthony
It is important to build privacy applications because Web3 as of now is much less private than Web2.
Banks could only see the information of a user, but here everyone is able to see a person’s wallet holdings and transactions.
Gaming related projects could benefit from the use of ZK tech.
Slyvia
Privacy for younger generations will be more relevant.
It is important to develop applications that allow privacy without having to pay a lot for it.
Enrico
Blockchains gives control over data with smart contracts.
Privacy will make blockchain similar to a Web2 experience.
Jon
We are at the end of creative productivity in public blockchains.
Paradigm shift will be to privacy.
The whole crypto space is a big insurance policy on the centralized systems, if the centralized systems are inferior, we just have to wait for them to fail.
Sam
Insanely early in the privacy space and we’ll see a lot of useful applications from Zk Tech.
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