Web3 Promises Transparency, But Should You Still Worry About Data Privacy?

We live in a Big Brother world today, where companies seemingly know every detail of what we’re doing online. They collect massive amounts of data to provide value. However,  your data privacy in Web3 may be compromised if they tend to use information in ways you didn’t agree to.

Regulatory authorities and data privacy guardians across the globe push for additional layers of protection for end-users. These come in the form of certain data privacy rights that allow you to somehow take control of what you share and what brands can do with your information.

It’s a work in progress. In fact, about 81% of adults in the United States believe they have little or almost no control over what data is collected from them.  The majority also expressed concern and believes that the risks outweigh the benefits when companies and governments collect their data.

With the evolution of the internet, Web3 promises transparency where users will own their data, be appropriately compensated for it, and be aware of what others are doing with their information. While this sounds promising, a shift from data oligopoly to data democracy also comes with risks.

In a recent survey by a global insights firm, only 13% of consumers think they know what Web3 is, and about 54% have never heard about it.

What Is Web3 and Why the Ordinary Joe Should Care

You might have heard of Web 3.0 or Web3 because you have friends bragging about how they are making tons of money in Bitcoin, Ethereum, or other altcoins, or perhaps, you came across digital apes or other non-fungible tokens while browsing on your smartphone. Web3 is not just a buzzword. It is here, and it might shape the future. And it is still confusing for most people.

In a recent survey by a global insights firm, only 13% of consumers think they know what Web3 is, and about 54% have never heard about it. Eighty-one percent of those who have heard about Web3 believe that it will make them happy and positively affect their well-being. On the other hand, respondents also expressed worries such as Web3 might give way to more scams and cybercrimes, make their existing devices obsolete, and that it may need to be more heavily regulated compared to the internet we have today.

Web 1.0 vs. Web 2.0 vs. Web 3.0

Web3 empowers users in a decentralized form of the internet. It’s not about big tech firms controlling everything but open, permissionless networks. It actually is true to the original concept of the proponents of the world wide web, where one will not need permission from anyone to post and where there is no need for central control.

Meanwhile, Web 1.0 was about open-source protocols that allowed computers to be connected but only allowed a few people to create content. The majority of users only consume content. The first iteration of the internet gave us static websites with limited functionality.

Web 2.0 evolved to become an internet for creators. People became bloggers, vloggers, and social media citizens from being passive viewers. Web 2.0 made content king and encouraged participation and interaction of users.

While Web 1.0 is mainly read-only and Web 2.0 is read-write, Web3 will be read-write-own. Without the big tech giants and other entities in the middle, ownership is the name of the game. Those who build, operate, and use Web3 technologies will own a portion of the platform. For example, with Bitcoin and Ethereum transactions, a certain portion is spent on fees for securing the network. Other networks could be token-based too but instead of collecting fees, they can get tokens for a certain service.

Aside from cryptocurrency and virtual assets relying on the blockchain, users can also expect decentralized applications running on decentralized networks, self-governance, and control over data and online identities.

How Web3 Will Change Everyday Life

As Web 2.0 fueled content creation and a culture of participation, it has been influencing how we live today. Web3 will also shape the near future.

There are around 6.57 billion smartphone users in the world today and this number is expected to hit 7.7 billion by 2027. This higher density of the population will enjoy a more personalized browsing experience, refined search engine capabilities, and enriched web apps as Web3 comes to fruition. As Web3 evolves to get rid of the issues with its predecessor, a more efficient internet will certainly change our daily lives.

Brands will be more dependent on the blockchain and become more user-centric and transparent. The dominance of large corporations in providing financial services will be gone. Artificial intelligence will also play a crucial role in enhancing manufacturing, supply chains, and the overall decision-making process of entrepreneurs. Regulations imposed by governments on businesses might also be reviewed as the business landscape changes.

Payment with tokens on blockchain will remove restrictions on commercial activity across borders. The movement of virtual assets will not need intermediaries and will practically have no delays. Because of this setup, government interference and regulation of businesses will not be as tight as we know it today.

Common people will be able to easily invest in startups using tokens and play a role in the governance of these brands. Decentralized organizations will see stakeholders as equals and this will shape how companies are built.

Consumers will demand hyper-personalization of products and services. Businesses must keep up and ensure an excellent customer experience. For the tech-savvy generations, Web3 could paint a world with less or no constraints. However, for folks who might not be able to keep up with the pace, the world running on Web3 could shape daily struggles for them.

Why Web3 Transparency Is A Double-Edged Sword For Data Privacy

When Gavin Wood coined the term Web3 in 2014, he highlighted that we have a broken model where we entrust our information to organizations. Instead of data monarchy of big tech firms with the largest servers in the world, the new version of the web is focused on data democracy.

Data Privacy in Web3: The Good, The Bad, and The Ugly

With Web3, data will be on the blockchain. Data will remain transparent and easily traceable. This paints a picture of equality and true freedom but raises questions on how to protect the data privacy of users.

For example, in a blockchain transaction, your data and information will be in the transaction. Transactions can be tracked down all the way to their sources. And that has so many implications.

Ideally, the sender and receiver should be non-public to achieve anonymity Likewise, the amount should not be known for confidentiality. Combine the two and you will have a utopia for data privacy. Web3– with blockchain and decentralized apps–  promises freedom of consumers from profiting corporations, but it comes with data privacy risks.

With data on the chain, it becomes prone to front-running. This is a type of attack where miners insert transactions ahead of others so they can extract higher maximal value than regular users.

If AI systems will man the flow of data, there will be questions on the design of its algorithm and who will be responsible for it. With lenient to no regulations necessary, what will happen if hackers gain access to your data. Who will be responsible? What can you do legally to go after them? For a system designed to empower users, cybersecurity must also evolve or you run the risk of bad people also prowling around and no one is capable of policing them.

A tsunami of phishing may also occur in the form of cybercriminals duping unknowing victims using malicious blockchain transactions to hand over virtual assets and properties. Rug pulls are also happening as early as now where a crypto project is hyped and insiders run off with the hard-earn money of early investors.

With the pseudonymity in Web3 and big possibility for regulation gaps, it may open the door for money laundering and financing of terrorist movements.

Cloning cryptocurrency wallets might be another form of attack on data privacy. With the use of seed phrases or keys to retrieve lost wallets, people can trick users into giving this information, find a loophole in the verification process, and eventually steal whatever is stored in the wallet.

What Will It Take To Resolve The Web3 Data Privacy Paradox?

The transparency of Web3 brings to the surface its data privacy weak points. It is still early, but data privacy and security challenges must be properly addressed.

Public and private entities must establish source-of-truth data for Web3 vulnerabilities so they can be properly managed. Decentralization frees entities from responsibilities. No one owns the problem and this has significant ramifications for ordinary users.

There should also be a distinction between public and private blockchains. The former allows anyone to join the network while the latter imposes control on who can join them. Public blockchains will be more resistant to censorship and decentralized while its counterpart will be a closed system governed by rules and comparable to existing databases where the owner has access and control of the ledger.

Smart contracts can also be implemented on public blockchains to enhance data privacy. These tools can be used to customize data access and control.

Ultimately, there should be anonymity and confidentiality to have true data privacy.  To achieve this, users must have control over whether to disclose their data before commencing a transaction to have data privacy or not. True data control means decisions will solely be on the user.

Web3 is an exciting development but still confusing to the majority of people. For individuals, we must be ready to understand how blockchain and other Web3 technologies will impact our lives. Organizations, businesses, and governments should collaborate to address data privacy and security worries to prepare the groundwork for Web3.

If you’d like more information about how to incorporate data privacy into your Web3 project, please email info@bytebao.io or visit bytebao.io for more information.  

ByteBao is a leading Web3 law firm that helps clients comply with legal, ethical, and regulatory standards relevant to the blockchain-powered Web space.

info@bytebao.io