In 2020, US hospitals were on the front lines, fighting a global pandemic. As if the COVID-19 crisis weren’t enough, ransomware attacks on hospitals doubled as hackers exploited database vulnerabilities.
Unfortunately, breaches of sensitive personal data continue to rise, making cybersecurity and data privacy a high priority for individuals, companies, and governments.
Apart from data theft risks, individuals are also now more aware that large tech platforms like Google, Facebook/Meta, Instagram, and Twitter/X collect and resell their data. At a time when countries are cracking down on these practices, could privacy and data ownership in Web 3 provide solutions?
Let’s look at the differences in privacy and data ownership between Web 3 and in the current Web 2 status quo.
Privacy and Data Security in a Web 2 World
Healthcare organizations are just one of several lucrative targets for hackers. Any large organizations that store personal information, like universities or credit card companies, are also vulnerable to data breaches.
Just like wealthy towns in the Middle Ages were vulnerable to mercenary attacks, centralized databases make attractive targets for hackers. Once you breach the walls, all the gold is yours.
Tech Platforms Mining Data Gold
Selling stolen records is obviously an illicit way to monetize data. Legitimate organizations generate revenue from data collected by online platforms, particularly giants like Facebook and Google.
Data is gold for online advertising business platforms that earn billions of dollars yearly. Facebook’s approach is similar to that of most social platforms. They collect extensive data about how people interact and what they like on social networks. They can then sell ads to brands to target specific audiences based on their detailed profiles.
To create a comprehensive picture of behaviors and interests, Google gathers data through various services, including search queries, YouTube viewing habits, and Gmail usage. This vast data pool enables Google to offer advertisers precise targeting options based on search intent and online behavior patterns.
While both platforms have revolutionized online advertising, the key difference lies in their data collection methods – Facebook’s and other social platforms’ tactics are more socially driven, and Google’s is more behavior and search-oriented.
Ethical Dilemmas in Web2 Data Harvesting
The ad-driven data model improves advertising results but raises concerns about privacy, data ownership, and ethics. For example, the platforms don’t compensate individuals for using their data.
Brands spend millions on posting organic (or unpaid) content and digital assets to build audiences on social platforms. These audiences provide data to the platforms that create algorithms that limit who sees unpaid content. Then, they resell the user data back to the brands that have attracted users to the platform in the first place.
In short, Web2 has two big problems with data privacy. First, it is centralized, which means the data has a single-point vulnerability to attack. Second, platforms sell consumer data without compensating the users who provided it in a skewed system that mainly benefits a few giant tech companies.
A New Era of Privacy and Data Ownership in Web 3
How could Web3 create a more secure, equitable privacy and individual data ownership system? For starters, Web3’s foundation is blockchain technology that enables the following:
Decentralized data storage: On the blockchain, user data is stored in duplicate copies across a network of nodes, unlike Web2’s centralized servers. The network must validate any changes. If hacks or other issues compromise one database, the system doesn’t go entirely down.
User-Controlled Data: Blockchain enables individuals to have direct control over their data. In Web2, companies or organizations control data access. In Web 3, smart contracts can automate permissions without needing a human intermediary that can be a weak link in the system.
Data Integrity: Blockchain creates a clear record of transactions that is almost impossible to alter secretly. Any access or changes to data are permanent and visible, which may not be the case in Web2 systems.
Smart Contracts for Data Sharing: Smart contracts automatically execute once the contract meets certain conditions, allowing users to set specific terms for data access. In Web2, it usually requires human verification to execute contracts.
Cryptography: Blockchain enhances security with advanced cryptography, making it more secure than traditional Web2 security measures.
Tokenization of Data: Users can tokenize their data into tradeable digital assets.
Artificial Intelligence and Blockchain: AI’s progress improves Web3’s cybersecurity by enhancing identity verification and combating digital identity theft.
The Government’s Role in Privacy and Data Ownership in Web 3
In most of the world, governments control official copies of identity records. Documents stored on the blockchain would be more secure and less vulnerable to loss during war or natural disasters.
In a Web 3 world, people should be able to control their digital identity and records. They can keep them on-chain, separate from a government database. Both of these options have significant implications for refugee populations, for example.
One example is the town of Zug, Switzerland. The Zug government has implemented the Zug Digital ID, which uses blockchain technology to create a decentralized digital identity system. Developed in collaboration with uPort, a data platform on the Ethereum blockchain, the Zug Digital ID was designed to enhance privacy and control over personal data, as well as to streamline interactions between citizens and government services.
This digital ID system allows residents to register their identity on the Ethereum blockchain. This registration unlocks access to various e-services, including proof of residency and online voting.
This system stands out for its decentralization, as it stores all personal data on individual mobile phones instead of a central server and encrypts it for added security. This approach gives citizens complete control over their information and how they share it.
The Zug Digital ID system is an exciting step in digital transformation for government-issued IDs. The city of Zug is also using the system for innovative applications, such as borrowing e-bikes, as part of a broader digital strategy.
Navigating Web3’s Challenges
While Web3 offers advantages for privacy and data ownership, it also faces hurdles in scaling for widespread use. Challenges include:
Technical Complexity: Blockchain and related Web3 technologies are complicated and require special knowledge and infrastructure. This complexity can be a barrier to widespread adoption and understanding.
Scalability issues: Current blockchain networks may have difficulty handling large volumes of transactions efficiently.
Regulatory Uncertainty: The rules for Web3 and blockchain technology are still uncertain. This uncertainty makes it hard to know how to comply with existing government laws around data privacy, securities, and international transactions.
Interoperability: Making different blockchain systems and Web3 applications efficiently work together is still a significant technical challenge. Siloed blockchains can affect users’ experience.
Resistance to change: Transitioning from familiar Web2 platforms to Web3 applications requires users to change their behavior and understanding. The transition can be slow when people are comfortable with what they already know and resistant to change.
Security Concerns: While blockchain technology is secure, the broader Web3 ecosystem, including wallets, smart contracts, and decentralized applications (dApps), can introduce vulnerabilities.
Infrastructure costs: Blockchain infrastructure can be expensive, which may stop smaller groups or organizations from joining the Web3 community.
Environmental Impact: The energy consumption of specific blockchain networks, particularly those using proof-of-work consensus mechanisms, raises environmental concerns.
Digital Divide: Exacerbating the digital divide is the uneven distribution of Web3 benefits between those with access to the latest technology and those without.
Closed and Private Blockchains
In theory, blockchains are transparent and open. In practice, companies and governments can set up blockchains with limited access. For example, some corporations have supply chains on private blockchains, limiting access to only relevant stakeholders.
Governments will likely control citizen identity records using limited blockchain models. Just as they haven’t handed over control of financial systems to open cryptocurrency models, they will likely control access to identity blockchains.
Individuals storing their identity with private or public companies is the other option. That option raises its own concerns about corporate ethics and long-term security, too.
Moving Ahead with Privacy and Data Ownership in a Web3 World
As Web3 and decentralized technologies emerge as powerful tools for enhancing data privacy, individuals must recognize and mitigate the associated risks. Proactive measures include adopting privacy-enhancing technologies and opting for decentralized apps and platforms emphasizing data privacy. This approach ensures a more secure and privacy-conscious journey in the Web3 landscape.
If you trade crypto assets, ZenLedger can help ensure you remain compliant despite changing regulations. The platform automatically aggregates trades across wallets and exchanges, computes your capital gains and losses, and generates the tax forms you must file. And you have access to a single unified ledger to prove your compliance.
This material has been prepared for informational purposes only and should not be interpreted as professional or legal advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.