Does Accountability Matter in Web3 - The Dark Side of Anonymity

Since its inception, anonymity and privacy have been the core components of blockchain technology. In fact, anonymity is often considered the building block of Web3, where individuals are not held accountable for disclosing their private and personal information to engage in digital activities. The entire modern era's blockchain revolution started with Bitcoin, which the anonymous Satoshi Nakamoto founded. Therefore, the trend of anonymous and pseudonymous identities in the Web3 space has been prevalent since day one.

Although anonymity has been a beneficial factor for traders in the digital asset space, its recent abuse of avoiding liability has posed serious concerns among the Web3 community. So, what are the problems with anonymity? And should it still be upheld as a critical function of blockchain utility?

The evolution of anonymity in the digital space

Privacy has been a rather mediocre term in the 21st century, especially with the emergence of social media and digital transformation across industries. Whenever we engage in any digital activities or transactions, we leave our private information at the mercy of third-party organizations.

That's why anonymity was seen as a game-changer when crypto and blockchain emerged. The ability to transact anonymously has genuinely been a revolution.

However, blockchain and cryptocurrency adoption has exploded in recent years. With thousands of protocols, digital currencies have grown to a whole new dimension. Think about it: there are currently over 20,000 active cryptocurrencies across different blockchains, over 80,000 NFT projects, and thousands of DeFi services in the Web3 space. How can you ensure that the privilege of anonymity isn't misused across so many different environments?

Also, when Satoshi Nakamoto introduced Bitcoin, no one knew how centralized institutes would react to this new concept of digital assets. Pseudonymity was maintained to avoid regulatory consequences. Fast forward a decade later, blockchain adoption is at a record high, growing daily.

So, anonymity has transformed from a mere facilitator of privacy to a factor of public concern - regarding who is responsible for managing the digital assets of millions of users and how.

The importance of accountability in Web3

When you don't know the founder or developer of a project, you're heading in blindly. If things go sideways, there will be no one to take liability.

For example, last year, a new project called the "Squid Game Token," inspired by the popular Netflix series, emerged in the blockchain space. The show's hype influenced thousands of users to invest in the project, only for the developers to pull the plug and run off with millions. Because the developers were anonymous, the community or regulators didn't know who to hold accountable for this scam.

On the other hand, when the Terra blockchain ecosystem collapsed recently, the community knew who to hold accountable. Users and authorities were able to engage its founder Do Kwon to find a solution.

So, accountability is critical for the modern blockchain era. With so many projects, volatile markets, and undefined regulations, users are unlikely to entrust their digital assets to anonymous individuals. It's not only about digital finances and cryptocurrencies. Several blockchain projects acquire private information without providing any assurance of how it is being stored and managed.

For instance, many fitness-based blockchain projects use the Move-To-Earn (M2E) model to reward users for their physical activities. These projects track real-time user information through apps and devices. If the founders and developers of such projects are anonymous or pseudonymous, users won't be able to sustain trust. Who holds the accountability if such platforms are breached, and the user's private info is compromised or even made available for sale on the dark web?

To address these concerns, users need to know who manages their data, the founders' background and experience, and which organizations they belong to. Maintaining transparency not only builds credibility for a project but also ensures liability. When their identities are known, founders and developers are always on their toes to maintain compliance. Otherwise, they will be held accountable by the community or regulators.

The future of anonymity in the blockchain

The decentralized nature of Web3 means that it won't be a fully regulated space anytime soon. As long as regulations remain vague, anonymity will always exist in this space. With scams and fraud soaring across the blockchain, it's evident that legitimate projects will try to maintain accountability by providing accurate insight into their founders and developers. Projects that innovated the exclusive Burn-To-Earn model are levering a transparent management structure to ensure compliance and build credibility.

We are also likely to see many anonymous projects disclosing their information to retain user trust. For instance, the real identities of Bored Ape Yacht Club's pseudonymous founders were revealed earlier this year - bringing more credibility to the popular NFT collection.

While anonymity will remain a large part of crypto and blockchain, it will become less frequent as illicit activities keep spiking across the Web3 space. Going forward, we are likely to see more projects disclose their organizational information willingly or through the expert analysis of digital journalists.