Problem of current BC solutions

Top 3 challenges of current blockchain solutions

Privacy

In most blockchains, transactions are open for anyone to view which compromises the user's privacy to a large extent. Though most accounts have pseudonymity, increasing usage of blockchain for day-to-day transactions and advanced chain analysis tools combined have the power to overcome blockchain's pseudonymity and connect accounts to their owners.

It means that it is possible for hackers and malicious actors to track balance, view transactions, apps, whales and sharks, and other sensitive on-chain information.

The conventional financial system ensures banking secrecy, which means that your financial information is kept confidential and can only be accessed by authorized entities with a court order.

However, blockchains of today like Ethereum and non-Ethereum Protocols lack the same level of privacy, which hinders our comfort and freedom in everyday transactions. To encourage widespread adoption of blockchain, it's crucial to create privacy measures that are on par with those of the current financial system.

Regulatory

While it's essential to improve privacy on the blockchain, it must also be balanced with compliance. Compliance in this context refers to the verifiability challenge with most mixer solutions available today in the industry. Many privacy-enhancing tools, such as Cash & ID mixers, have unfortunately been misused by malicious actors to launder money from illicit activities like hacks and hide their identities. Decentralized apps on the blockchain, being permissionless, are struggling to prevent bad actors from utilizing such tools for illegal purposes.

Unlike in the traditional financial system, money transmitters on the blockchain don't have to comply with as many Anti-Money Laundering and Anti-terrorism financing regulations, making it easier for illegal activities to go unnoticed. To encourage the blockchain's mass adoption, it's crucial to strike a balance between privacy and compliance, by devising solutions that improve user privacy while simultaneously preventing illegal activities.

Scalability

ZK-rollups utilize zero-knowledge proofs to optimize the efficiency of token transfers on the Ethereum public blockchain. Instead of individually counting each token transfer as a transaction, zk-rollups bundle hundreds or even thousands of transfers into a single transaction. This leads to shared fees and computing power among numerous users. Hermez, for instance, employs zk-rollups to batch up token transactions. Zk-rollups rely on zk-SNARKs, which enable the creation of a SNARK proof that refers to the transaction on the Ethereum chain. Relayers are also utilized to transfer funds deposited by a user to a smart contract.