Conversation with a16z Crypto Partner: Privacy will become the most important "moat" in cryptocurrency. As digital assets and blockchain technology continue to evolve, privacy features are increasingly seen as a key differentiator and protective barrier against competitors and malicious actors. Ensuring user privacy and data security will be crucial for the long-term success and trustworthiness of crypto platforms.

Author: a16z crypto

Editor: Plain Blockchain

People often say that users don’t really care about privacy. In the social media era, this might be true. But in the financial sector, the rules are completely different. A16Z Crypto partner Ali Yahya has made a major prediction: privacy will become the most important moat in the cryptocurrency space and will trigger a “winner-takes-all” network effect.

Host: Robert Hackett (A16Z Crypto) Guest: Ali Yahya (A16Z Crypto General Partner)

1. Why is performance no longer a moat?

Host: Ali, you recently expressed the view that “privacy will become the most important moat in cryptocurrencies.” That’s a significant conclusion. What makes you so confident?

Ali: This idea stems from my thinking about the commodification of “block space.” Now, high-performance blockchains are oversupplied, and with convenient cross-chain solutions, the block space of various chains is becoming functionally similar.

In this context, simply having “high performance” is no longer enough for defense. Privacy is a feature that most existing public chains lack. More importantly, privacy can create a special “lock-in effect,” thereby strengthening network effects.

Host: Current blockchain teams might counter this, like Solana and Ethereum, which have completely different technical trade-offs and roadmaps. How would you respond to those who believe “my chain is unique and irreplaceable”?

Ali: I believe that, as a general-purpose blockchain, performance is just an entry ticket. To stand out, you must have one of three things: a thriving ecosystem, an unfair distribution advantage (like Coinbase’s Base), or killer applications.

Privacy is special because once users enter a privacy chain, due to the difficulty of “moving secrets” compared to “moving assets,” their willingness to leave is greatly reduced. This stickiness is something transparent public chains currently lack.

2. Do users really care about privacy?

Host: Many believe users are indifferent to privacy, as seen with Facebook. What makes you think the situation might be different in the crypto space?

Ali: People may not care about likes data, but they absolutely care about financial data.

If cryptocurrencies are to go mainstream, privacy is a must. Not only individuals, but enterprises and financial institutions absolutely cannot tolerate their payrolls, transaction histories, and asset preferences being monitored in real time worldwide. In a financial context, privacy is a necessity.

Host: Can you give some specific examples? What data do people most want to keep secret?

Ali: Too many. What did you buy on Amazon? What websites are you subscribed to? How much money did you transfer to which friend? What are your salary, rent, and account balances? All this information can be easily inferred from your financial activities. Without privacy, it’s like walking around with a transparent wallet on the street, and everyone can watch.

3. Why is “secrecy” hard to migrate?

Host: You mentioned a core idea: “Secrets are hard to migrate.” Is this a technical issue or a social one?

Ali: It’s primarily a technical issue. Privacy systems rely on “anonymity sets.” Your privacy is secure because your activity is mixed with that of thousands of other users.

The larger the anonymity set, the more secure the privacy.

Cross-chain risk: When you transfer privacy assets from one anonymous zone to another, a lot of metadata leaks occur (such as transaction time, amount correlation, network layer features).

This leads to: users tend to stay on the chain with the most users and the largest anonymity set. Because cross-chain transfers are not only troublesome but also pose the risk of “identity exposure.” This self-reinforcing feedback loop ultimately results in the market being dominated by only a few large privacy chains.

4. Technical paths: how to achieve privacy?

Host: What technical means do we currently have to realize your described vision?

Ali: There are mainly four technologies:

Zero-Knowledge Proofs (ZK Proofs): Prove transaction validity without revealing content, currently the fastest progressing.

Fully Homomorphic Encryption (FHE): Allows computation on encrypted data, most powerful in functionality but with huge computational overhead, still in the theoretical stage.

Multi-Party Computation (MPC): Collaborative computation among multiple parties without revealing individual data, commonly used for key management.

Trusted Execution Environment (TEE): Uses hardware enclaves provided by companies like Intel or Nvidia for encrypted computation; this is currently the most practical and high-performance approach.

Ali: In practice, we might see these technologies stacking together. For example, using TEE to ensure performance, combined with an additional layer of MPC as a defense barrier, ensuring that even if hardware is physically compromised, privacy remains secure.

5. Decentralization vs. “winner-takes-all”

Host: The core of crypto spirit is decentralization and interoperability. If future privacy chains result in a “winner-takes-all” scenario, does this go against the original intention?

Ali: I don’t think so. Decentralization refers to “control” rather than “fragmentation.”

A privacy chain, as long as it is open-source, verifiable in code, and its validator nodes are decentralized, is considered decentralized. This provides developers with a platform that guarantees “do no evil.” Compared to the Web2 era, where API blocking was used to lock in users, privacy locking in crypto is based on algorithms and security risks; the rules remain fair and neutral.