This is a guest contribution from Georgi Koreli, CEO & Co-Founder of Hinkal.
For a long time, crypto wallets have offered complete transparency, revealing every transaction, balance, and activity on a public ledger. While this feature was once perceived as a cornerstone of blockchain technology, it has increasingly been viewed as a significant drawback. As per a report, 62% of institutional investors prefer access to crypto indirectly or through regulated means, expressing concerns over the exposure of their transactions on a public platform. In a landscape that aims to challenge or replace traditional finance (TradFi), the inability to perform transactions confidentially poses a severe risk.
The recent hack of the Bybit platform, which resulted in a $1.5 billion loss, was reportedly linked to a compromised wallet. This incident underscores the risks associated with excessive transparency, as attackers can target high-value accounts, monitor their activities, and execute highly focused assaults. Notable figures like Vitalik Buterin and Paul Brody from EY have highlighted that true adoption relies on the integration of privacy solutions rather than solely depending on open ledgers. Despite these cautions, the crypto sector often retains a model that leaves its participants open to vulnerabilities, affecting everyone from individual investors to large organizations.
Inherent Flaws of Public Wallets
Examining public wallets reveals numerous weaknesses. The first is surveillance. Every token swap, NFT creation, or simple balance transfer is clearly displayed on the blockchain, and with sufficient data, onlookers can deduce a wallet’s balance and patterns of spending, investment, and connections. While this poses a concern for individual users, it is a deal-breaker for institutions that need to protect sensitive competitive information: no thanks.
Moreover, security risks increase when every wallet’s asset holdings are publicly known. Cybercriminals can identify substantial reserves and employ advanced phishing or social engineering tactics. The Bybit incident serves as a stark reminder of what occurs when malicious actors target a prominent wallet. Once assets are laundered through mixers or other methods, recovery becomes nearly impossible. For institutions managing considerable reserves or executing strategic trades, this visibility presents more than just a risk — it’s a structural flaw that could lead to front-running and extortion.
Lastly, regulatory and competitive barriers arise from the assumption that total transparency guarantees oversight. Traditional compliance frameworks utilize regulated gateways, risk assessments, and audited disclosures — not the broad, consistent visibility that public blockchains provide. Companies need confidentiality when negotiating agreements or sharing financial data with partners. If every transaction is instantaneously accessible to competitors, it undermines any advantage. In essence, public wallets are not only inconvenient; they undermine the business justification for crypto in practical scenarios.
Private Blockchains: An Illusion of Security?
Some organizations have turned to private blockchains as a solution to transparency issues. Private blockchains restrict participation to a closed network, preventing outside access to transaction information. However, this contradicts the fundamental principles of decentralization. A small group can alter rules, block transactions, or govern the system in ways that violate the trustless nature of crypto.
In addition, private blockchains often weaken liquidity and composability. One of the defining characteristics of decentralized finance (DeFi) is the interoperability of various platforms, often likened to “money Legos.” Splitting off into an isolated private network disrupts that ecosystem effect. Furthermore, external developers lose their motivation to create on a controlled platform that they cannot freely access.
Although they may seem attractive at first, private chains risk hindering collaboration and stifling the innovation that has fueled the growth of public networks. The ideal solution must find a balance between privacy and the open-source principles inherent in public blockchains.
Privacy-Focused Wallets Utilizing ZK
The pathway to widespread adoption lies in privacy wallets that incorporate cryptographic methods such as zk-SNARKs and stealth addresses. Zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge) enable one party to validate a statement (like confirming a transaction) without disclosing its details. Instead of announcing every token movement, the blockchain only records confirmation that the transaction adheres to established protocols.
In addition, stealth addresses conceal the identities of the sender and recipient by generating temporary, single-use addresses for each transaction. This maintains the liquidity and composability of public blockchains while safeguarding private data. Selective disclosure allows users to provide detailed transaction histories to pertinent regulatory bodies or auditors without making this information public. This design bridges the gap between regulatory compliance and the legitimate expectation of privacy.
With these capabilities, institutions can engage in large volume trades without alerting potential front-runners. Companies can manage corporate expenses and payroll without risking sensitive figures becoming public. Individual users can also enjoy the same privacy they have come to expect from traditional banking. All the while, the network remains decentralized, accessible, and vibrant.
Finding the Right Balance: Privacy, Compliance, and Security
Critics often equate privacy with chaos, but this is a misleading comparison. Established banks do not make personal account information public, yet they still comply with KYC, AML, and other regulations. In a privacy wallet model, authorized entities — with the appropriate legal foundation — could possess decryption privileges, minimizing the potential for unregulated crime. This results in a framework where user privacy and regulatory compliance can coexist.
It’s also vital to recognize that integrating privacy features does not eliminate the necessity for strong cybersecurity measures. The Bybit incident underscored the importance of multisig wallets, hardware-based key storage, and standard best practices for securing digital assets. Privacy wallets merely lessen the incentive for hackers by concealing which addresses contain significant balances, providing an additional layer of security that complements other protections.
The End of Public Wallets – A Push for a Confidential Future
In conclusion, public wallets have become obsolete in a landscape where serious businesses seek confidentiality and everyday users recoil from total transparency. It is no accident that industry thought leaders have called for an increase in privacy initiatives — widespread adoption cannot thrive while every transaction is exposed to scrutiny by data miners, hackers, and unscrupulous competitors.
The industry must evolve if we expect crypto to surpass TradFi. Complete transparency is a relic of the past — it hinders corporate engagement, endangers personal security, and stifles institutional investment.
Privacy wallets represent a balanced approach that preserves the essential benefits of public blockchains — such as open access, network effects, and seamless interoperability — while addressing their most significant drawback: the absence of confidentiality. The introduction of stealth addresses, zk-SNARKs, and selective disclosure paves the way for universal applicability, diminishing hacking incentives, alleviating institutional concerns, and enhancing user autonomy.
In essence, the message is clear: public wallets no longer align with the evolving cryptocurrency ecosystem. Adopting privacy-focused wallets is the necessary transition that will enable digital assets to thrive in the larger financial landscape. To compete with established financial systems, we must prioritize privacy, and it is crucial that we do not overlook this need.
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