The Importance of User Privacy in Web3 Wallets

With crypto’s visibility increasing exponentially within the global mainstream, Web3 wallets have seemingly become the perfect getaway for many to manage their growing portfolios. But since most of these tools operate atop public blockchains (where transactions are transparent by design), they inadvertently end up exposing the personal details of their users.

And, while that may seem to align with the double-edged proposition that the blockchain offers, the consequences of privacy lapses linked to these wallets can be very real, as was the case during the 2022 Canadian Truckers' protest. In the aftermath of the incident, the identities of hundreds of workers were doxxed as sleuths were able to link massive crypto donations to their identities, resulting in them facing severe social consequences.

Beyond individuals, many companies too have become hesitant to use public blockchains for things like payroll or supply chain finance, as it has enabled their competitors/counterparties to freely observe sensitive transaction details.

The stakes are further underscored by a series of hard numbers as in 2024 alone, $2.2 billion was stolen in crypto hacks – 17% more than the previous year, with nearly 70% of that sum resulting from "infrastructure attacks," where private keys or seed phrases were compromised.

Crypto’s privacy paradigm and Aleo’s growing role in it

As the Web3 sector grapples with these challenges, innovative solutions are emerging to make privacy a built-in feature rather than an afterthought. One of the leading efforts tackling this challenge is Aleo, a Layer-1 blockchain that uses zero-knowledge (ZKP) cryptography to offer clients a high degree of ‘selective transparency.’

Aleo’s commitment to privacy is best exemplified in its storage offerings, namely FoxWallet and Leo Wallet. To elaborate, FoxWallet is a mobile self-custody wallet that simplifies managing assets across multiple chains while leveraging Aleo’s zero-knowledge features.

Similarly, Leo is built specifically for the Aleo network, letting users decide what information to share publicly versus what stays private, so transactions don’t have to be broadcast in detail on-chain. In essence, an outside observer cannot trace a payment back to the user or compile their transaction history, even as the network fully validates each transfer, thus preventing the type of data leakages that have become commonplace in crypto today.

Circling back to the broader Aleo ecosystem, it bears mentioning that the project’s mainnet launch (which took place in late 2024) served as a turning point in its overall evolution, enabling developers to deploy dApps on a public blockchain that is ‘private by default’ and uses ZKPs to ensure sensitive data isn’t exposed.

This privacy-first approach has gained real traction with Aleo’s model, specifically catching the attention of major industry players. For example, when Aleo’s native token ($ALEO) made its debut, Coinbase supported its launch, even offering day-one custody and staking integrations. Similarly, exchanges like HashKey Global also immediately listed $ALEO for trading.

Lastly, as privacy on Aleo is "programmable" and "selective," users can hold ‘view keys’ that they can share selectively to grant read-access to their data as and when necessary. On the subject, company founder Howard Wu recently elaborated:

"Proof of Succinct Work, or PoSW, is Aleo’s innovative approach to consensus that increases network security and efficiency. Unlike Proof of Work (PoW), which relies on solving hash functions, PoSW tasks miners with solving puzzles that accelerate zero-knowledge (ZK) proving. This approach benefits Aleo and also contributes to the broader ZK space by advancing hardware acceleration for ZK proofs."

A lot to look forward to!

Aleo’s rapid progress has been reinforced by a number of strategic partnerships and expansions. For starters, earlier this year, the firm teamed up with Google Cloud, becoming the first zero-knowledge blockchain integrated into Google’s cloud ecosystem.

In fact, Google Cloud is even running a validator node on the Aleo network — which has already expanded to 25 validators and is expected to balloon to 40 by the end of the year — while also having integrated the latter’s data into its BigQuery analytics platform (giving developers a robust, scalable infrastructure with mainstream support).

Simply put, Aleo’s novel tech proposition is enabling use cases that wouldn’t otherwise be feasible on fully transparent ledgers, with one such example being payroll management. A company can potentially pay its employees via an Aleo-based application so that their salary details remain encrypted on-chain, visible only to the parties involved. If an audit is required later, the company can provide a ‘view key’ to regulators to reveal the relevant figures, all while maintaining compliance.

Looking ahead, it will be interesting to see how this space evolves, as projects like Aleo are showing that privacy can be finely tuned as per its prevailing context.

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