In Celsius Network’s recent court filing, the billion-dollar centralized finance (CeFi) platform exposed more than 14,000 pages of customer identity and on-chain transaction data without consent. user – a prescient reminder that privacy without decentralization is no privacy at all.
As part of its bankruptcy proceedings, lending giant CeFi Celsius Network disclosed the names and on-chain transaction data of tens of thousands of its customers in an Oct. 5 court filing. While Celsius’ user base complied with standard Know Your Customer (KYC) procedures in order to open personal accounts on the CeFi platform, none consented to or could have anticipated a disclosure. massive of this scope or magnitude.
In addition to doxxing Celsius founder Alex Mashinsky and Chief Strategy Officer Daniel Leon’s multimillion-dollar withdrawals just before Celsius’ bankruptcy announcement, the disclosure prompted tens of thousands of CeFi users to reconsider what strong privacy protections entail and how systems that incorporate any degree of trust or centralization risk compromising those protections.
To protect privacy, any degree of centralization or specialized authority that exchanges use in the future must avoid the failed Celsius model. Otherwise, privacy will be made another false promise teased in the fine print.
While disreputable, at the very least, Celsius’ massive data dump indicates more than outright distrust of authority and opaque organizations. As usual, at the intersection of blockchain finance and law, there are a lot of gray areas.
An emerging and nascent industry, the blockchain space has already created an unprecedented mess of conflicts and disputes that neither existing legislation nor established case law has developed a reliable methodology to navigate. Even in the highly nuanced legal environment of 2022, the courts are not sufficiently prepared to uphold established legal principles in the area of the chain.
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In defense of their customers, Celsius’s legal representatives allege that they issued requests to remove private customer data from their disclosures. However, their claims were ultimately denied by the court on the grounds that all Chapter 11 bankruptcy proceedings require a complete and transparent “creditor matrix.” Obviously, such a bankruptcy rule was written and lived through several eras before the emergence of distributed on-chain loan protocols; a time when financial institutions did not have 14,000 pages of so-called creditors.
To make matters more hazy, Celsius legal officials also claimed that according to Celsius’s terms of service, all user funds deposited on the platform essentially belong to Celsius. Thus, as the self-proclaimed de facto owner of all customer deposits, Celsius’ public publication of customer transaction data further strays into unclear legal territory as to the parameters that define ownership – and, therefore, privacy protections – in the chain. space.
Either way, Celsius customers have lost their privacy forever. The only sure verdict is that there can be no certainty in depending on an unprepared legal system to enforce privacy rights in fluid and uncharted territory.
Celsius is not alone
Although dramatic, Celsius’ collapse is just the latest in a string of CeFi industry bankruptcies. The platform’s billion-dollar deficit presented in bankruptcy filings has been much less the exception than the rule.
Once one of the most expensive and powerful CeFi platforms in crypto, the rise and fall of Celsius is a painful reminder to crypto critics and advocates that a core team can become a singular point of failure. at any time. Additionally, centralized KYC procedures always carry some risk of exposure in legal proceedings.
The predicament faced by tens of thousands of innocent crypto investors points to a much larger principle: that privacy cannot be truly conferred or absolutely protected within the confines of a centralized system. Even with the best of intentions in mind, professionals on both sides of the court have little legal precedent to rely on as they navigate new and confusing territory.
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As on-chain data analysis becomes increasingly sophisticated, hackers increasingly complicit, and personal data increasingly valuable to marketing agencies and authorities, privacy-conscious people must do extreme caution in determining which crypto platforms best align with and protect their interests.
After all, Google, Meta, and the rest of the Web2 platforms that the crypto community has since dismissed as exploitative and archaic are about as private as Celsius and its CeFi counterparts. Each provides privacy as a service. Meanwhile, its users’ search histories, account information, and browsing preferences are private to almost everyone except, of course, the platform itself. As Celsius’ bankruptcy proceedings proved, even the best-meaning custodians are not a sufficient substitute for a decentralized architecture.
The true promise of systems built on blockchain is that what they bestow, whether ownership of assets, rare monetary units, or contracts without permission, cannot be regulated, erased, or altered. on a whim. Their constitutions are written in code. All changes are coordinated and executed by Decentralized Autonomous Organizations (DAOs). There is no trust between the counterparts, only a shared belief in the permanence of the principle and the wisdom of the collective.
In the same way privacy has been a prerequisite for personal freedom and self-expression since time immemorial, decentralization is today a prerequisite for privacy online – and, to that end, in chain.
Alex Shipp is the Chief Strategy Officer at Offshift, where he contributes to the tokenomics platform, produces content and leads business development on behalf of the project. In addition to his role in the industry as an expert in decentralized private finance (PriFi), he was also a writer at the Elastos Foundation and an elected ecosystem representative at the Cyber Republic DAO.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.