“Today, federal law enforcement demonstrates once again that we can follow money through the blockchain.”

Crypto wallets may be pseudonymous, but many exchanges have Know Your Customer protocols and collect tons of other data on users. Moreover, transactions necessarily require sharing your wallet with another party. As software engineer Molly White wrote, once someone knows your wallet address, privacy can be difficult, if not impossible to maintain: “Imagine if, when you Venmoed your Tinder date for your half of the meal, they could now see every other transaction you’d ever made—and not just on Venmo, but the ones you made with your credit card, bank transfer, or other apps, and with no option to set the visibility of the transfer to ‘private.’”

The primary way to combat this public scrutiny is with obfuscation methods like using unique wallets for each transaction, or employing a tumbler or mixer service. The latter combines many people’s money into one pool and then redistributes it so as to obscure which money is going where. While this process itself isn’t inherently illegal or even suspicious, you’d be forgiven for thinking it sounds a bit like money laundering, because sometimes it’s used for exactly that.

These techniques are by no means foolproof, but even if they were, it’s a cumbersome layer of work that simply doesn’t scale. An obsessed crypto investor with plenty of time on his hands might learn how to manage a dozen crypto wallets, a wallet manager, a mixer, and every other tool needed to stay anonymous. But that’s work the average person simply can’t be expected to do on their own.

NFTs Shatter the Illusion of Privacy Entirely
A key component to keeping crypto activity anonymous is to avoid tying transactions to any identifying information. Which means NFTs, by their nature, can fundamentally undermine this goal. The idea behind NFTs is that they are fundamentally unique, identifiable tokens. And while they don’t work quite the way advocates say they do, it’s still technically true that no individual NFT can be duplicated.

This means that, if a user ties an NFT to any part of their online or IRL identity—say by using an NFT as a profile picture on Twitter or maintaining a profile on an NFT marketplace—it becomes trivially easy to find out what else their wallet has been up to.

This doesn’t even require using a specific app or service. For example, when Jimmy Fallon showed off his Bored Ape on TV, that made it very easy to find Jimmy Fallon’s wallet address and see what other transactions his wallet has been involved in, including a user sending him 1,776 Let’s Go Brandon tokens.

While knowing who bought which JPEG might not seem like a major deal, it becomes a critical issue as crypto advocates push the idea of using NFTs for home ownership, medical records, and social media. A single wallet—or even a network of wallets that are not adequately obfuscated—could act as a giant bucket of personal data that not only can’t be kept private, but can’t be deleted from the blockchain.

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