The following is a guest post from Zac Williamson, CEO and Co-founder at Aztec.

The blockchain industry is at a crossroads. While the industry has made significant headway in development scaling solutions, a fundamental challenge remains unaddressed: the need for programmable privacy. The enforced transparency of blockchains prevents their adoption in cases where user privacy is paramount, including real-world assets, supply chain management, and distributed identity protocols.

In order for blockchain to be adopted into mainstream use, the industry has to prioritize programmable privacy—a requirement essential for institutional users. The next generation of Ethereum Layer 2 (L2) solutions emphasizes this crucial aspect. Through innovations in zero-knowledge (ZK) cryptography, privacy-focused L2s are positioned to bridge the gap between public blockchain benefits and institutional privacy demands.

Privacy: The missing piece to scaling Ethereum

Blockchain’s enforced transparency creates a significant limitation. To validate the ledger’s correctness and ensure no fraudulent activities occur, users must be able to verify all transactions occurring on the network. This transparency becomes problematic when connecting blockchain with real-world assets and identities.

Currently, linking real-world identities to cryptocurrency accounts requires either broadcasting personal information onchain or relying on data custodians as trusted intermediaries. The first option proves unworkable for most use cases—imagine if every ATM transaction broadcast account balances publicly, or if all online purchases could be viewed by anyone, including mortgage payments, credit card debts, and late billing fees.

While data custodians may seem attractive, they break blockchain’s fundamental value proposition: composability — the ability of smart contracts, protocols, and dApps to seamlessly interact. This composability achieves efficiency gains similar to vertical integration in traditional industries, acting as a force multiplier for smaller companies. It allows these companies to integrate services they would otherwise need to develop internally or access at a premium from third parties.

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Author: Zac Williamson