Decentralization, assets and privacy in the twenty-first digital century

Veneris, Andreas Working Paper Decentralization, assets and privacy in the twenty-first digital century CIGI Papers, No. 325 Provided in Cooperation with: Centre for International Governance Innovation (CIGI), Waterloo, Ontario Suggested Citation: Veneris, Andreas (2025) : Decentralization, assets and privacy in the twentyfirst digital century, CIGI Papers, No. 325, Centre for International Governance Innovation (CIGI), Waterloo (Ontario) This Version is available at: https://hdl.handle.net/10419/322470 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ CIGI Paper No. 325 — July 2025 Decentralization, Assets and Privacy in the TwentyFirst Digital Century Andreas Veneris CIGI Paper No. 325 — July 2025 Decentralization, Assets and Privacy in the TwentyFirst Digital Century Andreas Veneris About CIGI The Centre for International Governance Innovation (CIGI) is an independent, non-partisan think tank whose peer-reviewed research and trusted analysis influence policy makers to innovate. Our global network of multidisciplinary researchers and strategic partnerships provide policy solutions for the digital era with one goal: to improve people’s lives everywhere. Headquartered in Waterloo, Canada, CIGI has received support from the Government of Canada, the Government of Ontario and founder Jim Balsillie. À propos du CIGI Le Centre pour l’innovation dans la gouvernance internationale (CIGI) est un groupe de réflexion indépendant et non partisan dont les recherches évaluées par des pairs et les analyses fiables incitent les décideurs à innover. Grâce à son réseau mondial de chercheurs pluridisciplinaires et de partenariats stratégiques, le CIGI offre des solutions politiques adaptées à l’ère numérique dans le seul but d’améliorer la vie des gens du monde entier. Le CIGI, dont le siège se trouve à Waterloo, au Canada, bénéficie du soutien du gouvernement du Canada, du gouvernement de l’Ontario et de son fondateur, Jim Balsillie. Copyright © 2025 by the Centre for International Governance Innovation The opinions expressed in this publication are those of the author and do not necessarily reflect the views of the Centre for International Governance Innovation or its Board of Directors. For publications enquiries, please contact [email protected]. The text of this work is licensed under CC BY 4.0. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/. For reuse or distribution, please include this copyright notice. This work may contain content (including but not limited to graphics, charts and photographs) used or reproduced under licence or with permission from third parties. Permission to reproduce this content must be obtained from third parties directly. Centre for International Governance Innovation and CIGI are registered trademarks. 67 Erb Street West Waterloo, ON, Canada N2L 6C2 www.cigionline.org Credits President, CIGI Paul Samson Research Director, Digital Economy S. Yash Kalash Director, Program Management Dianna English Program Manager Jenny Thiel Publications Editor Christine Robertson Publications Editor Susan Bubak Graphic Designer Sami Chouhdary Table of Contents vi About the Author vi Acronyms and Abbreviations 1 Executive Summary 1 Alice in Digital Land: Trends and Challenges 2 Decentralization, Web 3.0 and Cryptography: When Bob Met Alice 5 CBDCs 7 The Digital Asset Privacy, Security and Anonymity Conundrum: A Geopolitical View 9 Where Does Canada Fit in This Global Picture? 10 Concluding Remarks 11 Works Cited vi CIGI Paper No. 325 — July 2025 • Andreas Veneris About the Author Andreas Veneris is a Connaught Scholar and professor in the Department of Electrical and Computer Engineering, cross-appointed with the Department of Computer Science and the Munk School of Global Affairs & Public Policy at the University of Toronto. He obtained a Ph.D. from the University of Illinois, Urbana-Champaign. Previously, he held joint faculty positions with the Athens University of Economics and Business (Department of Informatics, 2006–2016) and with the University of Tokyo (Department of Electrical and Computer Engineering, 2010–2011). For more than 20 years, he worked in the field of computerautomated design for very large-scale integration synthesis, verification and debugging using formal methods, publishing more than 120 conference and journal papers. Today, he focuses on central bank digital currencies (CBDCs), mechanism/economic design of distributed systems, formal methods for smart-contract verification, and techno-legal blockchain policy/regulatory questions. In February 2021, his work with the Bank of Canada became public, proposing Canada’s central bank digital Loonie — the first work of its kind that presented a comprehensive technological, regulatory/legal and economic model for a CBDC. On March 1, 2022, he was acknowledged for his contributions on a classified report by the Hoover Institution, prefaced by former US Secretary of State Condoleezza Rice, titled Digital Currencies: The US, China, and the World at a Crossroads; a week later, President Joe Biden signed Executive Order 14607 following many recommendations of this report. Andreas engages with many Group of Twenty central banks on the topic of CBDCs and Web 3.0, and his work has been featured in publications by the Bank for International Settlements and the International Monetary Fund, among others. Acronyms and Abbreviations AI artificial intelligence AML/CFT anti-money laundering/combatting the financing of terrorism BIS Bank for International Settlements BRICS Brazil, Russia, India, China and South Africa CBDCs central bank digital currencies DeFi decentralized finance DLT distributed ledger technologies DoJ Department of Justice e-CNY digital yuan FATF Financial Action Task Force G20 Group of Twenty IDs identifications IMS international monetary system IoT Internet of Things KYC know-your-customer mCBDCs multiple central bank digital currencies MiCA Markets in Crypto-Assets P2P peer-to-peer RTGs real-time gross-settlement systems SDR special drawing right SEC Securities and Exchange Commission TradFi traditional finance UAE United Arab Emirates UBI universal basic income 1Decentralization, Assets and Privacy in the Twenty-First Digital Century Executive Summary This paper examines the evolving landscape of digital privacy, decentralization and digital assets in the twenty-first century. It explores the transformative impact of those technologies — driven by the exponential growth of semiconductors — in the past decades on the widespread adoption of artificial intelligence (AI), the Internet of Things (IoT) and blockchain today. The analysis highlights how these advancements challenge traditional regulatory frameworks and reshape social, economic and governance structures both domestically and internationally. It emphasizes the rise of centralized digital oligarchies and the implications of decentralized finance and central bank digital currencies (CBDCs) on financial stability, privacy and monetary sovereignty. The brief also provides a geopolitical perspective on privacy, security and digital assets by emphasizing the strategic role of cryptography. It concludes with policy recommendations for Canada and reflects on the need for a “Digital Bretton Woods” to ensure financial stability and social welfare in the digital age. Alice in Digital Land: Trends and Challenges Although still at its dawn, the twenty-first century will be remembered by history as the “digital century” due to the transformative and pervasive impact of digital-driven technologies on human lives. The exponential transistor-count growth in semiconductor chip design since the 1970s has allowed for today’s technologies (such as AI, cloud computing, smart devices and the IoT) that have reshaped how we live, work and interact. Further, the internet’s introduction into daily life over the past three decades has evolved into it becoming the backbone of an interconnected society supporting commerce, finance, entertainment, education, health care, governance and real-time interaction without geographical boundaries. This phenomenon has redefined the social fabric of human interaction while also generating vast volumes of structured and unstructured data for powerful AI tools to thrive upon. The digital century is poised not only to shape economic and societal progress for decades to come but also to perpetuate the regulatory gap with past “analogue” legal frameworks. The convergence of digital assets and privacy has become both a challenge and an opportunity, radically testing the individual rights, social norms, welfare systems and ethical accountability secured through painstaking legal and political advocacy in the twentieth century. Historically, the internet truly reached its potential with the introduction of Mosaic (later Netscape) in 1993. This was the first web browser that was developed at the University of Illinois at UrbanaChampaign, the author’s alma mater, where he was fortunate to contribute to its early stages. Soon after, universities around the world began to adopt it for their courses, and it was not long before the public followed suit. At that time, the internet was unidirectional, censorship free, non-intermediated and decentralized: it freely produced content for consumption while a diverse range of content producers held a balanced market share. This “unfiltered” information exchange had strong network effects as evidenced by the rise of novel communication, social and commerce platforms. There were no monolithic social networks and dominant AI-based search engines acting as “curation middlemen.” Today, the internet is cracking under its own weight and straying from its original vision. The zero-marginal-cost society for goods and services— championed by corporate conglomerates of internet platforms that concentrate data, news, micro-suppliers and consumers within unified ecosystems — has resulted in significant network centralization. This is further compounded by the proliferation of IoT through AI-driven smart devices (in our phones, homes, cars, wearables, health care, supply chains and so on.), which transmit vast amounts of data to these private entities in exchange for nominal internet-based services. The net effect of this zero-cost culture is the aggregation of audiences and their social attention into the hands of a few dominant middlemen. Cases in point for this digital oligarchy: nearly 57 percent of Western internet traffic is consumed by just five entities, namely Google, Amazon, Facebook, Microsoft and Netflix (Weissberger 2022); and nearly 65 percent of the news in the West is curated by two players (Google and Facebook) (Majid 2023). In China, a handful of companies (Baidu, JD.com, Renren, Alibaba, Tencent) dominate 2CIGI Paper No. 325 — July 2025 • Andreas Veneris online attention. Whereas Google accounts for about 90percent of the global search market,1 in China, Baidu’s search market share is at 54 percent, followed by Bing (a Western product) with about a 30 percent share (MarketMeChina 2024). It therefore comes as no surprise that in June 2021, within the context of digital currencies, the Bank for International Settlements (BIS) encouraged central banks to consider issuing government-backed digital money. According to its annual economic report, “the most significant recent development has been the entry of big techs into financial services. Their business model rests on the direct interactions of users, as well as the data that are an essential by-product of these interactions…[T]he user data in their existing businesses in e-commerce, messaging, social media or search give them a competitive edge through strong network effects. The more users flock to a particular platform, the more attractive it is for a new user to join that same network, leading to a Data-Network-Activities or DNA loop” (BIS 2021, 67). The report emphasizes concerns such as the risk of currency substitution, in which government money is replaced by “private money’’ with resulting repercussions to a nation’s sovereignty (ibid., 77). Arguably, money derives its value from network effects and, thus, concentrating financial activity and data on a few platforms may lead to reliance on a single form of money, rendering monetary policy ineffective. The concentration of internet traffic — coupled with pervasive data collection often stored in siloed cloud services located in foreign jurisdictions— has fostered a dependency on an economy centred around “digital leisure” and the illusion of a “global celebrity status.” Despite appearing free, this model exacts a cost: the public pays with their time, personal data and privacy. At the same time, some executives of the very corporations driving this model started to advocate for a universal basic income (UBI) (Nolan 2024). If this UBI materialized, it would become a taxpayer-funded initiative ultimately financed by the public itself. This dynamic not only commodifies individuals as being mere “data producers/consumers” but also risks deepening these individuals’ dependency on public debt. In addition, it challenges the traditional role of state-issued money — historically earned through labour and exchanged for social 1 See https://gs.statcounter.com/search-engine-market-share. welfare — by weakening the reciprocal control citizens have over their time, data and money. While digitization initially promised increased competition, greater opportunities, broader choices and citizen empowerment, current trends reveal a starkly different reality. The modern monolithic digital landscape has become increasingly concentrated, with large tech firms leveraging regulatory frameworks with lobbying practices (Pilkington 2025; Mullins 2015) to advance their own interests, shape social norms (Cuthbertson 2024) and stifle competition. This phenomenon is aptly described in modern political economy as one of surveillance capitalism (Zuboff 2019). Decentralization, Web 3.0 and Cryptography: When Bob Met Alice Alice was feeling lost navigating this digital labyrinth, but one day, she met Bob. Alice and Bob are fictional characters commonly used as placeholders in cryptographic research papers. They are important role players who symbolize the exchange of power and trust within digital systems; as Phillip Rogaway (2015, 1 [italics in original]) observes: “Cryptography rearranges power: it configures who can do what, from what. This makes cryptography an inherently political tool, and it confers on the field an intrinsically moral dimension.” Enter Satoshi Nakamoto, who, in 2008, developed the first peer-to-peer (P2P) network that enabled a new form of asset called bitcoin. Bitcoin represents a groundbreaking new asset class, where value is determined by the market, and its exchange occurs without the need for intermediaries. Instead, a decentralized P2P consensus network ensures system validation. Building on this foundation, Vitalik Buterin, an 18-year-old University of Waterloo dropout prodigy, introduced Ethereum in 2013, a blockchain that executes software code known as smart contracts (Szabo 1999), in a trustless fashion using its own cryptocurrency 9Decentralization, Assets and Privacy in the Twenty-First Digital Century blocs and/or nations are likely to capture economic or technological market share more equitably. Privacy-preserving cryptographic tools will inevitably evolve alongside the proliferation of digital assets, with applications beyond merely protecting one’s P2P/DLT transactions from prying eyes. Much of this progress will likely be made by cypherpunks, the early 1990s social movement that wants cryptography with “attitude and value” for the public (Levy 1993). In fact, significant innovations of Web 3.0, including bitcoin (whose creator remains unknown) were driven by cypherpunks; if they bypassed the Great Firewall of China, they are determined to bypass anything. Governments, already struggling with cryptography in communication media and Web 3.0, will be fundamentally challenged. Over time, nations may have no other option than to adopt a “good actor” last resort approach to said privacy tools as an inevitable equilibrium between utility and regulation. However, amid the turbulence in the dusk of the post-Second World War era, arriving at this approach will likely be a long, disorderly process. Ultimately achieving a necessary balance will most likely require nothing less than a twentyfirst century’s “Digital Bretton Woods” to restore financial order and introduce globally accepted standards for digital assets and data protection. Within this context, it is conceivable, and probably desirable, for the International Monetary Fund’s special drawing right (SDR) to re-emerge as a principal reserve asset of the IMS as envisioned in the Second Amendment to its 1978 Articles of Agreement (Veneris and Park 2019; Coats 2016; Xiaochuan 2009). This would likely require expanding the SDR’s composition beyond its current basket of five currencies, which remains tied to the twentieth century’s “analogue” economics, competing monetary policies, questionable fiscal strategies and Triffin’s dilemma. For instance, areas of expansion could include precious metals, agricultural commodities and environmental pricing metrics. As tangible human needs change slowly over longer time horizons, such anchoring is expected to foster greater stability and promote global growth. This approach could also incorporate digital assets that are transparent, truly limited in supply but also not hoarded (causing network/wealth centralization/concentration as is what seems to be happening today (Sheridan 2025; Venturini et al. 2025; Chernoff and Jagtiani 2024) and are built on fundamentals that can earn public trust. As Friedrich Hayek said, “good money drives out bad,” and such a monetary reserve standard could offer more benefits and fewer drawbacks to the defunct Bretton Woods one, including the promotion of prudent monetary and fiscal policies, fair competition, egalitarian democratic practices tailored for the digital world and public welfare. Finally, while this discussion acknowledges the impact of global warming on all of the above, it remains agnostic on its effects. It is a known-unknown phenomenon that will inevitably add complexity due to humanity’s primordial quest for natural resources. Where Does Canada Fit in This Global Picture? In this fluid landscape, Canada is asked to defend its monetary identity, nourish its past investment in social values, capitalize on its vast natural resources and safeguard its physical and digital boundaries. The reluctance of the United States to issue a CBDC, instead focusing on private stablecoins as a proxy, presents Canada with both unique risks and opportunities. The more notable risk is the real scenario of currency substitution being in geographic and economic proximity to the United States (Brownell 2025). On the other hand, there is also an opportunity for Canada to become the continent’s digital asset hub, following the paradigms of Hong Kong, London and Singapore. With most of the world’s largest economies (in terms of GDP) actively exploring CBDCs, and with a current prime minister having been one of the premiere central bank governors globally in recent history, Canada should not only restart work on the digital Loonie but should also develop federal regulatory frameworks that prioritize privacy protection, compliance and data security for its digital currency and other Web 3.0 tools and assets. Extensively documented in literature but also confirmed by the success of the Pix payment system in Brazil and Aadhaar/Unified Payments Interface in India (Kempinsky 2025), a digital Loonie — ideally complemented with a new federal digital ID to support it — will create novel payment channels, new transactional communities 10 CIGI Paper No. 325 — July 2025 • Andreas Veneris and safe networks of relations both domestically and internationally (Carstens and Nilekani 2024; Bank of Canada et al. 2020; Veneris et al. 2021). A digital currency, coupled with a federal digital ID, has tremendous potential not only to further secure Canada’s monetary identity and nourish its extensive investment in democratic social values, but also to safeguard its geopolitical digital boundaries in a competitive and fastevolving global techno-economy. It also offers a unique opportunity to attract global users seeking financial autonomy and safe sheltering in a digital era dominated by surveillance capitalism: Canada can present them with an innovative and provenly safe alternative. Indeed, public polls on CBDCs consistently highlight the demand for strong privacy guarantees (Choi et al. 2023; European Central Bank 2021; Bank of England 2024)6 — a paradox when contrasted with the public’s willingness to share data freely with conglomerates. This anomaly underscores the need for effective outreach to the Canadian public as a necessary first step to adopting a CBDC. Canada is well-positioned for this opportunity. It already has a seat at the table in global fora such as the Group of Seven, the G20 and the BIS’s Committee on Payments and Market Infrastructures. What remains for success is political will, swift regulatory reform and leadership. After all, Ethereum was born in a basement in Toronto and then it conquered the decentralized world. Canada can repeat this same feat of digital innovation once again. 6 See www.bankofcanada.ca/digitaldollar/a-digital-canadian-dollar-whatwe-heard-2020-23-and-what-comes-next/. Concluding Remarks On September 7, 2024, Bill Burns (Central Intelligence Agency director) and Richard Moore (MI6 chief) issued the first joint statement in the history of the two agencies. Among other observations, they noted: “There is no question that the international world order — the balanced system that has led to relative peace and stability and delivered rising living standards, opportunities and prosperity — is under threat in a way that we haven’t seen since the cold war” (Burns and Moore 2024). Admittedly, the views expressed in this statement extend beyond the realms of the IMS, reflecting the diminishing roles of democratic awareness and egalitarian practices that underpinned the unprecedented economic prosperity of the second half of the past century. Facing this crossroads, the current order appears to have two choices: either disregard, lobby against and contain developments to preserve the status quo, or acknowledge historical intricacies and adapt their practices. This paper posits that macroeconomic, geopolitical, technological and social trends place digital assets, decentralization and cryptography at the heart of this dilemma. It contends that the second option is the prudent approach forward. At this juncture, it may be worthwhile to revisit the music industry at the dawn of this century (International Federation of the Phonographic Industry 2024), a sector in which the author served as a computer science student. The introduction of BitTorrent in 2001, the first widely adopted P2P medium, disrupted an industry reliant on excessive costs, numerous intermediaries and inequitable payments to artists — the source of its income. In the aftermath of BitTorrent’s early adoption, the industry became preoccupied with protecting its traditional revenue streams through lawsuits against its consumers for using this new technology. Consumed by its own dogma, the industry failed to embrace innovations such as streaming, thus paving the way for visionary new players who captured market share by bringing value to all stakeholders. 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