Privacy-preserving technologies are about to have their hockey-stick moment

Deeptech investor and CEO at homomorphic encryption startup Zama, Dr Rand Hindi, explores the subject of ‘privacy’ in relation to how this will remain a focus for the coming year.
Privacy-preserving technologies are about to have their hockey-stick moment

Deeptech startups that target critical global challenges like climate change, longevity, semiconductors, AI, etc. now account for 20 per cent of venture capital investments according to a recent Boston Consulting Group report. But what exactly is deeptech? 

The definition I often use of deeptech is any company that spends considerable R&D resources to solve an incredibly hard scientific or engineering problem. Typically, these companies will spend three to five years developing a technology which then unlocks a massive opportunity. This means deeptech startups aren’t lean. Instead of being built in three months in a garage, they require tens of millions of dollars of investment before their first product can be sold. But once they do start selling, they usually generate massive revenue quickly.

One area of deeptech that I have personally been involved in for over a decade is cryptography and privacy-preserving technologies. Privacy is often thought of as a nice to have, but it’s actually critical for cybersecurity in virtually every application from AI to blockchain to defense. Without cryptography, we wouldn’t have secure messaging apps, online banking, or any of the other services we have come to consider as commoditized. So what will be the big trends in cryptography in 2024? Here is my analysis, as an entrepreneur having built two privacy-first companies, and as an investor having invested in over 60 deeptech companies.

Recognizing the Long-term Value of Privacy Tech

Firstly, there is a heightened awareness and demand for data privacy. Consumers are becoming increasingly conscious of the value and vulnerability of their personal data, driving demand for products and services that prioritize user privacy. According to a McKinsey study, the fact that the total global value of digital advertising alone is now estimated at $300 billion hasn’t escaped consumer attention. This shift in consumer behavior is further fueled by high-profile data breaches and highly-targeted advertising on social media and other web platforms which have raised public awareness about the need for robust security measures.

Regulatory Pressures and Compliance

Regulatory pressures and compliance requirements are also major contributors to this trend. The implementation of stringent regulations like the GDPR in Europe have necessitated significant investment in privacy and security solutions to ensure compliance, even five years on. Moreover, the influence of European privacy laws is having a global impact, affecting businesses worldwide and prompting them to invest in technologies that meet these stringent standards.

Technological Advancements and Challenges

Technological advancements and the challenges they bring have further accelerated investment in this sector. The proliferation of AI and big data technologies has made the protection of personal and sensitive data more complex and critical than ever. Additionally, the increasing sophistication of cybersecurity threats has made it imperative for businesses and governments to invest in advanced security solutions.

Investor Recognition of Long-term Potential

Investors, recognizing the long-term potential of this sector, are viewing privacy tech not just as immediate needs but as strategic investments. There is a clear understanding that this sector holds significant potential for innovative solutions that offer both privacy and functionality. This foresight is guiding investments towards sustainable, impactful outcomes.

As a deep tech investor myself, I have witnessed firsthand the transformation in investor decision-making, particularly in the privacy technology sector, throughout the pivotal year of 2023. This transformation can be attributed to several key factors:

  • Value Potential: My experiences have shown me that investors are increasingly perceiving privacy technology not just as a trend but as a fundamental requirement for future technological advancements. This recognition has shifted their focus towards more sustainable, long-term investments in this sector.
  • Risk: As big data continues to evolve and become more integrated into our daily lives, the risks associated with privacy breaches have become more apparent. I, along with many of my peers, have realized the critical need for technologies that can safeguard against these risks.
  • Product/Market Fit: There's been a noticeable shift in consumer sentiment towards privacy, with a growing demand for products and services that protect personal data. This consumer trend has been a significant factor in guiding investment decisions.

Being deeply embedded in the European deep tech ecosystem, I have observed that Europe's strong regulatory framework for data protection has positioned it at the forefront of the privacy tech industry. This environment has fostered innovation and attracted investments in this sector. The collaborative spirit within the European deep tech ecosystem has facilitated unique solutions to privacy challenges, making it an attractive market for investors.

Lastly, market dynamics and opportunities in niche markets are influencing investment trends. The diversity of threats and regulatory requirements has opened up numerous niche markets within the privacy and security domain. Startups that offer unique and effective solutions are increasingly viewed as valuable assets in a market that is becoming more concerned with data integrity. This competitive differentiation is crucial in a landscape where the ability to offer robust privacy and security solutions can set a company apart.

Looking Forward: Privacy as a Continued Focus

As we move into 2024, the realm of privacy technologies is evolving rapidly, driven by increasing digitalization and the consequent need for robust data protection mechanisms. Among the plethora of emerging technologies, several stand out for their potential to reshape how we approach privacy and data security. 

Homomorphic Encryption (FHE)

Fully Homomorphic Encryption represents a groundbreaking advancement in the field of data privacy and security. This technology allows for computations to be performed on encrypted data, without the need to decrypt it first. The implications of this are vast, particularly for industries like healthcare and finance, where maintaining the confidentiality of sensitive information is paramount. FHE companies (including my own Zama) are raising massive rounds as FHE is becoming faster and easier to use, two of the problems historically plaguing its widespread adoption. In 2024, we can expect FHE to gain traction in blockchain, where it enables confidential smart contracts, in AI, where it enables both confidential training and inference, and more generally in sensitive cloud applications where you cannot afford to have a data breach. 

Differential Privacy

Another key technology to watch is Differential Privacy. This approach allows one to compute some aggregated statistics without learning anything about the individual data points. This is particularly useful for web and mobile analytics, as you would be able to get cohort patterns without any information about what individual users are doing. It’s also useful for government census, road traffic analysis from anonymized GPS traces, pandemic tracking and more.

Federated Learning

Federated Learning is a machine learning approach that enables model training on a large number of decentralized devices holding local data samples. This technique is particularly important for privacy as it negates the need to share raw data. Instead, insights are derived locally, and only the learning from the data is shared. The 1st International Symposium on Federated Learning in 2023 highlighted the significance of Federated Learning (FL) as a pivotal technology for the advancement of future intelligent applications. This includes areas like autonomous driving, smart manufacturing, and healthcare, where FL's role is increasingly recognized as crucial. This approach is likely to gain more prominence in 2024 as organizations seek to leverage AI without compromising on user privacy.

Zero-Knowledge Proofs

ZKPs allow one party to prove to another that a statement is true, without revealing any information beyond the validity of the statement itself. This has profound implications for identity verification and secure transactions online. ZKP is also widely used in blockchain applications. A few chains, including Mina, ZCash, and Celo, already use zero-knowledge cryptography in production. As widespread use of blockchain technology grows, along with the push for secure digital transactions of all kinds, ZKPs will become an indispensable tool for maintaining privacy and security.

In looking ahead, it's clear that privacy will remain a central focus in the deep tech space. The challenge will be in balancing the incredible potential of AI and big data with the fundamental need to protect individual privacy. The investments made in 2023 are just the beginning of what I believe will be a sustained and growing interest in privacy technology, as it becomes an integral part of our digital future.

Follow the developments in the technology world. What would you like us to deliver to you?
Your subscription registration has been successfully created.