The Centralization Crisis Threatens Data Privacy

Opinion by: Angie Darrow, chief marketing officer and chief ecosystem communications officer at Web3 Foundation

When a temporary data cloud outage can disrupt the global financial system — as the AWS Tokyo outage demonstrated in April — something’s gone wrong with the infrastructure that underpins today’s data economy.

In the early hours of April 12, Amazon Web Services (AWS) experienced a “connectivity issue” at its Tokyo data center. The outage lasted just 36 minutes, but the ripple effects were immediate. When AWS falters, so does the architecture of the global economy. It’s not just our assets or money at risk.

That same fragility is now knocking on the doors of the US government, more specifically, the Internal Revenue Service, through an experimental initiative being run by DOGE to build a “mega API” to centralize taxpayer data access through a single, cloud-based platform.

Let that sink in. The personal financial information of every American could now be managed through a unified interface. Possibly breached by a bad actor. All under the banner of “efficiency.”

We’ve seen how dangerous that kind of centralization can be. The AWS Tokyo outage is not just a cautionary tale for global finance; it’s a real-time warning for public institutions thinking of going all-in on cloud consolidation without sufficient democratic safeguards and decentralized technological guardrails. This new reality presents a significant wake-up call for public-entrusted institutions.

Proof of the perils

Consider if the IRS mega API goes down during tax season. Or if it’s misconfigured. Or if it’s hacked. There is a better way.

Decentralized technology offers a radically different architecture. Rather than consolidating power into a single API or cloud service, decentralized systems distribute it across many nodes. Access is controlled through cryptographic proofs. Actions are verified onchain, and privacy is preserved through zero-knowledge protocols.

Without data privacy being upheld, with governmental and financial control over some of their most sensitive data, all it takes is a quick policy change to mean someone isn’t eligible for certain services. 

True data privacy upholds individual autonomy and equal treatment for all, and ensures governments and institutions are held to the highest accountability standards. 

AWS’s rapid resolution should not reassure us. We should be alarmed that the entire data plane for vital services — financial, governmental or otherwise — can halt because of one centralized failure point. If the DOGE mega API is built on this same model, it could quickly lead to financial upheaval for American households.

Enter decentralization

In a blockchain-based IRS data system, you wouldn’t need to give a central cloud provider access to raw taxpayer data. Instead, smart contracts could verify eligibility for a credit or compliance with a tax rule without revealing underlying personal information.

Such systems aren’t just theoretically more secure and structurally more democratic. Data stored on the blockchain is immutable, creating a tamper-proof system that can withstand attempted editing.

In tandem with this resistant nature, the smart contact system means that user data remains private and safe, with little need for human contact with sensitive information.

Related: IRS appoints Trish Turner to head crypto division amid resignations

That’s why countries like Estonia and regions in the European Union are already exploring decentralized public infrastructure for digital identity and services. 

The real risk is political abuse

There’s another, more profound concern here: political power. When access to citizen data is centralized, so too is the ability to weaponize it. Today, it’s Palantir engineers and DOGE operatives. Tomorrow, it could be political appointees with an axe to grind. A bad actor could alter your tax returns, employment history and family data with one login.

The DOGE experiment is not just an IT modernization plan. It’s a reimagining of how citizens interact with the government, and how much power the government (and its contractors) should have over our data. If we allow these changes to be rushed, under the cover of “efficiency,” we risk trading the messy pluralism of public governance for the brittle speed of centralised tech.

The AWS outage is a clear signal: Cloud platforms are not infallible. When they fail, the consequences cascade. Let’s not make the same mistake with a government institution like the IRS.

Decentralized technology isn’t perfect, but in an era where trust is fraying and data is currency, it offers a safer, fairer and more resilient governance vision. We can’t afford to ignore that vision of Web3, especially when our institutions are racing toward the exact opposite. 

Opinion by: Angie Darrow, chief marketing officer and chief ecosystem communications officer at Web3 Foundation.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.