Maintaining privacy within smart contracts is a more difficult challenge, particularly in the DeFi space.
Fortunately, several new projects are addressing this, retaining the advantages of permissionless public blockchains while protecting users from exposure of their confidential data. We’ll take a look at four of these.
What is Privacy, and why is privacy so important?
The word “private” can be misleading. Your bank’s computer network is private because only certain users have permission to access it. At the other extreme, a blockchain like Ethereum is permissionless, and all data is public. This makes it extremely difficult to implement private DeFi applications.
Imagine a dApp that operated similar to Uber. On a public blockchain, every time you requested a ride or ordered food, your location, destination and other personal details would be exposed to anyone with blockchain analysis tools.
Access control is another thorny issue. Blockchain-based music streaming service Audius currently provides unlimited free access to its entire catalog. To offer a subscription or paid content service, access keys have to be protected from outside scrutiny.
One security strategy used in everything from mobile phones to mainframes is Trusted Execution Environment. TEE has different specific implementations, but it always uses a completely isolated area of a computer’s processor and memory to guarantee that code and data remain inaccessible to any other app.
Zk-SNARKs is a fancy acronym for a type of “zero knowledge proof,” a way for someone to convince someone else they have certain information without having to interact directly. For example, Alice can dial Bob from an unknown number, to prove that she knows his telephone number without revealing it to him, or anyone else.
Privacy Blockchains: Secret and Oasis
Secret Network (SCRT), the first privacy-preserving blockchain for smart contracts, has been under development since 2016, and finally launched in September 2020.
Its “secret contract” technology combines the programmability of Ethereum with the privacy of Monero, using both on and off-blockchain storage for secure data management.
October 2021 saw the launch of several Secret projects, including secure messaging app Altermail and decentralized exchange SiennaSwap.
Interested users are invited to become “Secret Agents”, earning rewards, accessing secret events, and earning unique NFTs and “secret swag” while helping defend the privacy of the decentralized web. In November, Secret announced a partnership with OpenSea and legendary director Quentin Tarantino to release a series of Secret NFTs.
Oasis Network (ROSE) went live in November 2020. It has a similar goal of providing a fast and secure Layer 1 platform for confidential smart contract execution. The Oasis architecture can handle up to 1,000 transactions per second and allows several contracts to be run independently in parallel layers, called ParaTimes.
Oasis also utilizes a novel concept known as Tokenized Data, which ensures that data remains private during contract execution and can’t be reused without permission. Providers earn rewards by staking their data with dApps that want to analyze it.
Several exciting projects are being built on Oasis, including the CryptoSafe Alliance with Binance and privacy-preserving genome sequencing with Nebula Genomics. YuzuSwap, the network’s first decentralized exchange, is expected to launch in December 2021.
Other Solutions: Phala and Automata
What does the rise of these alternative networks mean for the future of Ethereum and other blockchains that don’t have DeFi privacy built in? Fortunately, several new solutions offer enhanced security for smart contracts running on these platforms. Here are a couple of the most promising candidates.
Phala Network (PHA) was founded in late 2018 and has received two grants from the Web3 Foundation. It’s reputed to be one of Polkadot founder Gavin Wood’s favorite projects. Built on blockchain framework Substrate, it provides “privacy-enhanced permissionless computing with smart-contract functionality.”
Currently (2021) running on the Kusama network using the KHA token, Phala expects to win a parachain slot in Polkadot’s 2021-22 auction. Its core components include:
- Web3 Analytics, a decentralized alternative to Google Analytics that lets users own their data and share it privately with others;
- pDiem, a cross-chain bridge connecting the Polkadot ecosystem to Facebook’s Diem, adding privacy to its transactions;
- Dark Wallet, a Polkadot-based wallet enabling users to convert assets on multiple blockchains into “secret” ones;
- The Darkpool privacy-preserving DEX.
Automata Network (ATA) describes itself as a “middleware service protocol” that can integrate with multiple blockchains to provide privacy for Web3 dApps across multiple blockchains. Their Mainnet went live in November 2021.
Automata has forged partnerships with the Avalanche network and Polygon, and is said to be working with one of the largest cross-chain bridges. Other projects recently completed or under development include:
- 2FA Guru, a blockchain-based authentication solution that secures access to user accounts.
- NFTFair, a fair launch NFT platform that stops metadata exploits and predatory sniping by attackers.
- Witness, a collaboration with Clover Finance, Moonbeam Network, Astar Network and Huobi Eco Chain (HECO) to provide a system for anonymous voting;
- Conveyor, which orders financial transactions to prevent front-running or deletion;
- Librarian, providing untracked data indexing and querying.
At the moment, NFTs and price speculation are much more in vogue than privacy protocols. But as corporations, financial institutions and governments enter the DeFi ecosystem, platforms that help us preserve our privacy should soon see a resurgence in popularity.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.