An article about blockchain privacy technology: development status, representative projects

“Hello, I am Huobi customer service. Have you been paying attention to digital currency recently?…”

When someone in the circle receives the above-mentioned call, it can be said that the other party is a liar. If you go back to yourself as an OK home, and the other person asks what OK is, you can be sure that the other person is a liar. Although you may not know when and where your personal information was leaked, this seems to have become the norm. In the information age, we are all “running naked”.

If society is open and transparent and life is better, of course everyone is happy. But if you are only open and transparent in the society, no one wants to be so. Bitcoin peer-to-peer transmission, from one address to another address, its birth, to a certain extent, is also to protect privacy. Although it is not completely anonymous, Bitcoin-based privacy protection technology has never stopped research, and the blockchain industry is even more so.

The development of blockchain privacy protection technology

On the one hand, we like the decentralization, openness and transparency of the blockchain; on the other hand, we also hope that our property and information privacy can be protected. The two are somewhat contradictory to a certain extent. If you want to be open and transparent, and the data can be verified, it is very likely that you will be traced to the true identity in the process of interaction. With the popularity of Defi, the composability and interoperability of smart contracts have greatly increased the hidden dangers of privacy issues.

Regarding privacy issues, in addition to the protection of corresponding laws and regulations, the blockchain industry is also trying different technical solutions to achieve its goals. Blockchain can empower many application scenarios, but currently the most are cryptocurrencies and payment transfers. The transaction of encrypted currency needs to involve the issue of confidentiality of information.

For privacy protection, the original idea was to solve the problem by hiding addresses and using ring signatures. Of course, coin mixing technology emerged in response to Bitcoin’s privacy issues. Currency mixing involves a third party, that is, an intermediary is needed. This involves a greater risk because the intermediary knows all the information. Therefore, cryptocurrencies that use zero-knowledge proof and ring signature technology to protect privacy later appeared, also called anonymous coins.

The above scheme can achieve a certain degree of anonymity and can also protect the corresponding transaction data. But with the development of the market and technology, and the emergence of the Defi boom, they cannot solve the privacy problem of smart contracts. Of course, the infrastructure that smart contracts rely on and the privacy protection of public chains also need to be resolved urgently.

Regarding the privacy issues of public chains, there are two aspects here. One is that the public chain itself, as the infrastructure, focuses on privacy technology, and the other is the use of other projects that provide privacy technology services for the public chain. Although there are differences between the two, methods such as secure multi-party computing and trusted environments are mostly used here. There are also solutions like side chains, and more fully homomorphic encryption based on theoretical research.

Each solution has its own advantages and disadvantages. For example, anonymous currency can make transactions anonymous, but it is aimed at identity information, and it is more used in illegal transactions, and more compliance issues need to be considered. .

There is an impossible triangle on the blockchain, but in fact, it is not necessary to have all three, but to achieve the corresponding balance according to the characteristics of the project itself. The same is true of how to choose technology to solve privacy issues.

Common privacy technologies and representative projects

The representative project in the field of anonymous currency-Monero. It was released in 2014 and is now in its seventh year. At present, its total market value is more than 6.8 billion US dollars, ranking 22nd (data from coingecko). It uses ring signature technology to achieve the purpose of anonymity, which is mainly for identity. However, anonymous coins can also achieve their goals through zk-SNARKs (zero-knowledge proof) technology, such as Zcoin.

In addition to anonymous coins, there are also coin mixing technologies for Bitcoin privacy, such as Coinjoin. It combines multiple transactions of different users into one transaction to confuse the audience, making it impossible to know the address and currency flow of its traders. And as the number of participants increases, the better its effect. However, because the “intermediary” knows all the information, there is also a certain degree of security. In response to the above problems, subsequent iterations of the coin mixing technology have been carried out. For example, the decentralized coin mixing service TumbleBit, and the coinjoin coin mixing technology Coinshuffle that introduces a picketing mechanism.

The above is the privacy issue of cryptocurrency, and the next is the privacy solution of public chain and smart contract. This can be divided into two categories, one is the basic public chain that focuses on privacy, such as Horizen; the other is the project based on the public chain that provides privacy technology for it, such as the Phala Network on Polkadot.

According to Horizen’s official website, it is a sidechain platform that focuses on scalable data privacy. Enterprises or developers can issue their own side chains on their mainnet to customize their own public or private blockchains. For privacy, it uses zk-SNARKs technology. It was born in 2017 and is now four years old. The total market value of its anonymous token ZEN is more than 1.1 billion, ranking 84. Although this is to provide privacy services from the infrastructure, but looking at its market value and ranking alone, anonymous coins are more marketable than public chain privacy.

As the infrastructure, the public chain attracts players and developers to join in to develop the ecology, especially the top public chain, such as Polkadot. Polkadot chose some relatively good projects as its parachains to make up for its own shortcomings. In terms of privacy, it chose Phala Network.

The founder of the Phala Network project once said in an interview: Phala Network has implemented a smart contract infrastructure that can protect secrets, and based on this facility we have built a complete data leasing system. Including data collection, privacy calculations and statistics, and data leasing. It uses the TEE-blockchain fusion architecture (that is, a trusted hardware environment) to achieve data encryption and sharing.

Although its main network has not yet been launched, it has not only received recognition and support from the Web3 Foundation, but also received a strategic investment of tens of millions of dollars. And its token PHA has been listed on many exchanges such as Okex, Huobi, Binance, Uniswap, etc., with a total market value of more than 100 million U.S. dollars, ranking 311. As a part of Polkadot’s ecology, it can be described as a popular item at its head.

From the anonymous coins represented by Monero and Zcoin to the mixing technology for Bitcoin privacy, although there are differences, they cannot be extended to smart contracts. Therefore, the privacy problem of smart contracts can be solved by technologies such as secure multi-party computing and a hardware-based secure executable environment (TEE). Of course, the research on privacy technology is still going on.

Privacy research, the future can be expected

In addition to the above-mentioned zero-knowledge proofs and secure multi-party computing, privacy research also includes fully homomorphic encryption. This is an encryption algorithm to protect data privacy. It was proposed in the 1980s. If an encryption function can satisfy the homomorphism of addition and multiplication, it is called fully homomorphic encryption. The first homomorphic encryption algorithm was proposed in 2009. Because of the lack of efficiency and flexibility, it is still in the theoretical stage.

With the development of the industry and the market, the technology is still iterating, and each technology has its own direction for its efforts, such as the ZK rollup technology of Ethereum based on zero-knowledge proof. Although these different projects are working for privacy issues, it is still unknown who will win in the end of the competition.

However, the privacy issue is a fundamental issue in the industry, and we can look forward to the future, “Without privacy, it is a secret open on the Internet.” There is no word that can be removed. In addition, there will not be so many unexpected harassing calls. As V God said:

“I think privacy is a way to prevent outsiders from making irresponsible remarks to us, and to create a space where we can optimize ourselves and create our own happiness-this happiness belongs only to us and has nothing to do with it. What others think of us.”

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.