CoinEx Institution | Next-Generation Privacy-preserving Public Chains: A Case St

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Privacy is a label that has been attached to the crypto sector since the birth of Bitcoin. One of the most prominent features of the mainstream blockchain networks like Bitcoin and Ethereum is that all transaction records are completely open and verifiable. Additionally, each user’s address is independently generated through a random algorithm, and because this mechanism is completely random, all addresses are inherently anonymous. This anonymity is what used to be at the center of privacy discussions in the early days of the blockchain industry.



Apart from anonymous addresses, some simple solutions have been created to enable more private transactions. Back in the early days, most privacy-focused projects built their solutions around the issue of anonymity and used complex cryptography to obfuscate transaction details, thereby protecting users’ privacy while enhancing transaction security. Simply put, when an old address has been divulged, users could transfer their assets to a new address. These privacy-preserving projects only offer services such as CoinJoin, cutting off the direct connection between the old and new addresses.
However, as blockchain technology gradually shifts from the BTC era to the smart contract era dominated by Ethereum, new applications have brought a growing impact on existing anonymous account systems. In the early days, people only use addresses to store the cryptos they purchased. Today, crypto users rely on their address to buy NFT avatars, link their crypto presence to social media accounts, hold domain names, save game items, or publish articles on Mirror. These activities have made it increasingly expensive to keep a crypto address anonymous. Moreover, anonymous transfers are now almost no longer possible due to growingly complex operations. As such, regular privacy-preserving solutions based on CoinJoin often fail to meet the new demands.
Therefore, the blockchain industry needs more advanced privacy solutions that will enable users to hide the cryptos they hold even if their addresses based on real identities are already known to the public. With such solutions, users will no longer have to worry about information disclosures when interacting with DeFi protocols. In addition, they could choose whether to disclose the NFTs that they purchased and are stored in a wallet address.
Early privacy-preserving public chains like Monero and Zcash do not meet such demands as they do not support smart contracts, and the market needs new programmable privacy-preserving public chains to meet these new needs. In today’s market, two typical public chains support smart contracts and enable customized privacy settings for on-chain transactions — Oasis Network and Secret Network. Today, we will dive into these two projects.



Secret Network

Secret Network is a Layer 1 public chain built using Cosmos SDK and Tendermint BFT that independently supports privacy-preserving computation. Like other Tendermint-based chains, Secret Network has a block time of around six seconds and can process thousands of transactions per second. The chain currently supports 50 active validators with an average of 167 delegators per node. As a member of the Cosmos ecosystem, Secret Network seamlessly integrates with the IBC cross-chain protocol and allows for quick interactions with other public chains in the Cosmos ecosystem.



Conventional public chains like ZCash and Monero or Ethereum DApps such as Tornado may somewhat obfuscate the flow of crypto assets and are thus great for private deals or store of wealth but can’t satisfy the desire for anonymity or security within this new financial landscape. For a privacy network to appeal to users in the age of DeFi, its privacy features must also extend to the application layer. That is just what Secret Network brings to existing privacy-preserving technologies. Through cross-chain bridges and DeFi & NFT facilities, the network creates the foundation of an on-chain application ecosystem.

1. Secret Bridge

Liquidity is essential for an infant Layer 1 ecosystem. One of Secret Network’s primary solutions is to connect to other networks with existing user bases and liquidity pools. With the right incentives structure, Secret Network can share the economic activity generated by other blockchains without spending excess resources building a new economy from scratch. The project launched its first cross-chain bridge on December 15, 2020, establishing a connection with Ethereum. It has since deployed bridges to BSC and Monero as well, with a communication gateway to Astar Network in development, as well as a bridge to the fast-growing Terra ecosystem.
Interoperability was also a core reason Secret Network decided to build on Cosmos SDK, which allows developers to add new functionality through plug-and-play modules. One of these modules implements the Inter-Blockchain Communication (IBC) protocol, allowing networks to communicate with other IBC-enabled chains.

2. Secret DeFi

To bring funds from other ecosystems to the Secret ecosystem, a cross-chain bridge alone is not enough. As a Layer 1 public chain, Secret also needs a DeFi ecosystem that provides considerable incentives to attract more initial users. The network now supports SecretSwap, a governance token for SEFI, and a peer-to-peer auction marketplace, which jointly form the basis of the chain’s application ecosystem.

3. Secret NFT

Secret Network’s privacy properties can extend to multiple token types, including NFTs. Secret NFTs assume the same characteristics as Ethereum’s ERC-721 tokens while offering three new features:
Hide ownership of rare items;
Privatize the metadata field (how an NFT signature connects to off-chain data like art);
Control access to the connected content.
Secret NFT has only a few app projects at the moment. Secret Heroes is the network’s inaugural game, and there’s an NFT marketplace in the works according to the project’s latest roadmap update. Despite the slow progress of NFT projects on Secret, the network’s efforts represent its exploration of privacy-focused NFTs.

Oasis Network (ROSE)

Oasis is a privacy-preserving, scalable underlying blockchain based on Cosmos SDK. Its privacy features are native to Oasis. In other words, the blockchain is inherently confidential, which is a major difference between Oasis and other chains. ParaTime Cipher, which will soon be launched by Oasis, will support privacy-preserving smart contracts. In a confidential ParaTime, nodes are required to use a secure computing technology called Trusted Execution Environment (TEE). TEEs are analogous to a black box for smart contract execution. With the use of key management, encrypted data goes into the black box (Secure Enclave) along with the smart contract, where the data is decrypted, processed by the smart contract, and then encrypted before it is sent out of the secure enclave.



The black box only needs to send out messages of “yes” or “no” through the smart contract. In other words, it verifies the authenticity of the private information uploaded by a user without disclosing it, which resolves the dilemma where “private data is needed but cannot be disclosed.” This approach is similar to zero-knowledge proofs. TEE, which relates to hardware, can be a CPU area of a computing device (e.g. a phone, a computer, etc.) used to store private information and make sure that information stored cannot be accessed even if the device is hacked.
In addition to its privacy-preserving features, Oasis is also scalable, which is achieved by separating consensus and smart contract execution into the Consensus Layer and the ParaTime Layer, respectively. Both layers are integrated to provide the same functionality of a single network. The computation layer of Oasis is currently divided into 3 Paratimes that can be executed independently. Each Paratime can perform different types of computations, and then the Consensus Layer can reach a consensus on the state of the computation results, without the need for the Consensus Layer to participate in the computation of transactions. With this flexibility, workloads and upgrades processed on one ParaTime will work symphonically with consensus to independently ensure network security and finality without impacting other ParaTimes.




Apart from the computation layer, Oasis’ Consensus Layer uses the PoS consensus mechanism. Each validator joins the network in a decentralized manner and verifies the transactions that occur in the network. Such a division is a highlight of Oasis. Compared with other public chains, though Oasis has no leading advantages in some aspects (such as TPS), it features parallel transaction processing and privacy protection, making it a more well-rounded public chain in terms of functionality.

Conclusion

To sum up, privacy concerns will be an increasingly important topic in the future. Considering the huge demand for privacy, an Alpha is very much likely to emerge in the privacy category. At the moment, the biggest concern in the privacy segment is not privacy itself but the high cost, inefficiency and poor user experiences of privacy protection. As such, many privacy technologies are yet to be adopted by the average user. Compared with privacy, users prefer applications with high efficiency and low costs. Therefore, privacy-focused public chains should pay more attention to the development of their ecosystem, the tech roadmap (whether compatible with EVM), performance issues (such as TPS), Gas fees, etc. As privacy-preserving public chains expand their ecosystems while improving user experience, we will witness the emergence of premium, useable projects. Let’s look forward to the huge prospects of privacy public chains!