PriFi is the natural evolution of Challengeand demand will only accelerate as many industries rightly look to capitalize on the unique characteristics of blockchain technology, says Alan Scott Jr.co-founder, RAILGUN Privacy Project.
A blockchain is immutable. It’s his business card. The problem, however, is that anyone can see the transactions taking place in the decentralized ledger.
Blockchain technology started as a new way of looking at money. It has become a multifaceted industrial tool that cannot be ignored. More and more companies are considering blockchain technology to provide innovative solutions to existing problems. But they will continue to face the same problem: the complete absence of intimacy.
Privacy protocols and mixers exist for each stage of blockchain technology. But most of them failed to reach the level of Security they promise. That’s about to change.
Mixers exist on-chain and off-chain
The main purpose of all mixers is to break the link between user transactions. This can happen “on-chain”, where a transaction is shuffled directly on the blockchain. Or it can happen “off-chain,” in which shuffling occurs one or two steps away from the blockchain. The latter has more confidence assumptions than the former.
An off-chain privacy protocol takes the transaction off the blockchain and places it in a mixer. Suppose a group of users want to shuffle their coins, making them harder to trace to add a layer of privacy. One way to do this is to trust a centralized off-chain service to shuffle coins on their behalf. For a centralized off-chain service, each user deposits a coin and specifies an exit address. After collecting a certain number of coins, the service distributes one coin to each exit address. The coins were “mixed” off-chain. They can also use the Threshold Signature Scheme (TSS) approach, which works on a similar idea: individuals share a public key and a private key. Coins are deposited via the public key, verified and exchanged by being sent to the private key.
Off-chain privacy protocols are pretty common right now. But the level of security they provide depends on how well the information can be protected while moving to and from the mixer. In the case of cryptography, wallet addresses and amounts are moved, say, from Ethereum or Polygon blockchain in a completely separate environment in order to be mixed. They are then put back into the blockchain. This doesn’t even take into account the limited usefulness of giving users true transactional privacy.
PriFi: on-chain privacy contains and secures transactions with proprietary information
An on-chain privacy protocol implies that transactions are guaranteed to be processed accurately and have the same level of security provided by the underlying blockchain. An on-chain transaction will be validated by each miner on the blockchain. Users do not have to trust any centralized party or pool outside of the blockchain they are transacting on. This is possible through the development of what is known as a “non-knowledgeless non-interactive succinct knowledge argument”, or zkSNARKs, which acts as a “verifier” and confirms the accuracy of private transfers and withdrawals. These zkSNARKs are able to guarantee the accuracy of transfers without disclosing any information about the transferred amount, token, recipient and sender.
When a privacy protocol occurs on-chain, it not only removes the need to move a transaction from the original environment, but it also eliminates exposure issues. As more businesses and business transactions transition to blockchain-based technology, the need to protect large chain transactions will increase.
The other major benefit of an on-chain privacy protocol is that it enables seamless integration with dApps. This means businesses can maintain a veil of privacy while using the multitude of apps Challenge offers on channels such as Ethereum and Solana.
PriFi: Blockchain privacy will become as necessary as cybersecurity
Like cybersecurity, corporate on-chain privacy is key to combating voyeurs. The rise of analytics companies and on-chain trackers creates opportunities for potential voyeurs to gather market intelligence. As more industries adopt blockchain technology for supply chain management and similar ledger-based uses, the ability to protect on-chain transactions will become paramount. For example, companies create competitive advantage through supply chain negotiations. If these payments are on a public ledger blockchain, it compromises confidentiality and exposes competitively negotiated contracts. Without using on-chain privacy, employees paid on-chain, in cryptocurrency, risk having their salaries and personal wallets publicly visible.
One of the biggest issues facing long-term institutional cryptocurrency adoption to date is the lack of practical on-chain privacy solutions. Payroll solutions will gain in efficiency if run on a blockchain, and on-chain privacy solves the biggest problem. The goal of on-chain privacy is to allow users to hold a private wallet that they can use to interact with any smart contract.
On-chain privacy allows all the benefits of blockchain to exist alongside all the benefits of shielding. PriFi is the natural evolution of DeFi, and demand for it will only accelerate as many industries rightly look to capitalize on the unique characteristics of blockchain technology. Sophisticated on-chain protocols will now be there to answer them.
About the Author
Alan Scott Jr. is the co-founder of the RAILGUN Privacy Project. He is an investment, cryptocurrency and privacy DeFi specialist with extensive trading experience in the financial sectors of Tokyo and the United States. His passion for privacy and his ability to articulate it in common terms have made him a sought-after presence at conferences and podcasts. When Alan isn’t detailing the benefits and application of blockchain privacy, he specializes in online marketing and web management.
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