Anonymous But Not Private: Why Creating Truly Private Blockchains Is So Complicated and Challenging
Privacy is and always will be a point of contention in the blockchain community. Few would argue that it’s not an important factor in the creation of a scalable blockchain, but it does complicate things considerably with regard to actually producing a working product. Creating truly private blockchains is complex, throwing up not only myriad technical challenges but also legal ones.
Bitcoin, for example, offers anonymity but not privacy. If no third party knew about the transaction executor, Bitcoin transactions could be completely anonymous. The transaction itself is visible for all to see, though, permanently branded into a public, immutable ledger. If a third party were to pay the right level of attention to Bitcoin transactions, or you were to give someone your Bitcoin address, it would be fairly simple for your transactions and balance to be at least broadly figured out.
Analysis of transactions on the Bitcoin network has been a key feature of governments’ ability to crack down on crimes related to or involving cryptocurrency. For many, the development of cryptocurrency is not about the protection of criminals, but the removal of a central authority from all processes involving an individual’s cash. Any compromise of an individual’s complete privacy on blockchain is seen by some as a fundamental departure from the principles on which the technology was conceived.
Privacy Controls are Key
At Binary District’s Master Workshop last summer in Berlin, we spoke with Ian Miers, a postdoc at Cornell University and a founding scientist of Zcash. The team at Zcash have focused on privacy from the very beginning, creating a blockchain that solves some of the key privacy issues faced by more traditional chains such as Bitcoin. We asked Miers about privacy on blockchain, beginning by asking him why privacy is such a priority.
“With blockchains,” he said, “every transaction is available to everybody, and you can’t have a world in which everybody can find out about your payments. You’d have your business competitors knowing about it, you’d have stalkers using it to harass people – the things that could happen are just awful, so you need privacy controls. That’s a fundamental.
“You can’t have a world in which everybody can find out about your payments. You’d have your business competitors knowing about it, you’d have stalkers using it to harass people – the things that could happen are just awful, so you need privacy controls”
“Anonymity is crucial to crypto for social reasons – privacy is a public good, it’s a human right. It’s also necessary for economics. Fungibility is an important property of money – you give someone else a dollar and it’s the same as another dollar, and that doesn’t work if currency has history.
“It’s also important to businesses. One of the more interesting things that has come out of launching Zcash was finding out that there’s actually quite a bit of demand from enterprises who want to do blockchains but don’t want to expose everything they’re doing to their competitors."
The Advantage of Zero-knowledge Proofs
Miers’ work with Zcash marks him as a leader in the area of zk-SNARKs, the clunkily named solution to fundamental issues of privacy in crypto. A Zk-SNARK – a ‘zero-knowledge succinct non-interactive argument of knowledge’ – uses zero-knowledge proofs, a concept that has been established for decades. Essentially, a zero-knowledge proof allows two parties to verify a particular set of information without revealing what that information is at any point.
Traditional proofs generally require one side of the transaction to hold all the information. A simple example would be entering a password. For the contents of the password to be verified against what a user inputs, the network itself must have access to that password. The equivalent, if you were using a zero-knowledge proof, would be that the user could demonstrate to the network that they had the correct information without ever disclosing what that information is. This means that the network has to store passwords for verification purposes – a risky form of centralisation that blockchain broadly promises to do away with.
Zero-knowledge proofs can be verified within a few milliseconds. They’ve developed from time-intensive back and forths to ‘non-interactive’, requiring no interaction between the prover and the verifier. It’s this step that allows Zcash to claim complete anonymity between the two parties – an important facet of blockchain for anyone who sees privacy as a core tenet. Consensus algorithms can still function correctly and the overall transaction can be validated without ever having to show who holds the funds, how large the transaction is or where the funds are going.
“Zero-knowledge proofs can be verified within a few milliseconds. They’ve also developed from time-intensive back and forths to ‘non-interactive’, requiring no interaction between the prover and the verifier. It’s this step that allows Zcash to claim complete anonymity between the two parties”
There are many reasons why this level of privacy is necessary for businesses, some of which Miers touched on in our conversation. One is that no business wants their transaction history broadcasted for their competitors to see. If a company can see where their competitor buys its stock and how much they are paying for that stock, that would give them a business advantage. Businesses want end-to-end product traceability on their supply chains, but would be utterly unwilling to put that information on a public blockchain until serious improvements are made to privacy standards.
Businesses, then, will be encouraged by the development of zero-knowledge proofs. There is certainly the potential that, once sufficiently developed, they could bridge the lingering gap between business and blockchain that currently exists. Just about every major company in the world has dipped a toe into the blockchain pool to differing degrees, but very few have yet made the technology a core product or part of their working practices. If the upsides of zero-knowledge proofs are to be effectively realised, though, this may well change.
Why zk-SNARKs May be the Answer
There is one major drawback to zero-knowledge proofs at present, however: they are too computationally intensive. This is where the need for privacy clashes with one of blockchain’s other key issues: scalability. At a time when blockchains such as Waves and Ethereum have found potential solutions to the crippling scalability problem, another computationally intensive element is unlikely to be welcomed with open arms.
Zk-SNARKs may have the answer and the Zcash team are working to optimise them. The work has been recognised by the likes of Ethereum founder Vitalik Buterin, who suggested in September that they could be used to scale the Ethereum blockchain. He wrote that, by using the technology, Ethereum could scale “by a huge amount” and suggested that zk-SNARKs provided an alternative to off-chain solutions like Plasma or Raiden. Buterin also addressed the problem of zk-SNARKs’ computational demands, stressing that it only made the optimisation of the proofs a priority.
And so we eagerly await developments. Ian Miers and his colleagues at Zcash will be confident not only in the technical side of their protocol, but also in the necessity for it. Dependent on the all-important optimisation project, zero-knowledge proofs could provide the security necessary to gain the backing of customer-facing giants, which would be a major step in the widespread adoption of blockchain technology. So, are zero-knowledge proofs the future? If they can provide a scalable solution to the privacy problem, they just might be.
Privacy on the blockchain is about a lot more than just financial transactions. For years, privacy has been systematically overlooked or undervalued by social media companies and any platform that requires you to input your own personal data to use it. This is why data leaks and database attacks are so common, with just about every major tech company having fallen foul to some kind of breach in recent years.
Decentralisation could remedy this. Privacy has been resoundingly emphasised since the very beginning of blockchain’s development. Centralisation is fundamentally linked to every problem associated with data collection and storage, and while blockchain technology is not a cure-all, distributed storage architectures provide a far more promising foundation for sound data privacy going forward. Zero-knowledge proofs and smart contracts were built to be part of an ecosystem that had data in mind from its very inception.
Illustrations by Kseniya Forbender
To contact the editor responsible for this story:
Margarita Khartanovich at [email protected]
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