Gate.io Research: Development Direction of Blockchain Privacy Protection Mechanisms
It speaks for itself why privacy is important. We should be able to choose which information we share and who we share it with. The same goes for our crypto assets, especially those who are looking to conduct transactions which are private in nature. It’s comforting to know that private really means private. And enlightening to know that private in many cases doesn’t really mean private at all.
Privacy should never be taken lightly, and in relation to crypto privacy these three definitely stand out:
- Power of choice
- Protection of personal finance information
- Protection of our privacy equals protection of physical safety
Privacy & Blockchain Technology
As one of the current, most cutting-edge technologies, blockchain is never not a hot topic. People have been putting effort into improving and optimizing different mechanisms of blockchains since bitcoin was invented. If a ledger is decentralized, blockchain enables users to trade with another user peer-to-peer, without the intermediation of so-called trusted third parties. In other words, users do not need to submit their related information when they trade on blockchains. However, as a result of the absence of trusted third parties that can execute a centralized management, a significant way to protect user privacy has become an important topic of blockchain development.
In the case of a ledger being decentralized, blockchain has a natural advantage in protecting users’ privacy, where the information of users will not be submitted to a third party, different from most traditional technologies. However, on-chain data and information being completely public and transparent has triggered new issues regarding privacy protection. We have published a report, based on our research, that looks into the pros and cons of blockchain privacy-preserving mechanisms, explores the ways to improve the privacy mechanism of blockchain even further, and forecasts the future development direction of blockchain privacy.
Click here to download the report.
For the TL:DR version, here are some key takeaways:
— Compared with traditional technology, decentralized blockchain technology eliminates the dependency factor that is applied to users when they have to interact with trusted third parties, enhancing the privacy of user information.
— Blockchains improve the security of user privacy by means of P2P network, decentralization, anonymous addresses, etc. However, data transparency on-chain also provides ways for attackers to obtain and analyze user data.
— There are three aspects to improve blockchain privacy-preserving mechanisms. They consist of network layer, transaction layer, and application layer. In the Network layer, security verification by nodes and anonymous networks can be performed and used. In the transaction layer, mixed currency mechanisms and technologies like zero-knowledge proof can be implemented. In the application layer, blockchains with highly secure privacy mechanisms, etc. can be selected.
- It is difficult for a single privacy protection mechanism to act perfectly. Therefore, the improvement of future blockchain privacy security depends on it being realized by coordinating different security solutions all at once. Meanwhile, the accelerating development of Cryptography, and the coordination between off-chain scaling solutions and privacy mechanisms, have provided more possibilities to improve the security of privacy of users.
Given that blockchain is managed by a peer-to-peer network instead of a centralized node, in the network layer, a user’s privacy can be accessed easily by attackers. These attackers could launch an attack on the low-security node by accessing its IP and network topological space.
Combining blockchain and anonymous networks can increase the difficulty to breach users’ IP and analyze their data, significantly advancing system security. In the transaction layer, the blockchain anonymizes users’ addresses so that attackers are unable to gain user information through an anonymized address, which strengthens the user’s privacy compared to a more traditional IT structure.
However, malicious attackers can still peep the user’s personal information by analyzing trading data and the flow of assets. This way, Mixing, and Encryption were put forward successively to confront the relevant, potential risks. The former mechanism, Mixing, prevents attackers from confirming the source and direction of the transaction through mixing data, while the latter mechanism obscures the real trading address with the encryption of private keys and random numbers provided respectively by receivers and senders.
With regard to on-chain congestion, off-chain scaling solutions have been consistently proposed by developers and it is regarded as a practical scheme to better preserve users’ privacy. Currently, the Lightning Network has been served up as a potential solution to preserve users’ privacy.
The development of blockchain solutions has brought along strict demands for privacy preservation and a sole mechanism has been hard to attain the goal so far. Therefore, the combination of multiple mechanisms is needed to provide robust blockchain security in the future. With the advancement of scaling solutions, the privacy-preserving mechanism can also be involved in an off-chain scheme so as to alleviate the on-chain burden.
Many great pieces have been written on the topic of privacy. What is interesting in regard to the crypto space is seeing whether the claim of privacy, coupled to a certain blockchain, really holds true. After all, if a blockchain intelligence firm such as Chainalysis can offer tracing support for Zcash and DASH so easily, then what happened to transaction flows being difficult for investigators to follow? Up untill now, it seems that only Monero remains truly private.
As always, DYOR is an ever important and relevant acronym in the crypto space. What better place to start than with our research!
