The State of Privacy on Ethereum
Evaluating the tradeoffs to achieve privacy on the Ethereum network.
By Dean Pierce (ConsenSys Diligence), Robert Drost (ConsenSys R&D), and Mason Nystrom (ConsenSys)
In a world that is increasingly connected, and where our information is increasingly cataloged, duplicated, shared, and sold, maintaining our expected levels of privacy can be a challenge.
Like most things, privacy is not binary and instead falls along a spectrum from fully public to completely private. So when talking about privacy, three questions require further discussion.
- What do consumers and enterprises want to keep private?
- Are people willing to pay (in cost and effort) for privacy?
- What are the tradeoffs for achieving private transactions on a public blockchain?
This article aims to briefly examine the demands for practical privacy on public blockchains and to discuss at a high level the tradeoffs of implementing privacy solutions.
The First Question: What Level of Privacy Matters?
One example of privacy is anonymity, or privacy of identity. In the context of public blockchains, anonymity refers to the ability for parties to exchange something (i.e. money, tokens, or data) without needing to reveal identity-related information about themselves or other transactions they have done. While this is only one facet of privacy, it has become increasingly important as blockchain has evolved.
Cryptocurrencies like bitcoin and ether have been increasingly traced to correlate public addresses across transactions and to analyze and link to off-chain identities on crypto to fiat conversions. The net effect of this makes the identities of parties in transactions more public. Because public blockchains must fundamentally provide a log of all transactions, privacy for consumers and enterprises using cryptographic algorithms and protocols has become increasingly relevant.
Enterprises and consumers have very different demands when it comes to privacy. Enterprises typically require privacy in the form of transaction data, for example, product name, quantity, price, address, personally identifiable financial information, etc.
Network participants are usually known but may need to be withheld or made available to other participants depending on their roles. A freight forwarder, for example, might not need to know the contents of a certain shipping container, but only that the container has arrived. Banking regulations also restrict who may have access to transaction data. Ernst and Young’s Nightfall protocol for private transactions on Ethereum using zk-snarks and JP Morgan’s Anonymous-Zether for Quorum are prime examples of enterprises developing privacy solutions for Ethereum.
Compared to enterprises, which often have strong business motivations or regulations around privacy, consumers to date have generally shown less awareness and concern about privacy. Nevertheless, consumers want to protect their identity, credit card information, or other sensitive data to prevent fraud or identity theft. Sometimes, consumers want to transact anonymously which requires privacy in regards to both the sender and receiver of a transaction. However, privacy isn’t native in the daily lives of consumers and most individuals willingly sacrifice their privacy for convenience or free access (accept cookies, use free wifi, tracked web surfing, etc).
The Second Question: Is Privacy in Demand?
Privacy has generally been used in the context of messaging by protecting content sent between parties. It has also been used in broader constructs for communication channels and the underlying network layer. We have seen multiple constructs from the evolution of public-key cryptography and its adoption to other key exchange mechanisms to generate end-to-end secure internet/transport layer protocols (IPSec v2, SSL). Further, this has also gone a step below to ensure secure DNS querying as well as the adoption of Tor-based relayers. A lot of this work has been spawned off from open standards through academic research and adoption by enterprises to ensure they preserved privacy and confidentiality in data transfer — but many of these technologies have found their way in the retail user tech stack — thereby benefiting end-users.
Specifically for blockchain — although Zcash is nearly 3 years old, only about 5% in ZEC in existence is stored using SNARKs (about half of which uses legacy SNARKs). About 95% of ZEC are stored in transparent addresses that offer little privacy. From this lack of adoption, we can infer that perhaps most users haven’t yet felt the need to pay (in cost and effort) for privacy.
However, privacy is still required for the eventual mainstream adoption of blockchain technology. The success of built-in privacy layers such as SSL enabling the internet to become a trusted commerce medium suggests that consumers and enterprises want privacy to be built natively into systems and applications.
Learn about the tradeoffs of privacy and more on the ConsenSys blog.
Thanks to Min Teo, Joseph Chow, and Zac Williamson for coordinating the initial outline as well as Amira Bouguera, Praneeth Srikanti, and Steve Marx for their feedback.
Disclaimer. The views, information, and opinions expressed are solely those by the author above do not necessarily represent the views of Consensys AG. They are meant for informational purposes only, are not intended to serve as a recommendation or investment advice to buy or sell any securities, cryptoassets, or other financial products.
