Making ethereum institution friendly & solving the duality of confidentiality — Part A
Introduction
Ethereum majorly stands for decentralisation while providing censorship resistant and trustless access to global computing. This has created a massive confluence of capital and data to meet and exchange hands from all over the world. Today any developer can create a decentralised application powering a utility in a trustless manner. This signals freedom, decentralisation and convergence of dynamism.
However this has invited the underbelly of this world to this infinite garden — which presents itself as a challenge into the rising face of growing institutional adoption. Institutions have started arriving on the borders of the web3 economy. The gargantuan rise of the RWA adoption, the bitcoin etf etc is only the start and shows the demand for institutional capital and their longing to participate in this new economy.
What has kept away institutions till now is the demand for a structured access and a controlled environment where bad actors are kept away and are forbidden to interact with them. They want to interact with the existing liquidity of ethereum while being kept away from bad actors directly. This is a challenge in the face of the global supercomputer that stands for the properties of trustlessness, censorship resistance and decentralisation. However when solved it will allow institutional capital to enter the heart of this new economy.
Institutions need an environment where:
- They can access the existing liquidity of existing applications and access to cross chain liquidity
- They want to be able to operate from an interface where bad actors has not been allowed in
- An ecosystem or an environment where their data is protected.
Silent Protocol is building the ghost layer, a modular layer 1.5 providing compliant privacy built on the EZEE framework to become that structured playground for institutions and retail users that can provide compliant, secure and privacy preserving access to ethereum native and cross chain liquidity along with enabling access to applications.
Silent Protocol has built the Silent Compliance VM and Silent ID(more will be revealed later) to solve the “duality of confidentiality” in the ghost layer and give birth to a compliant playground for institutions.
In this blog post, we focus on how and why the ghost layer uses the silent compliance VM as one of its main tools to challenge the duality of confidentiality and how by bringing a complaint framework into existence we make access to ethereum more institutional friendly.
Recap
What is Silent compliance VM?
It’s a system enabling threshold decryption of a particular user’s activity carried out within the ghost layer of silent protocol, through the help of a whitelisted group of elected users- allowing silent protocol to create a operating structure responsible for cooperating with 3rd parties when and if required, in a decentralised manner while fighting illicit activity in a lawful manner.
The silent compliance VM defines or embodies an equilibrium between anonymity and transparency while carrying forward the ethos of decentralisation and practicality.
The duality of confidentiality
What is the “duality of confidentiality?”
Confidentiality is neutral. It helps protect your data. It helps secure you. It is for institutions. It is for law abiding citizens.
However when we have a product that provides privacy, together with good people, bad people with malice enters the game and ends up using the product as well. This is the duality of confidentiality that we all face similar to how we have duality of cars, guns and everything in nature.
Even though that is the case it turns out that the duality of confidentiality can be solved. If a protocol or a service that’s providing privacy and security to its users can unwrap and undo the services that it provides it would solve the problem of bad actors usage and make the protocol deem useless for users with malice.
Why did we work on our silent compliance VM?
Silent Protocol stands by its vision to create an anonymous computational access layer for ethereum and web3 at large. Silent Protocol is building the ghost layer, a modular layer 1.5 rooted out of ethereum, supporting access to ethereum native assets, liquidity and applications in a compliant and privacy preserving manner.
The silent compliance VM helps the ghost layer solve the “duality of confidentiality” by making sure that the ghost layer is deemed useless for bad actors and helps create a complaint playground for institutions and retail users.
How does the Silent Compliance VM act as the silver bullet for compliance of the ghost layer ?
The Silent compliance VM is an MPC protocol when integrated with the ghost layer that provides it the ability to selectively dis-serve a target user within the ecosystem by decrypting the state of their account- at the verified request of an external 3rd party- only when there is a consensus from the exogenous group of jury setup to run the silent compliance VM.
This allows the ghost layer to not serve any bad actors. It helps us to not only create a framework to provide secure and privacy preserving access to the rest of the ecosystem but also create a compliant playground that stops bad actors from entering the ghost layer and its ecosystem.
The silent compliance VM makes the use of the ghost layer by bad users meaningless since no bad actors would be incentivized to use the ghost layer knowing that their account data could be revealed publicly. The ghost layer utilises the silent compliance VM along with a blocklist of sanctioned users and an allowlist to help create an institution friendly and completely compliant protocol. .
So is this solution a new idea?
This is a solution that VPNs utilised in web2 in order to survive the challenges it faced from bad actors feeding off from their system. Most VPNs maintain a logbook which maps all the IPs assigned to their users back to their original IP. VPNs essentially embody themselves with the ability to track back the original user IPs when they receive verified requests of external agencies- essentially dialling back the clock on the services that they provided in the first place.
Does the ghost layer track users while providing privacy? Plus, some legal conclusions for not so average readers
The ghost layer is a decentralised ledger rooted out of ethereum. If an already existing public ledger allows for money transmission and is not defined as an MSB or Money Service Business then a non custodial protocol executing automatic code won’t be defined as a MSB as well. Which means a protocol such as the ghost layer doesn’t have the responsibility to collect ID, monitor tx, file SAR etc. Therefore it doesn’t track users.
The ghost layer can be thought of as an encrypted blockchain and as FinCEN explicitly states in its most recent guidance, issued in 2019, non-custodial, self-executing code or software alone, even if performing mixing functions, will not at present trigger BSA obligation.
However even if that is the case a protocol such as the ghost layer even if it is exempt from the BSA it will be exempt from the sanctions law as they shouldn’t allow a sanctioned entity or user to abuse the system. Neither should the protocol allow for “significant malicious cyber-enabled activities” to take place.
Therefore the ghost layer utilises the silent compliance VM to make sure bad actors can’t do or perform any significant malicious cyber enabled activity and utilises silent ID(a form of allowlist, more will be revealed later on) along with a blocklist to shield it from any sanctioned users misusing the system.
Conclusion
Silent Protocol is a building towards its mission to create an anonymous computation access layer for ethereum. It is building the ghost layer which is a modular layer 1.5 enabling a secure value transfer layer and is creating an ecosystem of privacy preserving applications. Through the use of Silent compliance VM and other tools, the ghost layer is making the ghost layer a complaint sandbox for institutional adoption and for retail users.
