Where we are at and where are we heading- Introducing Silent Protocol.

Silent Research Labs is thrilled to introduce Silent Protocol, a privacy wrapper for the Web3 ecosystem that — through an abstraction known as EZEE (Economical Zero-knowledge Execution Environment) — allows end users to have anonymous and pseudo-confidential interactions with existing, natively-deployed EVM smart contracts.

Interact with Uniswap, Yearn, OlympusDAO, Ribbon, or any other protocol without revealing your transaction details, and retain complete anonymity.

This is the DeFi code of silence.

Web3 and Privacy

Until now, Web3 lacked the necessary frameworks to give users access to decentralized computation and private interactions while maintaining composability with existing protocols and preserving network effects.

Silent Protocol has developed a zkSNARK-based scheme that allows for anonymous and confidential transactions (via multidimensional non-opt-in construction on the L1) and enables them on any existing DeFi applications without having to pool transactions. With Silent, users don’t need new wallets or additional tooling to take advantage of private DeFi on protocols they already use daily.

Using the EZEE framework through 0dapps, Silent Protocol will allow users to perform complex DeFi operations at 1:1 synchronicity with the application contract and grant them complete anonymity and pseudo-confidentiality.

Web3 needs Privacy more than ever.

Currently, the crypto industry is going through its Uber/Airbnb moment, as it experienced back in the 2010s when the new emerging industry had to adjust and cooperate with regulations and figure out what may be the most beneficial and socially sustainable path to trudge. Today they are giants and are an industry of their own. Innovation always meets regulations; for the most part, those regulations do more good than harm, unlike popular opinion.

This article mainly focuses on answering the question, what’s the future of privacy-preserving Software in the developing regulatory environment? What can we expect, apart from introducing the world to Silent Protocol? Read on.

Crypto Firms, defined as Money Service Businesses (MSB), have to adhere to some AML/CFT standards and comply with the laws of their operating jurisdiction, including registering with the FINCEN, Etc. But DeFi protocols usually operate autonomously on a smart contract, are not treated as an MSB, and do not need to register under a governmental body or procure a license to use.

So what about projects/Software that want to provide unhosted wallet services with privacy-enhancing technologies built in? Is the project a Money Service Business (MSB) or MSB equivalent?

If Money Service Businesses would encompass decentralized Software (DeFi protocols), then not only would it be difficult for developers to build, but it wouldn’t be endogenous to build in DeFi, because it would change the meaning and the value proposition of the technology. However, FATF, in their latest guidance, states that:

• An entity or a person who merely facilitates/governs or provides ancillary infrastructure” including “verifying the accuracy of signatures,” will not be determined to be a VASP.
• FATF also states that publishing software that creates new virtual assets or new virtual asset networks is not an activity that triggers surveillance obligations.

These guidances determine that autonomous protocols are not VASPs where end users are in complete control of their assets. Additionally, talking about Privacy providing Software in general, according to the precept taken from the FINCEN’s guidance with the subject: “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies”:

“An anonymizing software provider is not a money transmitter. FinCEN regulations exempt from the definition of money transmitter those persons providing “the delivery, communication, or network access services used by a money transmitter to support money transmission services.”60 60. 31 CFR § 1010.100(ff)(5)(ii). This is because suppliers of tools (communications, hardware, or Software) that may be utilized in money transmission, like anonymizing Software, are engaged in trade and not money transmission.”

Where it defines that Software providing anonymizing services is not a money transmitter or a VASP.

So, why did the OFAC ban an anonymizing service like Tornado Cash? Will the government ban make it difficult for all privacy-preserving systems to exist?

Privacy in web3, especially in public blockchains, is of utmost importance. It shouldn’t be because we want to make it difficult for the government to track our data, but it should be done to silo our private data from every other person on the blockchain. It is a threat to our existence if both bad and good actors can collect data and information about the activities we are performing on the public ledger, and this, in a nutshell, we need Privacy in web3. Even more so than web2, we must do whatever it takes to provide ordinary users Privacy in their lives.

So, why did the government ban anonymizers like tornado cash?

In their recent EU regulatory posts, MICA stated exchanges(VASPs) shouldn’t support privacy tokens whose transaction is not verifiable. The government fears illicit finance and money laundering risks. In a recent post that shocked the crypto space, the treasury released an article stating,

“Today, Treasury is sanctioning Tornado Cash, a virtual currency mixer that launders the proceeds of cybercrimes, including those committed against victims in the United States….Tornado Cash has repeatedly failed to impose effective controls designed to stop it from laundering funds for malicious cyber actors regularly and without basic measures to address its risks. Treasury will continue aggressively pursuing actions against mixers that launder virtual currency for criminals and those who assist them”.

Tornado Cash is a decentralized tool that allows users to gain Privacy. It is a fair and elegant solution that doesn’t allow data breaches like celsius [2022], where many everyday user details were made public and utilized by bad actors by providing standard users privacy. Doxxing a user’s details in public can, at times, have negative consequences, and Web3 is a new dimension where data protection and user privacy becomes system critical for the proper functioning of a user. Tools like Tornado are handy for average users to safeguard themselves against malicious actors. But alongside good actors, immoral and harmful actors end up taking advantage of this tool, and due to the properties of this system, it helps bad actors hide their trail from authorities and acts as a stumbling block for the ecosystem at large. Even if so, Tornado ONLY processed ~20% of malicious lifetime deposits. This clearly defines and indicates the vast number of honest users who want and need Privacy. However, Tornado couldn’t build system controls that would verify the transactional history for a particular user and a solution that would deter bad actors from using its system. And this was the reason why the OFAC banned the use of Tornado.

But how do we build system control without turning into an MSB, and what can these system controls be? Introducing Silent Protocol.

As summarized, decentralization and the property of trustlessness should be of the utmost importance while building public goods software, especially in DeFi. We have to make decentralized services that serve and are owned by the common public with the following philosophies in mind, namely:

1. Censorship resistant
2. Permissionless
3. Privacy-conscious

Along with effective control measures as directed by OFAC. So how to build those adequate system controls that will allow the general public to access privacy-respecting Software without controlling the protocol or owning all the data, without incurring the risks of becoming a Money Service Business?

Introducing Silent Compliance VM

Silent Research Labs is introducing its patent-pending console for the Web3 ecosystem that helps bring Privacy for existing and new applications on the blockchain, known as Silent Protocol. Silent Protocol is a compliant infrastructure that allows users to gain Privacy while interacting with its peer users and also enables users to post arbitrary computations targeting their favorite on-chain application with complete composability.

Silent Protocol is introducing a novel feature known as Silent Compliance VM, that allows the system operator to assist authorities by enabling data access for highlighted participants only after reaching a consensus.

Silent Protocol, in this manner, bakes in effective control measures, serving good users to gain Privacy and disincentivizing bad actors to use the tool.

Silent Protocol is built as a middleware service layer that allows application developers to help provide their users’ private access to their application state, protecting user privacy without changing or writing any code. We will soon release the alpha version of our network on testnet, and please look forward to hearing more from us in the upcoming days.

Interested in learning more or getting involved?

Reach out to us via email (info@silentdao.org) and follow us on Twitter.

(To the Developers) If you’re interested in integrating your application with Silent protocol to gain compliant and user friendly Privacy, contact us.