NEAR Privacy Roundtable Roundup

Intro

On Thursday Feb 25th, ZKValidator held the first ZKV NEAR Privacy Roundtable - an informal event to get the privacy conversation started on NEAR and find out where the ZKV can best focus our efforts to help. It ended up being a vibrant discussion that yielded several insights and opportunities. We are more hyped than ever about what’s to come for NEAR in the privacy arena!

Here is a tl;dr with the key points that came out of the meeting:

• Lack of privacy is a major challenge for DeFi and real world adoption. Regulatory uncertainty is certainly one of the reasons why there are few teams working on privacy related tech
• The Cypherpunk Guild is a new group dedicated to privacy funded by the NEAR foundation
• NEAR’s economic model, which gives 30% of contract fees to devs, can help to efficiently monetize privacy projects and is a major differentiator over other L1s
• NEAR has many advantages that could position it as a leading blockchain for privacy with a specific privacy SDK
• Limited access keys are a unique feature to NEAR and the accounts model in general makes possible some concepts that would not be possible on other L1s
• The NEAR foundation and several ecosystem investors are willing to fund new privacy projects
• Private transactions and wallet UX improvements to avoid leaking of personal information are important goals
• Private staking pools and generalized private transactions are achievable long term

Participants

Participants included members of the NEAR foundation, the Cypherpunk Guild, investors, builders and community members. The meeting took place under Chatham house rules, so we will not attribute what was said to particular individuals.

Goals

Very few projects, researchers, or implementation teams are currently working specifically on privacy on NEAR and there is a general lack of awareness about its advantages. The goal of this event was to start an open discussion around the potential barriers to entry for privacy projects, privacy education & advocacy and explore NEAR’s potential to differentiate itself compared with other L1 platforms.

Meeting Report

We kicked off the meeting by briefly introducing ourselves and the ZKValidator. We then had a representative from the NEAR Cypherpunk Guild present their work and future plans for driving forward privacy related projects. Cypherpunk Guild has recently received a 100k NEAR grant to support privacy projects. Their top goal is to push private transfers forward and to make private DeFi possible. The guild sees an opportunity to design privacy as a low level primitive used by all other protocols which sit on top.

After these intros, we moved on to the open roundtable section of the meeting. We covered several questions, with highlights from the discussion that followed summarised below:

What are the major milestones we’d like to see in terms of privacy on NEAR?

The major problem for privacy on blockchains is on-chain analysis. All it takes is one transaction to create a link to an exchange or merchant. Even when someone is simply moving funds from one account to another this may be revealing an individual’s full network of accounts.

We briefly discussed network layer privacy i.e. revealing one’s IP address to websites or relayers. But this was determined to be out of scope of the NEAR privacy working group and is relatively easy to solve with Tor, VPN, and using your own node.

Important and relatively low hanging fruits are simple private transfers and on-chain mixers but these are only the tip of the iceberg. More complex private contract interactions are needed e.g. to prevent front-running on DeFi and prediction markets .

Private staking pools are a brilliant and unique opportunity for NEAR as withdrawals can be de-linked from a deposit account. This could be done by having a proxy that acts as an “anonymous broker” and relayers that can pay the transaction fees for users. Depositors would own shares in the privacy pool to receive staking rewards. Metadata, including timing attacks on transactions, are a challenge to consider.

Another unique NEAR feature is limited access keys which allows for an account (EOA or contract) to have multiple keys. You can update the key while maintaining access. The public key is locally generated and can not be linked. This could be an important building block for privacy applications on NEAR.

What new funding models could we have for privacy projects?

For a small project it’s relatively easy to get funding, and there are lots of people willing to help. Speak to the Cypherpunk Guild or ZKV (will@zkvalidator.com) as your starting points.

The NEAR foundation is also willing to fund projects, however there may have been past instances where projects that were in a potential regulatory greyzone found it difficult.

If you deploy a contract on NEAR, a portion of transaction fees generated by its future use will come back to the deployer. This is a key differentiating feature of NEAR and can help to make privacy projects self sustaining. Anonymous developers can deploy privacy related contracts and automatically have a business model. This is a phenomenal advantage!

One suggestion that was shared by a participant after the event wrapped up was the creation of a gitcoin grant type model to better distribute funding.

Are there any privacy applications that exist on other chains that could be brought to NEAR?

A Zcash-like shielded zone seems like a good model for NEAR. ZeroPool, a private multi-blockchain solution, is currently building on NEAR. Balances and the transaction graph are hidden and it offers compatibility with network identity hiding technologies, like Tor. You can deposit, transfer and withdraw tokens.

What blockchains are doing privacy right? What is a model to aspire to?

Monero has privacy by default with more conservative crypto. Zcash has optional privacy with stronger cryptographic privacy. Zcash style seems to be the better route for NEAR. Something like tornado.cash can provide a cost effective alternative.

What does DeFi and privacy look like? Is it desirable?

There is an extra cost for privacy which makes DeFi applications less competitive. One way to get around this is to break chain analysis with a tornado.cash like mixer, and then use DeFi transparently. Deposit from and withdraw to a privacy layer. There is an opportunity for NEAR to go even further, with shielded smart contracts. A killer goal would be DeFi in a non-shielded zone AND shielded zone. Apart from user privacy, shielded DeFi can help to protect against front running DEXs.

There is an institutional feel to the network, the original token holders being more institutional. Is there a tension between making NEAR friendly to institutions and making NEAR more private?

We had lots of interesting discussion on this point, and it seems like an area to pay extra attention to. One main takeaway was that institutions also want privacy for example to keep holdings private from competitors and to prevent front-running. However regulatory uncertainty is a significant blocker for institutional adoption and investment. If one doesn’t want to give golden keys to regulators, the next best thing that can be done is to give all users the ability to selectively disclose their holdings and source of funds to regulators. If NEAR provides excellent selective disclosure tooling to its devs, it can become a killer differentiating feature. The blockchain community should try to campaign against the idea that blockchain identities should be associated with legal identities.

Does NEAR have legal advisors helping the project with regulatory issues?

Several privacy related projects have been blocked from receiving NEAR funding due to KYC issues. The NEAR Foundation is based in Switzerland and requires KYC to fund projects and generally privacy applications shouldn’t be built by someone who isn’t private. This is where there is a very clear advantage for NEAR comes in: the contract fee mechanism gives part of the contracts fee revenue to who deployed it. This makes it possible and profitable for anonymous/pseudonymous developers to work on NEAR without external funding.

Other reasons to be optimistic are that Zcash is listed on top-tier U.S. exchanges, a proof that regulators accept that protocol-level privacy is not the enemy. Additionally ZKPs can be a tool for compliance, prove KYC/AML and credit scores without revealing private personal information. Regulatory compliant privacy is then possible for people that say “I don’t want random strangers to know what I’m doing, but I don’t mind if an exchange or regulator knows” but it leaves the question open for people that say “I don’t want anyone to know my activities”.

Conclusion

Regulatory uncertainty and lack of existing privacy tech is a major challenge for DeFi and real world blockchain adoption. However, there are several people and teams willing to fund privacy and ZK related projects on NEAR. Reach out to ZKV and the Cypherpunk Guild to be connected!

We also learned that NEAR has at least two very strong technical differentiators for privacy projects:

• Transaction fees going to contract deployers giving instant business model for privacy related smart-contracts, mixers, private transactions etc
• Unique accounts model allowing account to contain smart-contract and have associated private keys

In the near term, the NEAR ecosystem should focus on simple private transfers and wallet improvements. Private staking pools and generalized private transactions are achievable mid term goals and in the long term, NEAR could position itself as a leading blockchain if devs are provided with the right tools e.g. for selective disclosure.

Are you working on something zk/privacy related on Near? We would love to hear from you!

Email us at hello[at]zkvalidator.com and follow us at @ZKValidator on twitter.