2021 On-Chain Privacy Research Report: Digital Native Awakening, Paving the Way for Web 3.0
Under Web 3.0, privacy protection protocols combined with blockchain technology can play an important role as a technical infrastructure in building data ownership.This article is sourced from the Computing Power Think Tank.
Data has always been the driving force of the internet economy. While data generates enormous economic benefits, data breaches and data misuse have also become a new and unavoidable topic in the digital society.
Web 2.0 entered the "read-write" web, collecting data through centralized servers. A large amount of personal data collected by internet companies has become a target for hackers and the data black market. Data is constantly being leaked, personal privacy is not protected, and individuals cannot enjoy the dividends brought by the digital economy, which has become a major obstacle to the development of the internet.
Dr. Gavin Wood, founder of the Web 3.0 Foundation, pointed out that Web 3.0, as an inclusive protocol, embodies the spirit of openness and decentralization of the internet. Web 3.0 directly implements basic functions such as data storage, privacy protection, and identity authentication through the protocol layer. Under Web 3.0, privacy protection protocols combined with blockchain technology can play an important role as a technical infrastructure in building data ownership.
Since 2020, as the crypto market has gained increasing attention from the mainstream market, the prosperity of various new tracks such as DeFi, NFT, and the metaverse has led to a strong demand for privacy technologies and applications in various scenarios. From the implementation of technologies such as anonymous transactions to the current exploration of smart contracts, cross-chain, public chains, and consortium chains, blockchain + privacy has become a topic of continuous in-depth research by various parties.
In mid-2021, the Computing Power Think Tank Research Institute launched the "2021 On-Chain Privacy Research Report - The Awakening of Digital Natives, Paving the Way for Web 3.0." This report attempts to clarify the direction of data flow and privacy technology development in the Web 3.0 era by tracing the development context of on-chain privacy technology, inventorying the entire ecosystem over the past two years, comparing the differences in mainstream privacy technologies, and analyzing the practical value of representative cases and projects.
- On-Chain Privacy: An Important Link to Zero
The report points out that the inherent contradiction between the public traceability of blockchain and privacy security increases the risk of on-chain data breaches, making it difficult to protect user privacy. The emergence of on-chain privacy solutions can avoid data leakage to unauthorized parties while satisfying the premise of data flow, thereby better protecting privacy.
Privacy coins keep information such as the sender, receiver, transaction amount, and transaction IP confidential, making this information visible only to the participants (or third parties designated by the participants). Monero, Dash, and Zcash have solved part of the transaction privacy issues of cryptocurrencies at that time.
Figure 1: Market Value Comparison of Anonymous Coin Projects (100 million ¥)
Data Source: Feixiaohao, as of July 23, 2021
Smart contract privacy mainly involves encrypting input and output data as well as network status, making it hidden from all parties other than the user (including the nodes executing the smart contract). Specifically, there are two types of privacy solutions for smart contracts: one focuses on privacy-oriented public chains; the other provides privacy technology tools or functions based on different public chains.
Figure 3: Market Value Comparison of Anonymous Coins + Privacy Smart Contract Projects (100 million ¥)
Data Source: Feixiaohao, as of July 23, 2021
As the number of blockchain protocols increases and asset interactions become more frequent, data privacy becomes increasingly insecure, creating an urgent need for a type of technology that enables interaction between different chains.
This is the reason for the emergence of cross-chain privacy. Cross-chain privacy can allow on-chain assets to flow through value-equivalent exchange methods, solving the scalability and liquidity issues of public chains, reducing proof costs and verification times, while ensuring transaction confidentiality; on the other hand, it can serve as a middleware protocol, relying on the underlying infrastructure of public chains to connect more fields such as DeFi and NFT, achieving cross-chain interoperability and significant composability.
- Ecological Map of On-Chain Privacy Projects under Web 3.0
The report focuses on the mainstream technical paths of on-chain privacy and compares several major technical paths.
Comparison of Privacy Technology Paths
The report also discusses core on-chain privacy projects such as Phala Network, PlatON, Raze Network, Tornado, and Manta Network. It explores the development context of privacy projects in the Web 3.0 era and the issues that need to be continuously addressed in the future.
Comparison of On-Chain Privacy Projects
Data Source: Feixiaohao, as of July 22, 2021
- Future Development Path of On-Chain Privacy
The report provides suggestions for the future development path of on-chain privacy from three aspects:
First, in addition to the continuous development and improvement of public chains themselves, the emergence of cross-chain bridges and financial public chains is also promoting the continuous growth and development of privacy chains. From a technical implementation perspective, these privacy public chains can solve the scalability issues of Ethereum while achieving confidential data storage, privacy protection, and anonymous access. New privacy chains aim to assetize data, which can not only reduce the current costs of privacy protection but also allow blockchain to naturally adapt to on-chain data flow in terms of rights confirmation and incentives.
Second, most current on-chain privacy solutions are limited to transaction privacy issues and do not genuinely consider the problem of user identity privacy leakage. In the future Web 3.0 era, privacy identity verification will be an important foundational function. Through privacy identity verification technology, user identity authentication can be completed. In the entire on-chain transaction process, user identity information is completely anonymized, and personal privacy will not be leaked. Therefore, on-chain privacy should not be limited to solving transaction privacy issues but should also address identity privacy issues.
Finally, privacy technology has already gained significant attention and development in the blockchain field, with numerous projects choosing different directions and paths based on their characteristics and technical capabilities in conjunction with various scenarios. "On-chain privacy solutions are not merely about solving chain issues, nor are they solely about addressing privacy itself, but rather a win-win situation." said Su Guantong, Chief Cryptographer of ARPA and PhD in Cryptographic Chips from Tsinghua University.
As a solution aimed at addressing issues within the native blockchain system, on-chain privacy solutions will not only provide solutions to the challenges faced by blockchain itself in the future but will also genuinely address data privacy and security issues at a general privacy level. This will empower the construction of data flow ecosystems and systematic infrastructure for the growth of digital assets in Web 3.0.
