A panoramic interpretation of the current situation, evolution logic, and typical players in the Web3 privacy track

Authors: Nianqing, Gu Yu / Chain Catcher

"The inevitable endpoint of the crypto industry is maximum decentralization and maximum privacy," said renowned investor Naval Ravikant.

At its inception and in an ideal state, blockchain was "anonymous," with users identified by a string of alphanumeric characters known as public keys. However, the reality is that as applications have become more widespread and standardized, the current demand for security far exceeds the demand for privacy. Various on-chain analysis tools have emerged, gradually undermining the privacy characteristics of cryptocurrencies.

Nevertheless, privacy remains a fundamental requirement for protecting users and expanding the use of cryptocurrencies, and it is considered one of the important directions of Web 3.0.

Privacy coins like Zcash have attempted to fill this market demand, but in the current landscape where smart contract platforms are flourishing, they have largely been overlooked by the mainstream market.

However, as a "necessity," an increasing number of leading VCs and developers are still entering the field. The competition in the privacy track has intensified since the second half of 2021, with many projects focused on privacy emerging at both the protocol and application layers. Some of these projects attempt to protect data privacy using methods such as Trusted Execution Environments (TEE) and Secure Multi-Party Computation (SMPC) (blockchain hybrid architecture).

For example, some projects focus on identity information and medical information, while others concentrate on using ZKP (Zero-Knowledge Proof) solutions to protect asset privacy, such as the quantity and type of cryptocurrencies.

Just tonight, Sequoia Capital also entered the privacy track, participating in a new round of $32 million financing for the privacy public chain Espresso Systems, which has ties to Stanford University. In the previous months, many privacy projects such as Aleo, Aztec Network, and Iron Fish have received significant funding.

Based on the aforementioned introduction and trends, Chain Catcher has conducted a comprehensive review of the current Web3 privacy track, categorizing it mainly into four major sections: privacy computing networks, privacy trading networks, privacy applications, and privacy coins, and has roughly outlined the main projects in each section.

1. Privacy Trading Protocols

Privacy trading networks primarily focus on anonymizing on-chain trading data (types and quantities of cryptocurrencies held or traded) through technologies such as Zero-Knowledge Proofs, allowing users to conduct private transactions without the need for tools like Tornado Cash, ensuring that their private data remains unseen by external parties while supporting the development of more types of privacy applications within the protocol.

Since 2021, at least dozens of blockchain networks focused on privacy trading have emerged and received support from mainstream investment institutions such as a16z and Sequoia Capital, making it one of the most favored tracks in the capital market.

According to incomplete statistics from Chain Catcher, privacy trading networks include Layer 1 privacy protocols and Layer 2 privacy protocols. The former includes Aleo, Nym, Secret Network, Iron Fish, Anoma Network, Manta Network, HOPR, Penumbra, Concordium, Evanesco, and Espresso Systems, while the latter includes Aztec Network, Zecrey, and Suterusu.

Currently, most privacy trading networks are in the testing and development stages, with only a few projects like Secret Network and Aztec Network having launched their mainnets and are developing ecological projects.

Espresso Systems

Espresso Systems, established in 2020, is a Web3 privacy solution with core team members primarily from Stanford University. Its first-layer blockchain will use ZK-Rollups to achieve higher throughput and lower gas fees while prioritizing user privacy and decentralization.

Compared to other privacy public chains, the main feature of Espresso's privacy solution is configurability. Specifically, the Ethereum Configurable Asset Privacy (CAPE) smart contract application that the project plans to develop allows asset creators on the blockchain to customize who can view specific information about the ownership and transfer of these assets, which can be set to public, private, or transparent only to selected parties. This solution not only supports the creation and wrapping of ERC-20 tokens but will also support NFTs in the future.

The project states that this solution is particularly suitable for financial institutions or currency service enterprises based on blockchain assets, as it allows them to balance customer privacy needs with institutional risk management and compliance requirements.

On March 7 of this year, the project announced the completion of a $32 million financing round, led by Greylock Partners and Electric Capital, with participation from Sequoia Capital, Blockchain Capital, and Slow Ventures.

Official website: https://www.espressosys.com/

Related reading: 《Stanford cryptography researchers are building Espresso, a privacy-focused blockchain》

Iron Fish

Iron Fish is dedicated to providing strong privacy guarantees for every transaction. All transaction information, mining information, and wallet information are hidden, and no third party can view them except for the private key owner.

To achieve this goal, Iron Fish has built a new PoW network that uses zk-SNARKs and the Sapling protocol to provide the highest level of privacy protection for each on-chain transaction.

One of Iron Fish's highlights is that the network aims to protect privacy without compromising the accessibility of on-chain transactions. To this end, Iron Fish provides an additional viewing key for each on-chain address, allowing address holders to grant others read-only access through this key.

Iron Fish's goal is to become a universal privacy layer for all assets in the crypto industry, creating a bridge for users to transfer assets from other blockchains to Iron Fish for completely private transactions.

Currently, Iron Fish is still in the testnet phase and has launched an incentive program where active participants can earn points through various contributions, which will be redeemable for mainnet tokens upon the future mainnet launch.

In November of last year, Iron Fish completed a $27.6 million Series A financing round led by a16z, with participation from Sequoia Capital, LinkedIn executive chairman Jeff Weiner, and billionaire Alan Howard, owner of Met.

Official website: https://ironfish.network/

Related reading: 《Iron Fish: A privacy project named after the WWII encryption "submarine"》

Aztec Network

Unlike most privacy networks, Aztec Network is a privacy trading network built on Layer 2, with its mainnet launched in November 2020.

The Aztec protocol uses Zero-Knowledge Proofs to enable encrypted transactions on Ethereum, allowing transaction logic to be verified while maintaining anonymity and privacy. Aztec Private Rollup can hide Layer 1 DeFi transactions with just one Rollup. This privacy protection makes it impossible to track when users trade tokens and which protocols they use for trading.

Additionally, Aztec combines homomorphic encryption and range proofs, selecting a unique scheme for encrypting data that can quickly and effectively verify zero-knowledge range proofs, reducing gas costs for transactions on Ethereum. Even the Aztec DeFi bridge can batch process thousands of transactions within each Rollup, saving at least 10 times the gas fees across various operations.

Since its mainnet deployment, Aztec has attracted over 20,000 users. In December 2021, Aztec launched the privacy bridge Aztec Connect for Ethereum DeFi on the testnet, allowing users to bring Aztec's privacy-protected zk assets into public DeFi protocols on Ethereum, saving up to 100 times the gas fees and enabling default fully private transactions. Compound is set to launch on Aztec Network in the second quarter of this year.

Aztec Network completed a $17 million Series A financing round led by Paradigm in December last year, with participation from IOSG Ventures, Variant Fund, Nascent, and Vitalik Buterin.

Official website: https://aztec.network/

Related reading: 《Understanding Paradigm's investment in Aztec: Huge potential in Layer 2 privacy trading》

Nym

Nym is a Web3 privacy infrastructure that launched its Cosmos-based blockchain mainnet Nyx in January this year, generating the first block for its Nym mainnet on Nyx.

Nym's privacy protection focuses on applications, wallets, and blockchains, with its main technology being a mixnet that provides privacy protection at the network level. Metadata from any internet traffic communication is removed by the Nym mixnet, whether broadcasting through a peer-to-peer network in encrypted transactions or sending messages between clients or any other type of application.

A mixnet is a decentralized computer network arranged in a multi-layered format. Users do not send messages over the internet but convert message packets into encrypted "Sphinx packets" on their own devices. The format of the "Sphinx packets" presents all packets in a uniform size, making them difficult to track.

At each layer of the mixnet, computers known as "mix nodes" mix users' internet traffic with that of other users. This makes it impossible for even the most sophisticated adversaries to monitor the entire network, as they can no longer track packets or analyze communication patterns.

In November last year, Nym completed a $13 million Series A financing round at a valuation of $270 million, led by a16z, with participation from DCG, Tayssir Capital, Huobi Ventures, HashKey, and Fenbushi Capital.

Official website: https://nymtech.net/

Related reading: 《Understanding the operational mechanism and characteristics of privacy infrastructure Nym》

Aleo

Aleo launched its incentivized testnet on November 30 last year, with its mainnet planned for launch in the third quarter of this year. Its goal is to develop a Web platform that utilizes Zero-Knowledge Proofs (ZKP) to apply privacy to the most fundamental components of any application, namely users and transactions. This technology allows two parties on the internet (such as applications and users) to verify information without sharing the underlying data related to that information. The core is to provide users and application developers with unlimited computing space and absolute privacy.

Aleo uses zero-knowledge cryptography to achieve privacy and programmability, serving as the foundation for a system called ZEXE (Zero-Knowledge Execution). In ZEXE, users execute state transitions offline. This process generates a proof that is bundled into an on-chain transaction. The transaction updates the system state by consuming/creating on-chain records.

Because transactions only contain proofs and not the inputs that generated the proofs, the system provides strong privacy guarantees. Like Ethereum, ZEXE can support smart contracts, allowing users to interact or transfer value in predefined ways.

In early February this year, Aleo completed a $200 million Series B financing round at a valuation of $1.45 billion, co-led by the SoftBank Vision Fund II and Kora Management, with participation from Tiger Global, A16z, Samsung Ventures, Slow Ventures, and Sea Capital.

Official website: https://www.aleo.org/

Related reading: 《Understanding Aleo: A modular zero-knowledge privacy application platform》

Secret Network

Secret Network is a privacy public chain based on the Cosmos ecosystem, launched its mainnet in September 2020, and is one of the earliest blockchains to support privacy-enabled programmable smart contracts by default.

Compared to other public chains, Secret Network ensures that transaction data remains secure and private during execution through Trusted Execution Environments (TEE), hiding the transaction history and state changes of tokens and contracts running on the network. External parties can only view the transaction time through a block explorer and cannot know the specific transaction content or the assets held (except for the native SCRT), even for validators.

The only way to view encrypted information is through a set of "view keys." End users have complete control over these keys, allowing them to access private transaction details so they can share this information with other users or professionals like tax authorities.

Currently, the public chain has launched cross-chain bridges like Secret Bridge, privacy DeFi protocols like Sienna Network, privacy trading protocols like Secret Swap, and trustless privacy solutions for Bitcoin like Shinobi Protocol.

In January of this year, Secret Network announced the launch of a $400 million ecosystem fund, with investments from DeFiance Capital, Alameda Research, Dragonfly Capital, HashKey, and Hashed.

Official website: https://scrt.network/

Related reading: 《Messari explains how Secret Network provides application layer privacy for the crypto industry》

Manta Network

Manta Network is a privacy protection network focused on DeFi within the Polkadot ecosystem, providing complete end-to-end privacy protection through Polkadot parachains. Its first product, MantaSwap, is a privacy-focused decentralized exchange.

Manta launched its testnet Dolphin Testnet in December last year and introduced the zkSNARK-based privacy payment feature DolphinPay, which can convert assets within the Polkadot ecosystem into privacy tokens and supports the transfer and redemption of privacy tokens.

On February 15, Manta Network announced a strategic investment from Binance Labs. Previously, Manta Network's Kusama canary network Calamari Network successfully auctioned a Kusama parachain with a community crowdloan participation of 218,000 KSM.

Official website: https://www.manta.network/

Related reading: 《Why does DeFi need a privacy version of Uniswap as the dark forest of Ethereum spreads?》

Anoma Network

Anoma Network is a public chain that does not require a base currency and allows for bartering using non-fungible asset types, aiming to ensure users' economic sovereignty through privacy payments. It launched its first public testnet, Feigenbaum, in November 2021. Privacy payments and barter transactions are the two main features of Anoma.

First is privacy payments, where the project maintains the confidentiality of customers' financial and transaction data regardless of what assets, goods, or services they wish to use, transfer, or trade. To protect user privacy and prevent others from tracing collected data, the sender, receiver, amount, and asset denominations are all encrypted.

The transfer of funds is guaranteed by Zero-Knowledge Proofs, and there is a unified shield pool shared among all assets during the transfer, rather than each asset being shielded individually. The more participants there are, the more assets there are, and the more frequent the transfers, greatly increasing the concealment of asset transfer data.

Second is barter transactions. Trading parties can directly exchange goods without the need for a medium of exchange, involving no cash payments and no third-party intervention. Additionally, unlike existing financial platforms, Anoma aims to facilitate users' ability to use any asset during privacy payments rather than introducing specific assets as currency.

In November last year, Anoma Network completed a $26 million financing round led by Polychain Capital, with participation from Fifth Era, Maven Capital, Zola Capital, Electric Capital, and previous investors including Coinbase.

Official website: https://anoma.network/

Related reading: 《Analyzing Anoma: A privacy payment platform for bartering》

2. Privacy Computing Protocols

Privacy computing protocols primarily protect privacy throughout the stages of data generation, collection, storage, analysis, utilization, and destruction. In addition to common scenarios such as DeFi and NFTs, they also plan to deeply integrate with the big data and AI industries.

Compared to other forms of privacy projects, privacy computing protocols are a more foundational infrastructure. Specific transaction information (such as types and quantities of cryptocurrencies) can often be publicly viewed through block explorers, but they emphasize the privacy of user data usage. Current major privacy technologies include Zero-Knowledge Proofs, Secure Multi-Party Computation, federated learning based on modern cryptography, and Trusted Execution Environments (TEE).

It is worth noting that privacy computing is not a product originally produced by blockchain, just as distributed storage existed before the advent of blockchain. The fundamental difference between blockchain-based privacy computing and other types of privacy computing is that the underlying technology of blockchain is decentralized, excluding Trusted Third Parties (TTP).

Currently, well-known blockchain privacy computing networks include Oasis Network, PlatON, Phala Network, ARPA, Aleph Zero, Findora, and Deeper Network.

Due to still being rarely adopted by industry projects and some technologies being immature, the actual application scenarios of privacy computing networks are also relatively limited.

PlatON

PlatON is currently a decentralized data sharing and privacy computing foundational network that connects data owners, data users, algorithm developers, and computing power providers, planning to achieve a universal artificial intelligence network through three stages: privacy computing network, AI market, and collaborative AI network. PlatON's mainnet was launched at the end of 2021.

PlatON's privacy solutions primarily target comprehensive data flow scenarios, addressing issues of data usage rights and secure usage, and support two types of privacy computing: Secure Multi-Party Computation and privacy outsourcing computation.

In the Secure Multi-Party Computation approach, data nodes use secret sharing to fragment data and distribute it to randomly selected computing nodes. Computing nodes perform privacy computing using secure multi-party computation protocols, and the results are returned to the result party via blockchain smart contracts.

In the privacy outsourcing computation approach, data nodes encrypt data using homomorphic encryption and distribute it to computing nodes for outsourced computation. Computing tasks can be decomposed based on data or models, and after computing nodes complete the tasks, they return the computation results and proofs that can verify the correctness of the computation.

In October 2020, PlatON raised $12 million, with investors including Liang Xinjun, co-founder of Fosun Group, Gao Shan Capital, and Hash Global Capital. Previous investors also included Hashkey Capital, Youbi Capital, and SNZ Capital.

Official website: https://www.platon.network/

Related articles: 《Interpreting the PlatON 2.0 white paper: How to achieve a decentralized universal AI network?》

Oasis Network

Oasis Network was founded by Professor Song Xiaodong, known as the "mother of computer security," and officially launched on November 19, 2020. It is one of the earliest blockchain networks with privacy protection features and scalability.

The privacy of Oasis Network is primarily reflected in computational privacy. Oasis separates computation, consensus, and storage, allowing computing nodes to perform parallel computations and submit results to the consensus layer.

The consensus layer verifies on-chain, and since network consensus does not require all nodes to participate, performance is significantly improved. Each computing node uses TEE (Trusted Execution Environment), ensuring that no external applications or underlying systems can access the execution code and sensitive data within the node's secure enclave.

Oasis has also designed a ParaTime that supports privacy smart contracts. In the privacy ParaTime, nodes must use TEE's secure computing technology. TEE acts as a hypothetical black box for executing smart contracts in the privacy ParaTime.

Encrypted data enters the black box along with the smart contract, where it is decrypted, processed by the smart contract, and then re-encrypted before being sent out of the TEE. This process ensures the confidentiality of the data, preventing it from being disclosed to node operators or application developers.

Personal or sensitive data, such as identification documents, social security numbers, bank statements, financial and credit records, health information, internet usage data, fitness records, and location data from IoT devices, can all be used by applications on the Oasis network while protecting privacy.

On January 12 of this year, Oasis launched its first decentralized exchange, Yuzuswap. Additionally, Oasis established a $200 million ecosystem development fund, with supporters including Binance Labs, Dragonfly Capital, and Pantera Capital.

Official website: https://oasisprotocol.org/

Related reading: 《First-class deep research report: Oasis Labs》

3. Privacy Applications

Privacy applications refer to applications built on Layer 1 or Layer 2 protocols that provide privacy protection features for users or DApps in different application scenarios, such as trading, payments, and emails.

According to incomplete statistics from Chain Catcher, privacy applications include Tornado Cash, Railgun, Ruby Protocol, Shinobi Protocol, Panther Protocol, Onion Mixer, Parami Protocol, Secretswap, Shade Protocol, Dmail, Orchid Protocol, Boring Protocol, ZKCHAOS, Cyclone Protocol, Umbra, and others.

Among them, Tornado Cash is currently the most commonly used privacy application, with many crypto users utilizing this application to anonymize their asset information.

Automata Network

Automata Network is a decentralized service protocol that provides privacy middleware for DApps, aiming to fill critical privacy gaps in the emerging Web 3.0 stack. It launched its mainnet in November last year.

The project combines TEE (Trusted Execution Environment) hardware with Oblivious RAM algorithms to create a secure space where user data cannot be viewed, altered, or accessed by third parties (including nodes in the system), providing highly private privacy services.

Automata Network is built on the Substrate framework and consists of three different layers. The first layer is the control layer, responsible for state transitions, proof verification, and coordination among Geode nodes.

The second layer is where computations occur through Geode nodes that provide a "secure space." The final service layer is prepared for developers, allowing them to build applications using Automata Network's privacy features and integrate with other applications in the field without needing to run their own Geode nodes.

Currently, Automata's products include Conveyor, XATA, Librarian, and Witness, with Conveyor addressing MEV-related issues such as front-running and sandwich attacks, while Witness is an off-chain governance solution with built-in privacy features, providing a fully decentralized voting platform with privacy across different blockchains.

In February, Binance Labs announced a strategic investment in Automata Network. In November last year, Automata also launched a $20 million ecosystem incentive program, with supporters including Alameda Research, Jump Trading, KR1, IOSG Ventures, Divergence Ventures, and GBV Capital.

Official website: https://www.ata.network/

Related articles: 《IOSG explains Automata: Cross-chain application aggregator + high-performance privacy middleware》

Tornado Cash

Tornado Cash is a privacy trading application implemented on Ethereum based on Zero-Knowledge Proofs and is currently the most popular privacy application on Ethereum. It uses zk-SNARK technology to send ETH and ERC20 tokens (currently supporting DAI, cDAI, USDC, USDT, WBTC) to any address in an untraceable manner.

In practical use, users first deposit cryptocurrency into a privacy pool and receive a deposit receipt, which they can later use to withdraw the previously deposited cryptocurrency to any address.

Since the data involved in the generation and use of the deposit receipt does not contain the receipt itself, it ensures that the deposit and withdrawal transactions are completely independent. Additionally, due to the existence of relay services, the Ethereum address used for withdrawal does not even need to have ETH to pay transaction fees, allowing withdrawals to completely blank addresses.

According to Dune Analytics, Tornado Cash has accumulated ETH deposits reaching 2.59 million, with approximately 42,000 user addresses, and the current ETH deposit amount is about 160,000, valued at approximately $470 million.

Official website: https://tornado.cash/

Related reading: 《Why is Tornado Cash considered a paradise for privacy trading?》

4. Privacy Coins

Privacy coins refer to cryptocurrencies that natively support privacy, where external parties cannot view specific transaction types, amounts, and other information between the trading parties. They typically do not support smart contracts and related applications, with relevant projects emerging as early as 2014.

According to incomplete statistics from Chain Catcher, well-known privacy coins include Monero, Zcash, DASH, Horizen, MobileCoin, BEAM, and Grin.

Currently, the overall development status of privacy coins is average, with user numbers and transaction volumes significantly lower than those of smart contract platforms and DeFi projects.

Zcash

Zcash was born on November 9, 2011, with the full name Zero Cash, abbreviated as ZEC, commonly known as "big zero coin." Most of Zcash's code is extremely similar to Bitcoin, with a total supply of 21 million coins, but it further improves upon Bitcoin's anonymity features.

Zcash is the first blockchain system to use the zk-SNARK zero-knowledge proof mechanism, aiming to completely solve the problem of transactions being tracked, which exposes user privacy. As a fork of Bitcoin, Zcash allows for private transactions between parties, providing stronger guarantees for user privacy.

The difference is that Zcash transactions automatically hide the sender, receiver, and amount of all transactions on the blockchain. Only those with a viewing key can see the transaction content. Users have complete control, allowing them to choose whether to provide viewing keys to others.

Currently, Zcash transactions are divided into two categories: transparent addresses (starting with "t") and hidden addresses (starting with "z"). If users wish to verify the details of a hidden address, they must share a special access key with the relevant parties. Users can also "selectively disclose," which includes an encrypted memo field that allows institutions to securely attach sensitive data to transactions, making this information visible only to authorized parties.

Next, Zcash plans to transition to Proof of Stake (PoS) within three years and will launch a commercial wallet on the PoS interoperable Zcash protocol.

Official website: https://z.cash/

MobileCoin

MobileCoin is a cryptocurrency designed for everyday transactions, where no one can see the transaction details except for the sender and receiver. The network launched on December 7, 2020, with Moxie Marlinspike, the founder of the encrypted messaging app Signal, as one of its earliest technical advisors.

MobileCoin uses a "joint Byzantine agreement" consensus mechanism, where different validators decide which other validators they trust. Consensus can only be reached when a sufficient overlap of trusted validators occurs. This consensus mechanism consumes less manpower and energy while ensuring transaction speed and privacy.

MobileCoin is currently integrated with two major messaging applications, Signal and Mixin Messenger. In April last year, MobileCoin tested its payment functionality for Signal users in the UK.

In August last year, MobileCoin announced the completion of a $66 million Series B financing round at a valuation of $1.066 billion, with participation from Alameda Research and Coinbase Ventures.

Official website: https://mobilecoin.com/

Related reading: 《MobileCoin completes $66 million Series B financing, integrated with Signal and Mixin Messenger》

Monero

Monero, also known as XMR, is a cryptocurrency that emphasizes privacy, founded in 2014. Monero provides privacy transaction services through unlinkability, untraceability, and confidential transaction amounts.

When users send assets to other users, the transactions are "unlinkable," and the recipient or anyone else cannot determine who the sender is based on the information in the blockchain. Unlinkability is achieved through stealth addresses.

Stealth addresses require the sender to create a random one-time address for each transaction on behalf of the recipient. This means that two transactions sent to the same recipient will not be linked to the same recipient. It also means that only the sender and recipient know which addresses are involved in the transaction.

Since the sender can monitor the activity of specific stealth addresses to see the recipient's subsequent transaction activities, unlinkability alone is insufficient to protect privacy. Transactions between parties must also be difficult to trace. To achieve this, Monero uses ring signature technology to mix transactions.

The Monero network first mixes the public keys of signers with another public key and then signs the message, making it impossible for outsiders to distinguish which public key in the set corresponds to the actual signer. To avoid revealing who the initiator is, a ring is typically formed by signing by all parties, with no specific order, making it unclear who the initiator is.

Official website: https://www.getmonero.org/

5. Conclusion

In recent years, there have been multiple reports that the Web3 privacy track is about to explode, but currently, the privacy track remains a niche market, with low user numbers and usage rates. Many even believe that privacy is a false proposition.

However, there are also many viewpoints that privacy solutions have strong appeal for attracting more institutional capital to participate in the crypto ecosystem, ensuring that important financial data and business secrets are not leaked, making them an important infrastructure for the next wave of crypto ecosystem growth.

From the significant influx of developers and capital, it appears that the privacy track still has ample time and funding. Currently, most privacy infrastructure and applications are still in development and construction. Whether they can form strong competition against general smart contract platforms and win more users in the future across widely used data scenarios remains a point of interest and observation.

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