March 24, 2022
Table of Contents
- Let’s Talk About Privacy
- What Is Secret Network and How Does It Work?
- The Use-Cases for Secret Network
- Road to Wider Adoption
- Final Thoughts
I remember years ago when Bitcoin was frequently described as an anonymous or private peer-to-peer currency network during the last market cycle. Now however, with growing awareness of how Bitcoin and other open-by-default networks work, we know that ‘pseudonymous’ would be the accurate term, whereby even that pseudonymity itself is becoming difficult to maintain.
The openness of leading blockchain networks such as Bitcoin and Ethereum is a double-edged sword. While certain use-cases are indeed perfectly suited to be recorded on a completely transparent ledger (say, a platform for recording the issuance and trading of carbon credits), other common applications such as our day-to-day transactions, storage of funds, and use of Web3 dApps are not.
While many projects have tried to tackle the subject of on-chain privacy, an optimal solution has yet to emerge. We take a look at Secret Network, which is a privacy-oriented proof-of-stake blockchain that supports private smart contracts. It provides computational or programmable privacy, in contrast to the simple transactional privacy afforded by privacy coins such as ZCash and Monero.
Let’s dive in.
First, Let’s Talk About Privacy
It’s no longer conspiratorial to think that all your movements are being watched, tracked, and analyzed online. It has been revealed that personal information is being collected by data monopolies and governments to profile users, predict our behavior, to make social media apps as addictive as possible, or to design perfect targeted ads in order to keep netizens on the endless wheel of consumption (which by the way, is wrecking our planet as well as our wallets).
These are realities that are all too common in the Web2 world. But if Web3 is completely open by default, could this not make things even worse?
Blockchain analytics companies such as Chainalysis and CiperTrace are getting more advanced, and while this is good for the detection of fraud and criminal activity, it would be dystopian if such capabilities are abused by government or corporate entities to further perpetuate mass surveillance for control / profit at the expense of public interests.
PII (personal identifiable information) can be linked to addresses linked to users’ KYC’ed fiat on and off-ramps, and public NFTs such as PFPs or ENS addresses associated with doxxed owners, to provide just a few examples. The digital trail is incredibly difficult to break. For the average user who also values convenience in their daily usage where privacy is at most times not a concern, the tradeoff of convenience for privacy is often deemed not worthwhile.
While supplementary, opt-in channels to enable private transactions exist, these methods are not without their shortcomings and limitations. Privacy coins like Monero have faced enormous regulatory backlash, facing delistings from many of the top centralized exchanges. The use of mixers like TornadoCash is also often problematic due to liquidity issues which can limit the degree of privacy provided, as well as its association with criminal activity (while not yet the case with TornadoCash, many exchanges have previously blacklisted transactions linked to Bitcoin mixers). Additionally, the privacy provided by these techniques do not extend to the application layer — which is where a foundational part of Web3 is being built upon.
Proponents of crypto, blockchain, and Web3 often envision a future in which most, if not all, of the digital aspects of our lives are embedded with such technologies; finance, healthcare, insurance, digital identification, and housing — to name just a few. But a sober analysis will inform us that such applications, which have to do with the storage and handling of sensitive data, cannot and should not be on a transparent and immutable ledger.
An ideal middleground could be a privacy-by-default model, with access controls given to every individual user should they want or need to disclose information to trusted third parties (e.g. healthcare providers, law enforcement or tax authorities) — which is what Secret Network offers.
What is Secret Network and How Does It Work?
Secret Network is a proof-of-stake Layer 1 blockchain which promises to bring together Ethereum’s programmability and Monero’s privacy. Built with the Tendermint & Cosmos SDK framework, Secret Network also promises interoperability with other IBC-enabled chains in the Cosmos ecosystem.
Secret Network is the first blockchain to feature Rust-based privacy-by-default smart contracts, with its mainnet live since September 2020. This means that typical Web3 applications we see on other networks can be deployed similarly, but with privacy features and guarantees baked in.
Secret Network enables the implementation of private dApps via the use of ‘secret contracts’ where encrypted data is processed within ‘trusted execution environments’ (TEEs). TEEs are protected areas in hardware where code can be run securely in isolation. TEEs of the Secret Network are enabled by Intel Software Guard Extensions (SGX) chips. As such, it is a requirement that validators run nodes with Intel SGX chips, and nodes can only join the network through a permissionless and remote attestation process.
On Secret Network, users send encrypted input to the network, where validators then perform computations over this data in a TEE. It is only in this TEE where submitted data is decrypted, and the requested code functions are executed. No party can view data within a TEE, not even the validators themselves. The block-proposing validator then submits the encrypted output, and once consensus amongst all validators is achieved, the encrypted outputs are recorded on the Secret Network blockchain.
Importantly though, the underlying ledger of Secret Network is publicly visible. Its native currency, $SCRT, is not a privacy coin, which is a common misconception. All transactions of $SCRT are publicly viewable on the block explorer just like on Ethereum. This also means that the code of any secret contract is publicly viewable on-chain, which ensures that all parties can verify what computations will be performed on the encrypted data submitted by a user.
The private aspect of the Secret Network lies in its native secret tokens minted via its secret contracts. Secret Network uses their own native token standards, e.g. SNIP-20 and SNIP-721 (based loosely on ERC-20 / ERC-721 tokens on Ethereum) which are privacy-preserving by default. Tokens from other chains can be wrapped into their secret SNIP-20 versions (secret USDT, secret ETH, secret Wrapped BTC, etc.). Thus, the account balances, transactions, and transaction amounts of secret tokens are not viewable to anyone except the holder of the viewing key or permit.
Viewing keys and permits act as ‘passwords’ that can be generated by users to view their own balances / transactions, which can be shared to third parties for disclosure purposes.
Another key distinction here is also that this privacy is programmable. Developers can deploy apps that are private-by-default, but have the ability to modularly adjust privacy settings if some information is required to be public. For instance, the SecretSwap DEX on Secret Network has all past and pending transactions encrypted. However, the price of the tokens traded on SecretSwap is made to be publicly viewable as to enable trading. This is in contrast to DEXs on open blockchains such as Ethereum, where all information is public by default with no option to retroactively conceal transactions for privacy.
The Use-Cases for Secret Network
So, what applications and use-cases are enabled by private-by-default blockchains like Secret Network, that would not be possible otherwise?
Here’s an excerpt from the Secret Network “graypaper”:
“The use cases of Secret Network will conceivably impact every domain impacted by blockchain. Healthcare, finance, banking, governance, communications, media, supply-chain, voting, identity-fraud, key-access control, exchanges, IoT & mesh networks, forecasting and data set analytics, music and entertainment, real-estate, insurance, wills and inheritance, charity, credit histories, crowdfunding, publishing, gaming, gambling, and messaging.”
For now though, let’s take a look at some current applications and potential use-cases of the Secret Network in regards to DeFi, NFTs, and well, everything else.
Secret Finance, or “SeFi”
We wouldn’t want to publicly have our bank details, all its transactions, and its balance publicly available for all to see. Why is this suddenly okay in most of crypto today? At the most basic level, encrypted DeFi enables users to keep basic financial information and transaction history private. This can be to maintain personal privacy, prevent targeted attacks, and disable front-running or other forms of MEV (miner/maximal extractable value) which disadvantages regular DeFi users.
MEV strategies, typically implemented by ‘searchers’, miners, or full node operators are ever-present on open blockchains such as Ethereum. As a result, DeFi traders have adopted a range of strategies to avoid being front-runned or targeted by MEV strategies such as avoiding low liquidity pools, setting low slippage tolerance, overpaying on gas or placing smaller orders. There are even protocols on Ethereum such as COWSwap, whose service is to provide MEV-protected trades. SeFi would do away with all that, as DeFi applications built atop a platform like Secret Network will be MEV resistant due to the encrypted state of the application layer.
There are currently several DeFi apps live on Secret Network, such as SecretSwap and SiennaSwap, which allow users to perform typical DeFi activities such as token swaps and providing liquidity in exchange for rewards. Other common DeFi applications such as money markets and algorithmic stablecoins are also in development. There are also other types of simple financial privacy dApps you won’t be able to find on other blockchains:
- BlackBox — a project offering tools such as ‘Cloak’ to anonymously seed new wallets, and ‘DeadDrop’ which enables the use of aliases (instead of your public address) to receive payments
- Secret Auctions — a platform for sealed-bid auctions
- Secret Invoice — a dApp for users and businesses to send, receive, and request recordable payments on a regular basis
These private financial dApps add another layer of privacy and functionality on top of what’s already provided by default on the network.
Secret NFTs
Secret NFTs have the same functionalities as public NFTs, with the addition of a few important aspects — private ownership, private metadata, as well as access controls. Private metadata and access control features allow for the implementation of paywalls, hidden, and unlockable content. There are many reasons why artists or content creators may not want to dilute the value of their work by making it publicly available to all. Think of equivalent Web2 features, applications, and platforms that allow for restricted or unlockable content — Youtube Premium, Patreon, or OnlyFans.
While the “right click savers” will probably never understand NFTs if they don’t appreciate the value of verifiable ownership of virtual assets, it still remains a valid argument and concern from artists that having any work immediately / forever public to all presents a major challenge in monetization. Imitations and outright theft of intellectual property are already rife in the physical world. The permissionless and unregulated nature of the NFT space further exacerbates this — allowing anyone on the internet to steal artwork, mint them as NFTs, and sell them to unwitting consumers. While the stealing and minting of high-profile collections probably hurts uninformed buyers more than the original creators, smaller artists who have work illegitimately circulated will probably have their bottom line impacted. With Secret NFTs, artists could choose to only make public a watermarked or partial copy of their art, and only allow full access to those who own the NFT.
Private ownership may also be an extremely attractive feature for the true connoisseurs and collectors of bluechip NFTs. Secret NFTs give the ability for owners to selectively allow viewership to maintain exclusivity, as well as decouple wallet balances / transactions from NFTs they choose to make their ownership public. This feature could be a game-changer for privacy and security, given the lengths to which some collectors go to avoid being doxxed online or the numerous targeted attacks on individuals publicly known to own high-value assets.
These privacy features were what led to director Quentin Tarantino choosing to mint an exclusive 7-piece collection of never-before-revealed original scripts and accompanying audio commentary of iconic Pulp Fiction scenes on Secret Network, enabling him to selectively reveal a 20-year-old secret to only a few of his cult fanbase. Recently, he auctioned off the first of the collection, “Royale With Cheese” for $1.1 million.
Secret NFTs could also find exciting use-cases for blockchain gaming. Think mystery loot boxes or in-game items with hidden stats or abilities included in the private metadata of NFTs. Aside from that, in the future one can easily imagine these same functionalities being used to deploy dApps that deal with sensitive information such as healthcare records, personal identification documents and more.
Other Use Cases to Watch Out For
As aforementioned, a smart contract platform with programmable privacy could impact any blockchain use case. Another example of this is secret on-chain governance, where users can create proposals and vote privately. Secret voting can be important for preserving the integrity of governance processes, by preventing various ways of influencing voters via intimidation or bribes.
Currently, there are also other dApps with various functionalities live or in development. This includes Alter, a private and secure communications / productivity dApp, and Jackal, a decentralized cloud-storage solution. A number of other applications, such as data marketplaces, machine learning, launchpads, DAOs, and oracles are also suggested as Secret Network grant application ideas.
Road to Wider Adoption
As the core team of Secret Network are strong believers in a multi-chain world, they are priming Secret Network to be the go-to privacy hub of the Cosmos ecosystem and beyond. Built with Tendermint BFT and the Cosmos SDK, Secret Network is interoperable with other IBC-enabled blockchains such as Terra and Osmosis. It also currently has bridges to Ethereum, BNB Smart Chain, Monero, and soon to the Polkadot ecosystem via Astar Network.
As part of its “Shockwave” growth phase announced in January 2022, the Secret Network team has some ambitious plans for H1 2022 focussed on adoption and community growth — 100 new projects building in the ecosystem, onboarding hundreds of thousands of new users, and achieving 10,000+ active users on multiple Secret Apps. To achieve this, the Secret team have set their eyes on two areas — onboarding developers via various incentives like grants and hackathons, as well as expanding the community of users and supporters of the network through education materials, grants for community events, and their “Secret Agent” ambassador programme.
With Secret Network’s ambitious roadmap, some challenges along the way are inevitable.
A little hurdle to adoption is that there is a small learning curve to overcome when interacting with Secret Network. Bridging and wrapping tokens to their secret equivalents, generating viewing keys and permits, or simply appreciating the concealed account balances and transactions are probably things which are more attuned to the crypto-native. Security features often come with UX challenges, and Secret Network is no different. With the already thriving ecosystems of other public chains available, users currently have to really prioritize privacy enough to want to move over to Secret Network; enough to forgo the wider range of dApps in more developed ecosystems and familiarity with whichever chain they’re native to. Though, with the generous ecosystem funding received, this may change in the near future in terms of dApp diversity.
The Secret ecosystem to date is nascent, with a dozen or so dApps listed on their website, a couple of which are not live yet. Currently SeFi also does not have a tonne of liquidity, and is not as usable for individuals who wish to trade with much larger sums. There are however already a number of funded grants in the pipeline for projects such as prediction markets and liquid staking services. As previously mentioned, they also have a list of applications in which they are encouraging developers to apply grants for, spanning DeFi, data marketplaces, oracles, and DAOs, which shows that the breadth of applications possible are on par with any other Layer 1 blockchain out there.
Closely following their Shockwave announcement was a $400m ecosystem fund backed by the likes of DeFiance Capital and Alameda Research, so we may just see a new wave of dApps launching on Secret Network in the months to come which may spur more users. Nevertheless, the Secret Network team and community have a lot of work to do in regards to educating the public (and crypto community) and shifting behaviors and values on privacy and cybersecurity.
Another challenge for Secret Network is facing competition. There are projects with similar tech and value propositions such as Oasis Network and Phala Network. A future competitor may also be privacy protocols utilizing zero-knowledge proof technologies. Zero-knowledge proofs are a method in which one party can prove to another that a given piece of information is true, without ever revealing any other details about that information itself. There are several Ethereum layer 2’s such as ZkSync, Aztec, and StarkNet which currently have limited functionality, but are very promising. As Ethereum is moving in the direction of being roll-up centric, these solutions when deployed at scale could capture users from the chain with the widest network effects.
Proponents of zk-technologies often argue that ensuring privacy based on pure math and cryptography is more secure than with hardware solutions such as Intel’s SGX chips. Critics question the dependence on TEEs enabled by hardware made by centralized companies like Intel, and that hardware can be compromised and perhaps retroactively attacked in future.
It’s worth noting however that this concern on hardware has been addressed by the Secret Network team — who respond that the security design combining both hardware and software components was deliberate as they believe it is the best current available option to enable generalizable private computations at scale, and will continue to stay updated on privacy technologies and make iterations to the network when necessary.
Final Thoughts
It would be darkly ironic that blockchain and cryptocurrency, the tech championed by cypherpunks to empower privacy and sovereignty, becomes the same tech used by malicious entities or some government / corporate overlord to seize even more control over the population. With the numerous exposés of data mishandling and breaches from data monopolies, and increasing awareness of how corporations and governments collect and utilize our data in ways to manipulate our behavior, the case for privacy-preserving blockchains is self-evident.
Privacy is an imperative, both for and if we attain mass adoption of crypto technologies. In the case where awareness of online privacy increases amongst the general population, we need a privacy-centric Web3 in order to achieve widespread acceptance. However, in the dystopian scenario where we attain mass adoption without privacy (which is a possible trajectory, if our rights to privacy are not defended), this opens users to unprecedented vectors of attack by black-hat entities.
The need for privacy in Web3 cannot be understated, whether it takes the form of Secret Network or any other solution. Many netizens are complacent when it comes to online privacy and cybersecurity, and while this shouldn’t be encouraged, users should not have to be on high alert every time they venture into the web.
Widespread adoption is of particular importance in privacy chains, as each extra user and bit of value locked in the ecosystem would deepen the anonymity set and lead to increasing privacy network effects. As such, Secret Network has lots of work in regards to education and spurring adoption, given the UX challenges present as a result of security features.
Though privacy-preserving blockchains in their current form may not have ecosystems as extensive as other public chains, it is up to every individual in the crypto community to uphold the values that we advocate for. So perhaps, the next time you have some time to spare, go check out and experiment with all the privacy solutions available like the Secret ecosystem for yourself! You can start exploring the network by first installing Keplr, the web wallet of the Cosmos Hub.
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