After scalability, privacy is the next big thing in the blockchain space

Public blockchains provide decentralization and transparency, but they lack on the privacy side. The anonymity of transactions on blockchains like Bitcoin (BTC) and Ethereum (ETH) is steadily losing ground, as transactions and addresses are easily tracked. With KYC imposed on most crypto exchanges, the majority of blockchain transactions can be traced to their initiators, exposing user activity, holdings, and financial data.

Even decentralized finance (DeFi) interactions can be easily monitored by advanced on-chain analysis systems. This is why privacy is just as important as speed and scalability for crypto to reach mainstream acceptance. Average consumers expect at least bank account level privacy to freely transact and RAILGUN is a ZK (Zero-Knowledge) based solution for existing blockchains that provides such wallet-level privacy.

The utility of digital assets comes with major downsides amid a lack of privacy. What happens when a crypto user pays for a coffee in crypto? They risk revealing their holdings, income and shopping preferences to merchants, peers and anyone who wants to extract value from their data. And taking it a step further, how many people would be comfortable receiving their salaries in crypto if it meant broadcasting all their financial information to the world? The necessity for increased privacy in the crypto space is essential to mainstream adoption.

Privacy gains more attention across the blockchain community

Privacy is an important goal for public blockchains, especially Ethereum, which accounts for about two-thirds of all DeFi activity. The need for privacy on Ethereum has increased after the adoption of the widespread adoption of layer-2 solutions like Arbitrum.

In January 2023, Ethereum co-founder Vitalik Buterin admitted the need for improved privacy on the blockchain. He proposed a “stealth address system” to increase the privacy degree of Ethereum transactions. Stealth addresses would be generated by wallets and would represent obfuscated public key addresses to receive funds in a private environment. Access to stealth addresses would require a special code referred to as a “spending key.” This would enable two parties to transact without being visible to the public. However, stealth addresses are an incomplete solution as they don’t account for full DeFi functionality.

It’s still too early to know when Ethereum will implement privacy features and to what extent, but the good news is that there are solutions that can already achieve a high degree of privacy. RAILGUN is a smart contract system that provides crypto and DeFi users with privacy through zero-knowledge proof (zk-SNARK) technology.

RAILGUN is currently among the leading complete privacy solutions for the DeFi space, as it generates zk-SNARK encryption entirely within a smart contract. That enables users to store their funds anonymously and interact with decentralized applications (DApps) in an anonymous, noncustodial manner.

Source: Railgun

RAILGUN, which is governed by a decentralized autonomous organization (DAO), employs zk-SNARKs to encrypt transaction details, wallet balances and transaction history. Unlike other third-party, Layer-2 privacy solutions, RAILGUN works directly on-chain, enabling users to transfer, swap, lend, borrow and transact with all kinds of DApps anonymously.

On top of that, the RAILGUN smart contracts can be plugged into any Ethereum Virtual Machine DApp for shielded transactions using the RAILGUN Connect dev toolkit.

Recently, RAILGUN was deployed to Arbitrum — a layer-2 rollup technology for Ethereum, bringing privacy combined with speed and high throughput to the second-largest decentralized network. RAILGUN’s co-founder Alan Scott stated:

“The Arbitrum deployment of RAILGUN is a massive accomplishment for privacy in DeFi. Arbitrum’s scaling and RAILGUN’s zk-SNARK-based privacy together are an exciting match. I’m looking forward to seeing how DeFi builders will use RAILGUN’s infrastructure to create interesting and new privacy-preserving DeFi solutions on Arbitrum.”

Besides working on Ethereum and Arbitrum, RAILGUN enables on-chain privacy for BSC and Polygon. What’s more, contributors are working on adding support for Solana, Near and Metis as well.

Developers and users are starting to pay more attention to privacy as blockchain adoption expands across multiple use cases. Therefore, if developers can crack the puzzle, privacy is poised to become one of the most important trends in blockchain in the coming years.

Material is provided in partnership with RAILGUN

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