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 such as 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 back to the originators, revealing user activity, holdings and financial data.

Even decentralized finance interactions (DeFi) can be easily monitored by advanced on-chain analytics systems. This is why privacy is as important as speed and scalability for crypto to achieve mainstream acceptance. Average consumers expect at least bank account-level privacy to trade freely, 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 drawbacks 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 salary in crypto if it meant broadcasting all their financial information to the world? The need for increased privacy in the crypto space is critical to mainstream adoption.

Privacy is gaining more attention in the blockchain community

Privacy is a key goal for public blockchains, especially Ethereum, which accounts for roughly two-thirds of all DeFi activity. The need for privacy on Ethereum has increased following the introduction of the widespread use of layer-2 solutions such as 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 of Ethereum transactions. Stealth addresses will be generated by wallets and will represent hidden public key addresses to receive funds in a private environment. Access to stealth addresses will require a special code referred to as a “spend key”. This will enable two parties to act without being visible to the public. However, stealth addresses are an incomplete solution as they do not account for full DeFi functionality.

It is 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 secure (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. It enables users to store their money anonymously and interact with decentralized applications (DApps) in an anonymous, non-custodial way.

Source: Railgun

RAILGUN, which is governed by a Decentralized Autonomous Organization (DAO), uses zk-SNARKs to encrypt transaction details, wallet balance and transaction history. Unlike other third-party, Layer-2 privacy solutions, RAILGUN works directly on-chain, allowing users to transfer, exchange, lend, borrow and trade with all types of DApps anonymously.

On top of that, 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, which brings privacy combined with speed and high throughput to the second largest decentralized network. RAILGUN co-founder Alan Scott stated:

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

In addition to working with Ethereum and Arbitrum, RAILGUN enables on-chain privacy for BSC and Polygon. Also, contributors are working on adding support for Solana, Near, and Metis as well.

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