‘Privacy is a building block’

Web3 has a “fundamental” privacy problem that needs to be solved before it can gain mass adoption, says Shahaf Bar-Geffen, CEO of confidential computing platform COTI. Declutter.

While blockchain proponents have long celebrated the technology’s transparency, that feature is also a bug, Bar-Geffen said.

“People confuse transparency with a lack of privacy,” he said, adding: “If 100% transparency is such a great idea, why have a shower curtain?”

He explained that “any data transmitted on a public blockchain becomes public by definition.” This ranges from crypto transactions (link a pseudo-anonymous wallet address to a real-world identity, and you have a complete overview of that person’s financial history) to the essential data that applications depend on.

“What it means is we can’t store data on a public blockchain, anything sensitive or commercially important or anything like that,” he said. “Because as soon as data is supposed to be useful, it comes to light.” While you can encrypt data and put it on a public blockchain, as soon as you decrypt it to use it it becomes “immediately public domain.”

Privacy for dapps

That makes privacy an essential feature for decentralized applications (dapps), said Bar-Geffen. “The reality is that it’s not just a good idea to have privacy,” he said. “It’s also the law, and it’s a huge problem we need to solve if we believe Web3 is the future.”

A number of privacy projects have emerged with different solutions to the problem; some use trusted execution environments (TEEs), others use fully homomorphic encryption (FHE). These methods come with compromises, Bar-Geffen said; hardware solutions have a central point of failure at the manufacturer, while the cost and latency associated with FHE “just makes the whole thing unusable again.”

Instead, COTI uses a different technology: garbled circuits. “It does the same thing as homomorphic encryption in that you can use encrypted data without having to decipher it,” says Bar-Geffen, but cryptography is used in such a way that it can do this “more than a thousand times faster and faster.” .” 250 times lighter than FHE.”

The technology enables a range of applications that were not previously possible. “Just as any dapp is better if it is scalable, the same goes for privacy and selective disclosure,” Bar-Geffen said. “Any dapp is better if some transactions or some data can be kept private.”

He pointed to potential early wins in sectors such as decentralized finance (DeFi), where public blockchains enable front-running of transactions. “Suppose you are an institute and you have your own trading or systems, then not everyone can know that,” says Bar-Geffen.

Real-world assets (RWAs) are another possibility, he said. “The fiduciary duty of institutions using real assets is to maintain the privacy of their transactions – what they hold, customer data, etc.,” he said. “That is mandatory. That’s not even just a good idea; again, it is the law.”

COTI is also working with the Central Bank of Israel on the Central Bank Digital Currency (CBDC), under the Digital Shekel Challenge, he said, adding that “governments understand the importance of keeping transactions private in nature.” to have.” He pointed to decentralized identity solutions and AI as other areas where data privacy is an essential part of the toolkit. “Show me the dapp, and I’ll show you why it’s better to keep some of it private,” he said.

Privacy versus anonymity

At the same time, decentralized privacy technology has come under increasing scrutiny from governments and law enforcement, with a crackdown on services like coin mixers that some in the crypto space are calling a “war on privacy.”

Bar-Geffen is keen to distinguish between privacy and anonymity, pointing out that coin mixer users are unable to prove to themselves that the transactions they made were legal, compared to confidential transactions that try to strike a balance between privacy and control.

“It’s a matter of design and how you build things,” he said. “We haven’t built a solution that is all or nothing, completely anonymous and untraceable,” he added, explaining that it offers “selective disclosure,” allowing users to “control what you disclose to whom, and it means you can enforce the law at any time.”

COTI has also joined other decentralized confidential computing (DeCC) projects in the DeCC Alliance, an advocacy group that aims to raise awareness about the technology and explain the distinction between the transactional privacy offered by coins such as Monero and Zcash, and services that make use of smart contracts with encrypted data in the chain.

“Privacy is the new story, but it is more than that: it is a meta-story, in the same sense as scalability,” said Bar-Geffen. “By that I mean that it should be seen as a building block, a column on which we can build other things, because it affects every sector and every industry. This is fundamental, and that’s why I think it’s so important.”